Excellent financial management is essential to the economic welfare of the health care industry. Two aspects make the stipulation of health care services unlike any other services. First, more than half of the providers are associated with not for profit organizations. Second, health care services are paid by third party payers instead of the patients who receive the services. According to Gapinski, " financial management plays a much larger role in the overall
management of a business. Now, the primary role of financial management is
to plan for, acquire, and utilize funds (capital) to maximize the efficiency and
value of the enterprise. Because of this role, financial management is known
also as capital finance" (2012, para.26).
Commonly financial management include:
1. Evaluation and planning: This first step include evaluation of current finances and planning for the future.
2. Long-term investment decisions: In this step strategic planning is set up and investing is done for the future, such as equipment and new facilities.
3. Financing decisions: This step involves raising funds to support assets. Also, decisions need to be made if those funds will be internal or external. Also, if those funds will be equity versus debt and long of short term capital.
4. Working capital management: This step involves reducing cost with cash, receivables and marketable securities.
5. Contract management: In this step financial management must monitor and negotiate contracts with third party payers.
6. Financial risk management: This last step involves managing financial risk with transactions that takes place (Gapinski, 2012, para.27).
References:
Gapinski, L.C. (2012). Understanding healthcare financial management. Retrieved on May 3, 2015 from http://www.ache.org/pubs/chap1-3gapenski5th.pdf
Capital budgeting process is the procedure that the organizations use in order to ensure well being of the organization and to foresee where the organization is going to be in the near and far future. The most common steps in capital budgeting process are:
1. Brainstorming: In this first and most important step investment ideas are brainstormed. This ideas came come from withing organization as well from outside of organization.
2. Project analysis: The second step involves projecting the flow of the cash and organization's profitability.
3. Capital budgeting planning: In this step planning and prioritizing a project is very important. Organizations must consider and organize profitable contracts that will fit into strategic element of the organization.
4. Performance monitoring: This final step involves comparing and contrasting results to post audit. For example, if the revenues and examples are parallel with the prediction that was made (Investment101, 2012, para.2).
Capital budgeting process needs involvement of all departments in the organization. Also this process may involve outside organization people as well. Some organizations may also hire third party professionals when they do capital budgeting process.
Reference:
Investment101. (2012). Capital budgeting process. Retrieved on May 3, 2015 from http://www.myinvestment101.com/capital-budgeting/capital-budgeting-process.html
Capital budgeting are used to forecast expenses. Those expended are usually expected to provide benefits to organization during a specific time frame (Cleverley, Cleverley and Song, 2012, p.517). Health care budgeting is very crucial because of the rise in the health care cost. Without good capital budget health care industry will have cost that they will not be able to cover. According to Business and Health, capital budgeting is "analyzing investments that involve cash flows that have been paid or received over a specific period of time. The best solution for healthcare facilities is normally the one that offers the best cash flow rate over time (2012, para.2).
There are couple of ways to forecast capital budgeting in health care industry. The first way is to stay informed on current politics. Health care capital budgeting could be complicated due to the competition and good attention need to be paid when it comes to the selection of funds especially because politics can play important role when this choices are made. For example, federal and state funds depend on politics. Also, Medicare and Medicaid reimbursements depend on current politics. The second way is to monitor and watch closely employees turnover rates and find solution. Hospitals should have daycare facility for all staff. Turnover rates could be very costly for hospitals and with the day care facility a lot of qualified health care professionals could be drawn in the hospital that has day care. This solution may not necessarily increase hospital revenue, but it sure could save a lot of money to the hospital.
References:
Business and Health. (2012). Capital budgeting in the healthcare industry. Retrieved on May 3, 2015 from http://www.businessandhealth.com/capital-budgeting-in-the-healthcare-industry.html
Cleverley, W.O., Cleverley, J.O., & Song, P.H. (2012). Essentials of health care finances. (7th ed.). Sudbury, MA:Jones & Bartlett Learning.
