Financial Management in Healthcare Organizations: Roles & Functions

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  • 0:34 Financial Management Functions
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Lesson Transcript
Instructor: Ann Kearney

Annie has a Doctorate in Health Education and Promotion. She has taught a variety of levels and has lectured at the University level in both the USA and the UK.

In this lesson, you'll learn the role of financial management in healthcare organizations. We'll also cover the primary functions of the financial management team in a healthcare setting.

Healthcare Financial Management

Have you ever wondered how hospitals pay for all their equipment? Or how your hospital bills are processed? Healthcare organizations operate like any business and rely on strong financial management.

The primary role of financial management in healthcare organizations is to manage money and risk in a way that helps to achieve the financial goals of the organization. When a healthcare organization has strong and organized financial management plans, they're able to provide efficient healthcare to all their patients.

Financial Management Functions

The basic activities involved in financial management in healthcare organizations include evaluation and planning, long-term investment decisions, financing decisions, working capital management, contract management, and financial risk management. We'll cover these in greater detail now.

1. Evaluation and Planning

Financial management involves evaluating the financial effectiveness and overall operations of the healthcare organization. This allows the healthcare organization to plan for the future. For example, let's say that a hospital evaluates emergency room revenue and discovers that they're losing patients to a neighboring hospital with more space. In response to this, they may decide to plan for an expansion of their emergency room.

2. Long-Term Investment Decisions

The financial team has a hierarchy, but in general, input is taken from all the managers at all levels when it comes to big investments in the business. Long-term investment decisions involve analyzing implementation strategies and determining how the investment might affect the financial future - for the better or for the worse. Taking the example we looked at before, the financial team at the hospital would look at the cost of an emergency room expansion and potential revenue increases and decide if it would be a good investment.

3. Financing

The financial team must also raise funds for expenditures. This might involve things like fundraising, grants, loans, or using internal funds. They'll look at the cost and benefit of the investment and/or the kind of debt that they will incur. The senior manager will make the ultimate call on financing. In the case of the emergency room example, the financial management team will bring someone in to determine how much a renovation would cost as well as how long it would take. They may decide to use internal funds and then take out a small loan to cover the rest of the expenses, knowing that the long-term investment will bring them more revenue to ultimately help them pay back the loan.

4. Working Capital Management

The financial management team must manage their working capital, which is their current assets minus their liabilities. Assets might include cash, marketable securities, receivables, and inventories. Managing capital is vital to reducing costs and making sure that the organization runs effectively. In the renovation of the emergency room, for example, the team determines which assets can be reused and which assets must be purchased with working capital.

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