Financial Resource Management: Tips, Tricks & Tools

HealthCare Revenue Cycle 

A healthcare organization can be an excellent health service provider but without an effective financial model, it can’t continue with its operations. The quality of care provided alone cannot keep the hospital doors open and fund its operations. The health care organizations which lack a sufficient revenue flow always struggle to remain viable while those with proper revenues systems continue to thrive. This is the reason why healthcare managers need to understand the concept of healthcare revenue cycle and all the steps it entails. 

Healthcare revenue cycle is a set of all steps involved from receiving a patient to revenue collection. Some of the key healthcare revenue cycle steps include preauthorization of patient, verification of patient’s eligibility and benefits, submission of claims, and posting of payment. The first key step of the revenue cycle is the pre-authorization of the patient. According to the definition by the United States government, patient pre-authorization is when health insurer or plan confirms that the patient’s medication prescription, treatment procedure, and service is medically necessary. After pre-authorization, the HIM staff members perform eligibility and benefits verification. Thereafter, the HIM staff members can submit claims for payments. Finally, the payment is posted after the claim is successfully submitted. Health information management (HIM) staff members play key roles in the revenue cycle from submission of patient’s details for preauthorization, verifying the patient’s eligibility and benefits, and submission of claims for payments ( Bentley & Robinson, 2016 ). 

Medical Coding and Billing Process 

The medical coding and billing process is an important process in revenue cycle management. This process occurs before the claims submission. It involves the assignment of standardized codes and financial responsibility for the doctor’s visits. Accurate medical coding decreases the incidences of claims denials hence increasing revenues. The medical coding and billing process entails a comprehensive analysis of patient’s health records, scrutiny of the patient’s records for accuracy, assigning of codes in accordance with National Correct Coding Initiatives (NCCI) guidelines, and assignment of financial responsibilities. This process reduces losses resulting from claim denials hence increase revenues ( Bentley & Robinson, 2016 ). 

Operating Revenues 

Apart from tracking claims, there are other factors which affect the revenue cycle. For instance, revenues generated from the organization’s operations known as operating revenues. These may include fees for services, collections, and many others are also considered drivers of the revenue cycle. However, these are internal factors and are within the medical practice control. Operating revenues impact on the revenue cycle can always be controlled because they are driven by internal factors, as opposed to the claims tracking where the impact is unknown because revenues are controlled by the insurer ( Bentley & Robinson, 2016 ). 

Evaluation of Financial Condition of Health Care Organization 

Evaluation of health care organization’s financial condition is important in determining the financial health and status of the organization. An organization’s financial statements contain all its financial records; it is from the financial records that the condition of the institution’s financial status can be evaluated. There are important financial tools or measurements known as financial ratios which are important in evaluating the firm’s financial conditions. These financial ratios include debt ratios, cash flow ratios, operational ratios, and margin ratios. 

Profitability and Risk 

Financial ratios evaluate health care organization’s financial position ( Cojocaru, 2016 ). These ratios are useful for risk analysis and to investors. For instance, Health care organizations with a low current ratio, low liquidity ratio, and heavy long-term debt liabilities present a risky financial model. Also, the entity is able to determine the rate at which it should pay its credit suppliers and the average age of account payables by determining the accounts payable turnover ratio. The debt ratios are important for the health care organization debt analysis; firms are able to determine if the proportion of funding due to debts is healthy and if there is available cash to cover for the daily financial activities. The health care organization’s management can utilize these ratios to identify opportunities for new capital expansions as well as the reduction of debts held to improve sustainability and profits ( Cojocaru, 2016 ). 

Financial Viability of Healthcare Organization 

A financially viable healthcare organization is an organization with sustainable finances which enables it to conduct its daily operations effectively. The main indicators of a financial viability include cash flows, revenues, debt, assets, and expenditures. An entity with high-profit margins (high revenues and relatively lower expenses), positive cash flow, high working capital, and relatively low debts is considered a financially viable entity. On the other hand, a healthcare institution with low-profit margins, high debt loads, negative cash flows, and small working capitals cannot finance their daily operations and are at risk of insolvency ( Cojocaru, 2016 ). 

There is a general measurement tool for the financial viability of an organization known as financial viability index which allows for the comparison of the financial condition of one organization with that of others. 

Financial Viability Index, α =  

Where CR is the current ratio, AFL is the ratio of assets divided by liabilities, while OER is the ratio of operating expenses divided by operating revenues. This viability measurement index combines the measurement for a company’s short-term financial status, long-term debt position, and profitability measure. The resulting value is compared to the standard market value to determine the viability of the organization ( Cojocaru, 2016 ) . 

Financial Decision-Making Process 

The financial decision-making process is the process by which healthcare organization management obtain information, make a decision on the information gathered, implement the decision, and evaluate the results to obtain new information that is useful for another sequence of the decision-making process ( Cojocaru, 2016 ). Information is the basis of the financial decision-making process thus obtaining effective, timely, and accurate information is the key determinant of the effectiveness of the decision making. 

The financial decision process is very important for the organization’s financial condition. A properly designed decision can change the firm’s financial position for the good. Financial decision making is usually based on the institution’s financial information such as financial statements, financial ratios, and performance in the stock market. The information gathered will determine if the institution will make a decision or do nothing at all. For instance, a hospital with high long-term debt can make a decision to design a strategy for debt reduction. First, the management will gather all the important information required for decision making. Thereafter, a necessary debt reduction strategy is designed. The final step is the implementation of the new decision. Results are collected on the performance of the new decision which will be used for another decision making process ( Cojocaru, 2016 ). 

This process is always continuous until the hospital obtains the best strategy for debt reduction. This example highlights the importance of the decision-making process in the healthcare organization. An effective financial decision-making process can help the organization maintain a financially viable business model. The continuous information gathering process helps in identifying opportunities for improvement. Once such information is collected in a timely and accurate manner, an effective decision can be made which will impact the organization positively ( Cojocaru, 2016 ). 

Healthcare Fraud Regulations 

Fraud and corruption remain some of the biggest challenges faced by the health care industry. Health care fraud not only cost the quality of health care services offered but also the financial stability of the organization. There is a wide range of activities in the healthcare sector which are considered as fraudulent. The instigators of such incidences include patients, doctors, and other medical specialists. Some healthcare organizations also conduct fraudulent activities in order to draw more profit. Patients may be involved in activities such as evasion of medical charges, fraudulent provision of sickness certificates, and prescription fraud. Medical professions can take part in illicit acts involving payment of medical tests, consultations, prescription, and facility services. Contractors can also be involved in insurance fraud and many others. There have been massive health care losses as a result of fraud in the United States. As a result, there are certain fraud regulations which have been put in place to control health care frauds. These regulations include Stark II, Anti-Kickback Statute, and False Claim Act. 

Stark II Act 

Stark II Act is a United States statute which prohibits self-referral of a physician, precisely where the referral is made by a physician of a Medicaid patient to an institution which provides designated health services if the physician or a member of his/her immediate family has a financial relationship with that institution ( Sullivan, 2017 ). Such fraudulent activities usually result in default of payment for fee-for-service which leads to financial losses for the healthcare organization. Starke II, therefore, limits financial losses arising from fraudulent actions by physicians and medical officers. 

Anti-Kickback Statute 

Anti-kickback statue is American healthcare fraud and abuse law which prohibits the exchange of anything of value (remunerations) for referrals for services offered by Medicare ( Sullivan, 2017 ). Illicit acts by physicians like offering/ receiving remunerations are a form of corruptions which reduce financial transparency for health care providers resulting in massive financial losses. This statute controls such fraudulent activities by imposing hefty penalties on individuals found guilty of these frauds. This law has decreased frauds and improved financial transparency of the financial models of the healthcare providers. 

False Claims Act 

False Claims Act is a statue which prohibits individual or facility from submitting false claims to the federal government ( Sullivan, 2017 ). This fraudulent activity is mostly performed by health providers in order to receive higher profits. They always submit claims for services which were not rendered or for ghost patient. These activities make the entity vulnerable to hefty fines if they are detected. Such fines can cause huge losses for health providers. This regulation, therefore, helps healthcare providers operate ethically. 

Healthcare Pricing 

There has been a widespread pricing variation in the health care sector of the United States. Some of these variations are too absurd and have raised a lot of questions among practitioners, researchers, and observers. For example, there are cases where the same medical procedure is being charged differently depending on where it was performed. A study shows that the cost of performing appendectomy in California can range between $1,529 and $186,955 depending on the hospital the procedure was conducted. Also, there are instances of price variations in the hospital depending on the procedure performed. 

These fascinating variations have led to questions being asked about the key factors behind the price variation in the healthcare sector in the United States. A research study by economists John Van Reenen, Stuart Craig, Zack Cooper, and Martin Gaynor shows that patients pay varying prices for the same procedure at the same hospital ( Cooper et al., 2015 ). The paper indicates that one-fifth of all price variations in America are attributed to within-hospital price variation. According to the research, the price variation for the same procedure at the same hospital can be due to the difference in the insurers’ market clout. For instance, insurers with lots of members having a high leverage/bargaining power hence can demand lower prices. But insurers with few members do not have such leverage thus cannot bargain against the higher prices ( Cooper et al., 2015 ). 

Another factor influencing price variation in the United States is the location of the health care organization. A research study conducted by the Health Care Cost Institute analyzed medical claims from different regions. The results of the findings indicated that the price of the same procedure varied depending on the hospital it was performed ( Newman et al., 2016 ). For instance, the price of knee replacement was $24,000 in New Jersey and $47,000 in South Carolina. Some of the factors which led to these variations include the geographic cost variations such as housing, rent, and salaries. For instance in Alaska where almost everything is more expensive than other states is expected to have high prices of health services ( Newman et al., 2016 ). 

In addition, underlying market dynamics can also contribute to healthcare price variations. Such market dynamics include the availability of alternative treatments, varying market power, and lack of transparency. There are regions where some healthcare providers have attained a state of monopoly. In such areas, patients lack alternative health care providers. Such providers will have the power to increase the prices while maintaining the demand for their health services. Also, varying market power across different states can also influence the difference in prices in different locations. 

Financial and Strategic Planning 

Planning is an important process in ensuring a firm’s success and stability. Before venturing into the new business idea it is necessary to have a proper plan for the new project. The two distinct types of planning utilized by institutions are strategic and financial planning. These planning categories are distinct because they have different focuses. However, there are some relationships between these planning methods. These links between strategic planning and financial planning greatly influence how HIM managers approach the overall planning process. 

Financial Plan Development 

Financial planning is tasks of determining how the organization will manage its financial model in a manner that will allow it to achieve its strategic goals and objectives. The stage for financial planning is immediately after the organization’s goals and vision have been set. There are steps to be followed while developing a financial plan. The first step of the financial planning is to assess the business environment where the organization will operate. Subsequently, confirm the business vision and objectives. Next, identify all the resources required to attain these set goals and objectives. Afterward, identify the measurement of the resources and quantify the resources. Thereafter, compute the total cost of the resources. Next, summarize the costs and create a budget. Eventually, identify all the issues with the estimated budget. During the planning process, it is important to develop a planning horizon ( Cojocaru, 2016 ). 

Strategic Planning 

Strategic planning is the task of designing the business roadmap, or strategy, and identifying resources to be allocated for the specific strategy. Strategic planning is an important process in the organization’s strategic management. This process is executed by strategic planners consisting of a team of strategic management practitioners and the institution’s management. This team conducts a comprehensive analysis of the entity as well as the relationship between the institution and the environment it will operate in. The plan is meant to mark a guidance route describing how the set objectives will be achieved with the resources. Strategic planning coordinates the formulation of the business and its implementation. The process is both analytical and synthetic in nature. It involves using strategic thinking to find and connect the dots ( Cojocaru, 2016 ). 

The relationship between Financial and Strategic Planning 

There are two major links between strategic planning and financial planning which are helpful for all the organization. The first link is that financial plan determines which strategy a business will adopt. During the creation of a financial plan, all the costs of resources that will be utilized to achieve the set goals are determined, and a budget is created. The budget estimate in the financial plan will help the organization determine the affordable strategy to adopt. For instance, if the organization has a budget line of $50,000 in its financial plan and there are three investment options that cost $60,000, $65,000, and $45,000. Among the three options, only option three is affordable for the organization according to the financial plan. Therefore, it is necessary to consider the budget before selecting a strategy. 

The second link between financial planning and strategic planning is that strategic planning helps the institution achieve financial efficiency. The main objective of the strategic planning is to provide a roadmap for the success of the business. With an efficient business roadmap, it is possible for the organization to eliminate areas of financial inefficiency. Basically, eliminating efficiencies will increase revenues and reduce costs. Due to this; the organization will have more money for its operations. It will have an improved budget during the next financial planning. Generally, strategic planning and financial planning are related to an organization, working in unison in a cyclic way. A change in budget line implies the institution must reassess the current business strategy. 

HIM Interaction 

The organization’s health information manager is responsible for gathering, analyzing, and storing of important information. Financial planning requires comprehensive information about the environment of business operations, resources to be for the business, and the prices of the resources to be used. This information is essential in estimating budget line and general financial planning. Ensuring the efficacy of the financial plan will require the HIM manager to work in collaboration with the financial plan. I recommend that the HIM manager should provide the financial department with sufficient, accurate, and timely information as requested by the finance department. The manager should also provide a comprehensively analyzed information, results, and recommendations to the finance department. 

Financial Management Control Process 

The financial management control process is the process which provides a framework for the budget used to make it supportive in achieving the set goals and objectives. It is simply a comprehensive system of internal controls which are established and managed by the heads of the budget. The budget user heads provide a system for managing financial risks and providing assurance that the budget will be used effectively ( Cojocaru, 2016 ). Financial management and control process covers all business transactions such as assets, commitments, expenditures, revenues, recoveries of unduly and illegally spent resources, and tendering procedures and contracting among others. Heads of budget users and head of individual organization units are usually responsible for the whole process of financial management and control. These individuals are responsible for the way the business is being operated, financial impacts arising from business operations, managing risks associated with the business, control activities to be employed, and managing the system for monitoring management ( Cojocaru, 2016 ). 

Financial management and control constitute of a set of step-by-step activities. The first step of financial management and control process is developing the organization’s financial goals and objectives. These objectives will help the management to have a clear sight of the direction they should head towards. Afterward, a financial plan is formulated. The financial plan must consist of the formulation of a framework for managing the organization’s financial system to enable it achieves its set goals and objectives. While formulating planning, it is necessary to estimate the total budget that will be used for the whole project. Budgeting process involves identifying the resources to be utilized by the business, quantifying the resources, and estimating the total costs of the resources. The budget estimate gives the management a clear overview of the total expected costs of the projects. It helps the organization design a business strategy that is within the budget line; it also helps the organization to avoid deviating to activities out of budget line ( Cojocaru, 2016 ). 

Afterward, the management establishes a business control plan and activities. The control activities involve budget control, activities control, risk management, time control, and management control. The control activities help the business to operate within a required framework. Budget control is the process of setting the budget limits; the minimum and the maximum budget the organization can use. Budget control helps the business to control spending at an optimal level minimizing wastages ( Cojocaru, 2016 ). Risk management process involves identifying the potential risk the business faces, formulating a strategy to manage the risk, and implementing the set risk management policy. Risk management requires continuous monitoring and control of business activities to identify the point of vulnerabilities or actual threats facing the organization. Risk management is a vital management practice which helps in improving the business health. Time management and control involve identifying the optimal timeline for the whole project. It is the process of determining the critical path of the business project. The critical path is the shortest time the project requires achieving its set goals and objectives. The management control involves monitoring and assessing business management activities. Organization’s management is the core of business operations. Continuous monitoring and assessment of management activities is, therefore, a vital management and control process. 

Business management and control process is, therefore, the basis of the success of an organization. It is a model which provides guidelines and procedures for conducting a successful business. It constitutes financial planning, strategic planning, budget estimates, monitoring and control process, and general management guidelines. 

References 

Bentley, A., & Robinson, L. (2016). Revenue Cycle Management Allows Your Staff to Concentrate on Clinical Issues.  Delaware medical journal ,  88 (4), 120-123. 

Cojocaru, G. (2016). MANAGEMENT OF HEALTHCARE FINANCING. In  International Scientific Conference" Strategies XXI"  (Vol. 3, p. 229). " Carol I" National Defence University. 

Cooper, Z., Craig, S. V., Gaynor, M., & Van Reenen, J. (2015).  The price ain’t right? Hospital prices and health spending on the privately insured  (No. w21815). National Bureau of Economic Research. 

Newman, D., Parente, S. T., Barrette, E., & Kennedy, K. (2016). Prices for common medical services vary substantially among the commercially insured.  Health Affairs ,  35 (5), 923-927. 

Sullivan, C. (2017). Eradicating Fraud in Healthcare: Possibly a Matter of Life or Death.  Journal of Modern Accounting and Auditing ,  13 (8), 345-349 .