December 5, 2022

Best Health Ideas

Every Health & Fitness Helps

What Financial Considerations are There Within The Healthcare Sector?

Every industry has its own set of financial problems and relies on financial management practices. This is particularly important in the healthcare sector due to the high costs associated with medical care. Efficient financial management is important in healthcare organizations, and those in leadership roles need a finance team overseeing accounting, personnel, information technology and facility operations. All this needs to be done while improving the quality of care and reducing costs. There are many serious financial considerations that are worrisome for leaders. Healthcare organizations need to use every tool and resource available to them to stay financially solvent and reduce costs. 

The healthcare industry is a growing market

As the population in the US continues to age, the healthcare industry will continue to grow. In 2020, healthcare spending in the US was 19.7% of the GDP. This trend will continue, and by 2030 there will be a growing need for medical professionals as the population continues to swell. According to Verified Market Research, the global healthcare market is set to be worth $665.37bn in 2028.

With such phenomenal growth, the healthcare industry continues to generate many career opportunities, such as home health aides, therapy assistants and health administrators. A degree such as the online master’s in health administration from Telfer can offer students lucrative job opportunities because it combines business management and healthcare to create healthcare leaders that know how to make a place for themselves in the growing healthcare industry. 

What is healthcare financial management?

Healthcare organizations face many challenges, such as growing market share, technological advances and new legislation. Health administrators must know how to address these challenges and strategize to keep the organization financially viable. Efficient financial management involves recognizing the factors that contribute to high costs and developing solutions to reduce those costs. Through strategic financial management, healthcare organizations can maintain financial operations that run smoothly, improve the quality of patient care, create revenue streams and invest in financially sound updates. 

Healthcare financial management also involves taking care of routine financial tasks such as negotiating contracts, maintaining budgets as well as ensuring that funds are available to cover all the necessary expenses. Budget planning also needs to be done so that acquisitions of personnel, equipment and supplies can be accomplished to ensure uninterrupted operations.   

Why financial management is important in the healthcare industry

The healthcare industry must deal with massive and constant pressure to reduce costs. This can lead to unforeseeable mishaps, but the stakes of such mistakes can be high in healthcare. Cutting corners might not always be a feasible solution as it may negatively impact patient care. Good financial management and planning support care quality and patient support. Several financial metrics, such as financial leverage, asset liquidity, costs, operating efficiency and hospital profitability, all influence care quality.

Broadly speaking, it has been observed that hospitals in rural areas have a lower quality of care, while non-profit hospitals are able to provide higher quality care to their patients. This is likely because of the ballooning effect. When hospitals earn higher profits, they can offer their staff higher wages and finance investments. This will attract skilled staff and improves the quality of care. Higher quality again leads to better profits, and the trend continues. This is one of the main reasons why effective financial management is so important in healthcare. Healthcare organizations that focus on reducing costs and increasing their profits will have sufficient funds available to invest in things that improve the quality of care their patients receive.  

Financial considerations in the healthcare sector

Hospital CEOs and administrators are often the most worried about the financial challenges they face during their day-to-day operations. There are several factors they need to think about and plan for to be able to provide uninterrupted care to their patients. Below are some of these important financial considerations. 

Financial flexibility and health

Large healthcare organizations have higher fixed costs. Maintaining financial flexibility is challenging. Fixed costs are only going to rise because of an expanding and aging population, higher labor costs, inflation and technological advancements. There is constant pressure to reduce costs while still being able to provide quality care to patients. Maintaining financial health and retaining some flexibility are some of the biggest concerns in healthcare organizations.   

Higher demand for outpatient care

Outpatient care is in higher demand, but the care provided in facilities generates the most revenue. Technological advances have now introduced surgeries that are minimally invasive and do not require a hospital stay. Financial incentives and patient requests have also contributed to the growth of outpatient care. While this offers patients better care and a positive experience, it can be financially challenging for healthcare organizations. Acquiring outpatient facilities can be one option, but it does require a large upfront investment. There can be problems in aligning incentives and recouping the investments may require several years. Healthcare organizations must consider the financial viability of such investments. 

Higher costs 

Without a doubt, one of the biggest financial considerations for healthcare organizations is rising costs. Increasing costs of supplies and staff is an issue faced by every single organization in the healthcare industry today. Supply chains also suffer because of looming tariffs and contribute to other issues. The medical device and pharmaceutical industries rely heavily on the ability to move products and raw materials between countries. The cost of supplies that are required for manufacturing drugs is also increasing. Keeping the profits up to be able to handle these rising costs is an important financial consideration for healthcare companies. 

Insurance reimbursement 

Receiving timely reimbursement from insurance companies is another financial challenge that healthcare organizations need to take into consideration. If hospitals take longer to receive payments from insurance companies, their finances will remain ineffective. The services they provide their patients will essentially be a loan until reimbursement is received. When large amounts of reimbursements are tied up in such a way, the operations of healthcare companies can suffer. There may be emerging procedures available to patients, but if insurance companies refuse to reimburse such procedures, it can negatively impact innovation and technological advances.      

Recovering from the pandemic

In the last few years, the COVID-19 impact has created chaos in the healthcare industry. Healthcare workers have been overburdened, there has been an influx of patients at record rates, and hospitals have struggled emotionally, logistically and financially. Organizations not only have to try to recover from the effects of the pandemic but also need to be prepared to deal with the next variant that may emerge in the future. Trying to recover from the pandemic has a lot of additional costs. Organizations need to invest to be able to forecast and deal with shortages and supply chain disruptions. They also must spend more on personal protective equipment, infrastructure, staffing and safety measures. Investments need to be made in cybersecurity and remote workforces. All these issues that were highlighted by the pandemic need to be dealt with, and this requires a lot of financial resources.   

Changing regulations 

The regulatory environment has been evolving and changing at a rapid pace. This has had a major impact on the management of healthcare facilities. The use of artificial intelligence, telemedicine and other digital tools rose during the pandemic. These innovations had their own unique challenges and required investments. Management must understand how to utilize these technologies while still complying with the changing regulations. COVID-19 restrictions and regulations related to pricing, anti-competition and IT integration have financial implications. This is something that all healthcare companies have had to deal with since the emergence of the pandemic. 

Supply chain challenges 

Another impact of the pandemic has been the huge bottlenecks that developed in the global supply chains. In every industry, production came to a standstill. Those temporary stoppages continue to impact the healthcare industry even today. Hospitals and doctors are still struggling to access pharmaceutical and medical supplies. Supply shortages resulted in organizations turning to new vendors to source supplies. Supplies were acquired at a higher cost. Manufacturing facilities are still struggling to keep up with the production of medical equipment and pharmaceutical drugs due to the shortage of raw materials. The overall costs of acquiring drugs and equipment have gone up and continue to be a major challenge for healthcare organizations. 

Increased cybersecurity costs 

With an increase in the use of telemedicine and other digital tools, cybersecurity concerns have also increased. Healthcare organizations have massive databases with sensitive information related to patient health. This makes them a top target for online crimes and data breaches. Ransomware strikes are, unfortunately, common and a serious concern. The downtime caused by these attacks costs billions of dollars to the healthcare industry. Legacy technology that is improperly configured and understaffed IT departments are the main reasons for hacking incidents. Healthcare organizations need to consider added cybersecurity costs by hiring and training cybersecurity employees, investing in robust telehealth and digital health technology, staffing IT departments and monitoring and finding solutions for threats. These are added costs that organizations need to account for. 

Labor shortages 

As healthcare providers and other staff members experience accelerated burnout, labor shortages have worsened around the world. Increased costs and labor shortages are the two top factors contributing to the reduced cash flow experienced by healthcare organizations. Due to labor shortages, there has been reduced availability of lab technicians, nurses and physicians. The nursing sector has been hit the hardest, and the nursing shortage continues to worsen with each passing month. 

The turnover rates have also been high in nursing, ICU and emergency medicine due to unprecedented burnout. The talent market is also highly competitive, and this has contributed to additional shortages. Many staff members are opting for part-time work instead of full-time. Additionally, “The Great Resignation” wave in the US has led to millions of people resigning from their jobs in preference of hybrid or remote work, offering more flexibility. The cost of talent acquisition has gone up significantly and has contributed to the increasing operating costs of hospitals. 

Benefits of healthcare financial management

Implementing robust financial management measures in healthcare organizations has many benefits across departments, benefiting the industry as well as patients. Some of the most commonly seen benefits of financial management are detailed below. 

Reporting and analysis 

Good financial management will result in the ability to track expenses effectively and analyze them. It is the best way to track the overall cost across different patient outcomes. Investing in specialized equipment and resources can also provide hospitals with the information they need to establish cost-effective and successful tactics for smarter investments in the future. Without tracking and analysis, it is impossible to create a plan to keep healthcare organizations profitable.  

Risk management

Healthcare organizations are focused on reducing risks to patients, as they should. However, it is also important to monitor and recognize other risks. Healthcare facilities may face several risks that may result in downtimes and large financial losses if they are not prevented. The medical records in a healthcare facility need to be protected to prevent hacking, misuse of funds and fraud. It is also crucial to keep certain records confidential, such as the reimbursement policies of insurers and the government. Financial management deals with monitoring risks so they can be minimized, thus avoiding financial losses.

Improved quality of patient care 

Effective financial management reduces the costs of healthcare organizations while improving revenue. This increase in profitability translates to better quality care for patients. With increased access to funds, healthcare facilities can invest in better-quality equipment, more effective treatments and staff. This has a direct impact on the quality of patient care. 

Creating additional revenue sources

As the healthcare industry continues to shift and grow, hospitals and facilities need to be aware of opportunities to invest. Good financial management strategies focus on increasing revenue sources. Hospitals need to follow the trends that are currently dominating the industry to discover new investment opportunities. Strategic investment policies can be worked upon to create revenue streams that deliver strategic advantages, align with the broader mission of the facility and are suitable for the business capacity of the facility.  

Ways to improve the financial outlook of healthcare facilities 

While there are many financial challenges faced by healthcare facilities, there are several opportunities they can take advantage of. In order to improve their finances and future outlook, healthcare organizations may focus on the opportunities discussed below.

Digital payment and communication platforms 

The world is becoming increasingly digitized. Digital communication and payment platforms are quite popular today and are widely accepted. Investing in platforms that support real-time payments can provide a huge benefit to hospitals. Due to the safety, efficiency and convenience they offer, real-time payments are being adopted by more hospitals than ever before. Similarly, electronic funds transfers are also increasingly popular. Electronic funds transfers are used by health plans to transfer funds electronically to the account of a healthcare provider to pay for their services. These platforms are beloved for the convenience and speed they offer. 

Virtual care

The emergence of the pandemic led to social distancing rules to prevent the transmission of the virus. Virtual care played an important role during this time and continues to be widely used even as the pandemic wanes. Hospitals continue to invest in telemedicine due to the various advantages it offers to patients as well as healthcare providers. Virtual care reduces costs and increases productivity and patient access.   

Financial automation

Financial automation solutions allow healthcare providers the ability to improve efficiency and reduce costs through automated payments. Healthcare organizations can also invest in automation solutions that complement their existing payment systems so they do not leave out any additional revenue or profit generation opportunities. Financial automation solutions can also help solve staff shortages through the automation of scheduling processes. This frees up staff members so they can focus on patient-facing, higher-level, complex situations instead of spending their time on mundane scheduling duties.  

Investing in emerging trends

Modern technology continues to have an impact on every aspect of our lives, including healthcare. Big data, artificial intelligence and other trends can help develop technology-based services and digital health tools for delivering preventative care. These tools can also enhance patient satisfaction and help hospitals provide better care. Another trend that healthcare organizations need to focus on is the emergence of outpatient services and the decline of in-patient facilities. Revenue growth is possible for hospital facilities if they buy out or partner with practices that are delivering these outpatient services. Demographic trends also offer additional opportunities to develop strategies, products and programs specifically designed to serve the needs of a specific population. Tracking emerging trends and investing in them is one of the best ways that healthcare organizations can remain profitable. 

Financial management plays a crucial role in the healthcare industry. Hospitals today face new financial challenges every day and financial management is not an easy task. Highly trained administrators and financial managers work to create cost-reduction and revenue-generation opportunities that improve the profitability of organizations. Their efforts also improve patient quality of care and the patient experience.