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Healthcare Finance: Definition, Function & Specialization

Instructor: Hannah Hess

Hannah has her bachelor's degree in nursing and her master's degree in nursing education. She has taught clinical for nursing students as well as worked as a staff RN on a maternity unit.

In this lesson, you will learn about healthcare finance and two sub-specialties. You will also learn how healthcare providers are involved in healthcare finance.

Joanne received a medical bill in the mail from her most recent doctor's appointment. As she was looking through the charges she was blown away by how much everything cost and was very thankful for what her insurance company had covered. Later that day Joanne had lunch with her daughter Mary who is a nurse manager at a hospital nearby. When discussing the bill with her daughter later, Joanne said, 'I just don't understand the healthcare system, everything costs so much.'

Healthcare Finance

Like Joanne, many people are confused by the healthcare system. There are many parties involved including healthcare providers, health insurance companies, pharmaceutical companies, medical equipment companies, and other educational or research-based organizations. This can make defining the term healthcare finance difficult. With that being said, healthcare finance is defined as finances within the healthcare industry, which includes an accounting specialty and a financial management specialty. Mary being a nurse manager has to understand both the healthcare industry and financial industry to be able to make decisions for her unit.

Mary had to develop and follow a budget not only for the supplies her staff needs to complete their jobs but also in hiring new employees, providing educational services, and benefits. Mary also has other employees working at the hospital who are in charge of assisting her in her role, and for making larger financial decisions for the institution and financial reporting. These employees may also be involved in making capital investments, capital budgeting, manage contracts, make financing decisions in regards to debt, and managing assets.

A term often used for these roles is the four C's, which stands for cost, cash, capital, and control. Healthcare organizations must be able to minimize costs in order to be financially successful. They also need to monitor cash on hand, businesses may be profitable but have a shortage of cash and that can still cause a crisis. Capital stands for the organization's money used to purchase land, other businesses, or medical equipment. The fourth C stands for control which signifies that organizations must have adequate control measures in place to ensure that money is being spent well on employees and physical resources are well taken care of.

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