Aspects of Financial Management in Healthcare, Research Paper Example

There are many different aspects to financial management in healthcare. The first step to understanding financial management is to understand the terms used in financial activities. An explanation of eight different aspects of financial management follows, to include: planning, budgeting, financial reporting, capital investment decisions, financial decisions, working capital management, contract management and financial risk management. Financial management practices to be explained are accurate accounting data, forecasting costs and revenue, and budgeting for each organization’s operating budget, capital budgets, and facility budgets.

Starting with the basics, the first aspect of financial management in healthcare is planning. Financial management must start with a primary evaluation of current operations. Once the current operations have been evaluated for effectiveness, the data is present to begin to form a plan for future operations. (BookComp, Inc. , 2007) A definition of budgeting in its most general sense can be used, since the concept of budgeting is similar no matter what industry is being dealt with. This definition comes from QFinance and states, “the comparison of actual financial results with the estimated expenditures and revenues for the given time period of a budget…”. (QFinance, 2012) Budgeting aspects in healthcare include operating budgets, capital budgets, and facility budgets and these will be discussed more.

Financial reporting involves reporting every financial and monetary aspect of a company to give an accurate picture of the company’s financial position. (QFinance, 2012) Capital investment decisions are those decisions made over the act of acquiring, producing, or enhancing fixed assets. The term “fixed assets” refers to assets such as land, machinery, and buildings; things that contribute value but cannot be removed. (QFinance, 2012) Financial decisions are those decisions made concerning the monetary and liquid assets of a company. Working capital is a measurement of current assets and management deals with the day-to-day cash requirements of operation. (QFinance, 2012) Contract management is handled by the financial staff and includes negotiating, signing, and monitoring contracts with managed-care organizations and third-party payers. (BookComp, Inc. , 2007) Financial risk management refers to activities undertaken to control financial risk. (BookComp, Inc. , 2007)

Accurate accounting data is a required financial management data. Keeping accurate accounts is important for a number of reasons and involves recording additions and expenditures accurately, labeling activities correctly, tracking accurate information for the businesses and organizations exchanges occur with, and correctly performing mathematical functions. This accurate information is necessary in order to run a capital and financial budget, both long-term and on a day-to-day basis. Accurate forecasting of costs and revenues also relies on being able to reference accurate current financial and market information. The forecasting of healthcare costs and business revenues is important in long-term budget planning. Accurate forecasting ensures an organization or business’s long-term viability. This must be done not only for one’s own organization, but also for the organizations and businesses interacted with.

Operating budgets focus specifically on managing current expenses. The purpose of the operating budget is to ensure that there are funds to manage the day-to-day expenses incurred by the business or organization and those funds are handled as efficiently as possible. Examples of operating expenses for healthcare can include wages, salaries, and benefits of employees, usable medical supplies, and payments made to partnered labs and testing sites. (BookComp, Inc. , 2007) Capital budgets cover budgeting for building rental and utility expenses, land leases and property maintenance, and machine maintenance. (BookComp, Inc. , 2007)

References

BookComp, Inc. . (2007). Understanding HealthCare Financial Management Fifth Edition . Retrieved September 8, 2012, from Health Administration Press: http://www.ache.org/pubs/chap1-3gapenski5th.pdf

QFinance. (2012). Budget Management. Retrieved September 8, 2012, from QFinance The Ultimate
Financial Resource: http://www.qfinance.com/dictionary/budget-management