Managing the finances of any health care business nowadays is like driving a car with foggy windows. The industry has been changing in big ways since long before the Affordable Care Act took effect. Medicare's coding system for billing and the advent of electronic medical
Managing the finances of any health care business nowadays is like driving a car with foggy windows. The industry has been changing in big ways since long before the Affordable Care Act took effect. Medicare's coding system for billing and the advent of electronic medical records are examples of these changes. Financial management in health care requires exceptional skill.
What Financial Management Means
In any industry, financial management involves handling routine financial operations, such as negotiating contracts, making cash available for expenses such as payroll, and maintaining a cash cushion for unexpected costs. At the company's executive level, financial management means providing the other members of the leadership team with information to make strategic plans to prepare for the future. For example, health care providers, such as large physician practices and hospitals, may decide to offer expanded tests or treatments by buying new medical equipment. Helping to make the decision and finding the best way to pay for it are both part of financial management.
Meeting Different Financial Goals
Business strategies and financial management are intertwined. In 2013, hospitals were buying up neighboring physician practices. Doctors who sell their practices become employees of the hospital, and the hospital becomes a regional hospital system. That way, the hospital builds a larger and steadier payment stream: It gets money from the entire spectrum of medical care, from tests to surgery to rehabilitative services. Acquiring a practice brings in new revenues right away, so the revenue stream helps pay for the purchase, and the regional hospital system, which is much larger than the hospital alone, has more bargaining power with health-insurance companies.
Managing Treatment Costs
To a health insurer, cost-effective medicine is crucial. Insurers create lists of drugs they're willing to pay for and treatment guidelines for their contracting physicians. Insurers then use software to track individual doctors' "utilization" -- their choices of tests and treatments -- to make sure they follow the guidelines. Cost effectiveness is so important to an insurer's bottom line that developing guidelines rises to the level of financial management. The task requires significant medical know-how. The insurer wants treatments to work to avoid higher costs down the road. Doctors need to be sure that the treatments are medically sound. Otherwise, they put themselves at risk for malpractice lawsuits.
Preventing Expensive Medical Conditions
A health maintenance organization, which may have the same patients for many years, shares the goals of a public health agency: preventing expensive illnesses by keeping patients healthy. For example, HMOs want to find the best and most cost-effective screening tests for heart disease and cancer. For that, medical research is indispensable. Indeed, the nation's biggest managed-care organization, Kaiser Permanente, funds some of the nation's most influential medical research. Any health care entity that has an affiliated research group -- and many do -- adds its funding to the tasks of financial management.
Changes Bring Fresh Challenges
Financial management is an art and a science in any industry, but health care is particularly challenging because the industry changes so fast. With the Affordable Care Act, for instance, insurers have had to recalculate their plans and their premium structures. More changes are inevitable. Providers and insurers will need exceptionally skilled financial management for a good while to come.
- Photodisc/Photodisc/Getty Images