Financial Management of Healthcare Organizations


Today, financial management in healthcare organizations is vital for the overall running of the business (Gapenski 6-7). Specifically, the primary function of financial management in the healthcare sector is to “plan, acquire and use funds to optimize the efficiency and create value for all stakeholders” (Gapenski 6). Financial management must “assess the effectiveness of the current processes and provide a strong plan for the future” (Gapenski 6). The management processes also support long-term investment decisions in organizations such as acquisition of new equipment and execution of strategic plans. Financial management is responsible for financing decisions. That is, the financial department must determine the best sources of funds to run organizational investment plans. The department of finance also manages working capital to ensure effectiveness and cost reduction in operations. Furthermore, financial management in the healthcare sector must account for contract management by negotiating, signing, and monitoring all contracts involving managed care and third party stakeholders. Finally, financial risk management must strive to prevent potential risks in operations and transactions that could harm healthcare organizations.

In the early 1990s, some authors noted that socially amoral economic factors were the major drivers of change in the healthcare sector (Lynne Theredge and Lewin 93). These drivers included employer driven healthcare purchase; market clout and growth in healthcare plans; deteriorating providers’ prospect and bleak future; and consumers’ lack of wide choices.

Today, notable drivers in the healthcare sector have changed but still reflect the notable drivers observed more than two decades ago. For instance, reforms in the healthcare sector, notably the Obamacare and other Medicare and Medicaid funding pressure are responsible for significant changes (Rivard and Rebay 1). The chronic diseases, the increasing numbers of seniors, availability of information for consumers and robust innovation and technologies have continued to shape the healthcare sector. In addition, reimbursement has declined and federal budget deficits have driven changes in the modern healthcare sector. In addition, providers and employers have focused on forging new relations to transform the sector.

The Goals of Healthcare System

The goal of the healthcare system is to meet three critical goals of providing and financing healthcare (Feldstein 1603). First, the healthcare system should stop the deprivation of care because of individuals’ inability to meet costs. However, healthcare is not free for all. Instead, significantly huge medical bills are hindrance and barriers to healthcare provisions. Hence, health insurance should help individuals to overcome such challenges. Second, the healthcare system strives to avoid wasteful spending. That is, patients should expect much value in healthcare. The rise in healthcare spending should lead to enhanced patient outcomes, shorter hospital stay, effective treatment, and cost-effective cost of care. Third, the system should reflect patients’ preferences and respond to legitimate healthcare needs (Grosios, Gahan and Burbidge 529). Today, physicians must determine cost of care through cost-benefit analysis in order to determine the best care for patients. Thus, effective care shows both cost of care and expected outcomes. In practice, however, it is nearly impossible to meet all these goals of the system (Feldstein 1603).

Factors Affecting the Cost of Care in the Healthcare Sector

Some notable factors influencing cost of healthcare include employer cost-shifting strategies while availability of virtual care and more informed consumers have played significant roles in reducing costs of care (Association of Washington Healthcare Plans 2).

New technologies, such as remote monitoring, have helped to save costs, and they have assisted consumers to make wise decision. New regulations and increased demands for healthcare services have continued to affect costs of care. In addition, new prescription drugs, medical malpractice liabilities and cyber security issues have led to changes in costs.


Association of Washington Healthcare Plans. Rising Health Care Costs: What Factors are Driving Increases? 2004. Web.

Feldstein, Martin. “Balancing The Goals Of Health Care Provision And Financing.” Health Affairs 25.6 (2006): 1603–1611. Print.

Gapenski, Louis C. Healthcare Finance: An Introduction to Accounting and Financial Management, 5th ed. Arlington, VA: Health Administration Press, 2011. Print.

Grosios, Konstantina, Peter B. Gahan and Jane Burbidge. “Overview of healthcare in the UK.” EPMA Journal 1.4 (2010): 529–534. Print.

Lynne Theredge, Stanley B Jones and Lawrence Lewin. “What is driving health system change?” Health Affairs 15. 4 (1996): 93-104. Print.

Rivard, Chris and Karl Rebay. “The 5 Mega-Trends That Are Changing the Face of Health Care.” The Atlantic. 2012. Web.

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