Question

Analyze the ways financial information is used in health care organizations.

Evaluate the use of the financial statement analysis as a method to address financial issues in health care.

Please be detailed.

Answer 1

Use of Financial information in Health Care Organisations:

The primary role of financial management in healthcare organisations is to manage money and risk in a way that helps to achieve the financial goals of the organisation. When a healthcare organisation has strong and organised financial management plans, they are able to provide efficient healthcare to all their patients.

The basic activities involved in financial management in healthcare organisations include evaluation and planning, long-term investment decisions, financing decisions, working capital management, contract management and financial risk management.

1. Evaluation and Planning

Financial management involves evaluating the financial effectiveness and overall operations of the healthcare organisation. This allows the healthcare organisation to plan for the future. For example, if a hospital evaluates emergency room revenue and discovers that they are losing patients to a neighbouring hospital with more space, they may decide to plan for an expansion of their emergency room.

2. Long-Term Investment Decisions

Long-term investment decisions involve analysing implementation strategies and determining how the investment might affect the financial future for the better or for the worse. Taking the example from above: the financial team 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 involves fundraising, grants, loans or using internal funds. They will 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.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.

5. Contract Management

The management team must negotiate, sign and monitor all the external organisations and third-party payers. In the case of the hospital, they must manage contracts with the ambulance companies, insurance companies and companies that provide food for the cafeteria and medical equipment. In the case of the emergency room renovation, the management team would need to oversee contracts with designers, builders and equipment and furniture vendors.