Health care is a provision of for profit, not-for-profit, and government organizations. Health care consists of insurers, suppliers, and providers. Each organization has a financial structure, polices, and management practices prevalent in the financial environment. Effective financial management is more difficult in health care than any other industry. Entities For-profit, not-for-profit and government facilities exist throughout the country. People Incorporated Mental Health Services in the Minneapolis, Minnesota, is a not-for-profit entity that offers a spectrum of services to mental illness patients (People Incorporated, 2011).
Redwing Chiropractic Clinic in Redwing, Minnesota, is a for-profit clinic that specializes in treating conditions, including spine, and menstrual pain (Redwing Chiropractic Clinic, 2011). The Veterans Administration Health Care System (VAHCS) is a government facility operating from Minneapolis, Minnesota. The VAHCS provides care to America’s Veteran population (United States Department of Veterans Affairs, 2011). Financial Structure The type of provider and the size of the organization affect the structure and size of the health care organization’s finance department.
Businesses and health service organizations have a primary role. The plan is to use and acquire resources to increase and maximize efficiency and worth of the organization. The financial structure must meet the basic requirements of the health care organizations finance activities. The finance activities include budgeting, planning, financial reporting, capital investment decisions, financing decisions, working capital management, contract management, and financial risk management (Gapenski, 2008).
Large health care organizations, such as the Veterans Health Administration generally structure the finance department with a chief financial officer (CFO) or vice-president. The CFO directs the organizations finance activities, and the senior managers. The senior managers include the comptroller who is responsible reporting budgeting, payables management, financial statements, and accounting. The treasurer is responsible for employment and acquisition of cash, capital, and debt management, financial risk management, lease financing, and endowment funds.
The CFO reports to a chief executive officer (CEO) (Gapenski, 2008). Smaller health care entities combine different financial positions into one. Smaller health care entities combine the senior management positions, such as the treasure, comptroller, and assigned managers to an individual. “In the smallest health services organizations, the entire finance function is managed by one person, often call the business manager” (Gapenski, 2008, p. 8). A business manager in the Chiropractic clinic controls the financial structure.
Not-for-profit entities such as People Incorporated lease financial management activities to a larger organization (Gapenski, 2008) Policies unique to each financial environment The policies unique to each financial environment, for-profit, not-for-profit, and government, depends on the nature of the organization. Not-for-profit entities do not pay property or income tax, and benefit from provision of charity services. For-profit entities, such as the chiropractic clinic, have a requirement to pay federal and state taxes. Accreditation by Joint Commission is a service available to health care entities.
The service is voluntary. The Joint Commission promotes high standards of care. The cost of accreditation can be substantial, but the accreditation makes health care entities eligible for Medicare program participation (Gapenski, 2008). Not-for-profit entities betroth in charitable missions, contribution, and community service. These entities receive benefits from tax exemptions from state and federal income taxes, exemptions from sales and property tax, are eligible to tax-deductible charity donations, better postal rates, tax-favorable financing, and annuities (Gapenski, 2008).
In the not-for-profit entity the law does not allow claiming any surplus between the organizations cost and revenue (Rotarius, Trujillo, Liberman & Ramirez, 2005). For- profit and not-for-profit entities have eligibility to participate in Medicaid and Medicare payment programs. When financial resources and profits are high, importance of finance functions tends to decline. Previously cost accounting was critical. Payers respond to Medicare requirements, turning out reports to maximize revenue, and comply with regulations. Large amounts of time are spent making out the reports.
Redesigning of finance functions by providers has taken place in recent years. Billing and collections is important, but the organization needs to recognize the changes occurring in health care today. The focus shifts from accounting and compiling expenditure filing for Medicaid and Medicare reimbursement to “cost containment efforts, managed care, and other payer contract negotiations, joint venture decision, and integrated delivery system participation” (Gapenski, 2008, p. 7). A similarity between the entities is the need to ensure financial stability.
For-profit entities distribute profits to the shareholders, after paying state and federal taxes. Not-for-profits and government entities enjoy property and income tax exemptions (Horwitz, 2005). Both have structure policies in accomplishing the main goal of the mission statement. Financial management practices Common financial management practices exist among government, for-profit and not-for-profit health care entities. The federal government regulates disclosure of the information related to securities. Standards are necessary for operation and evaluation of organizations.
The basis of the regulation is the theory that financial information construction and presentation needs a standard rule in allowing investors to make accurate financial decisions. The Security and Exchange Commission (SEC) has the authority to establish and enforce the content and form of financial statements. The SEC delegates responsibilities in enforcing and establishing standards to the Financial Accounting Standards Board (FASB). The FASB establishes standards in reporting financial accounting (Gapenski, 2008). FASB set guidelines and rules useful in guiding preparation and presentation of financial reporting.
The set of rules is the Generally Accepted Accounting Principles (GAAP) (Finkler, 2006). Larger health care entities have larger financial departments consisting of CEO, CFO, senior management, and managers. Complicated accounting methods require a more complex accounting system. Smaller health care entities have less complicated accounting systems. Both entities still need to comply with GAAP (Gapenski, 2008). Financial management in health care Effective financial management in health care is more difficult than in other industries because of a number of factors.
A large proportion of the health services industry receives its revenues not directly from the users of their services—the patients—but from insurers known collectively as third-party payers” (Gapenski, 208, p. 38). Third-party payers are parties other than the individual receiving care. These parties include government programs, such as Medicare, Medicaid, and TRICARE, and worker’s compensation. Insurance companies, such as Blue Cross and Blue Shield are also examples of third-party payers (Gapenski, 2008). The patient is sometimes caught in between maze of insurance issues and payment (Finkler & Ward, 2006).
Regardless who the payer is, there are two methods of payment. Payment includes fee-for-payment, or capitation. Fee-for-service includes charge-based reimbursement, cost-based reimbursement, and prospective payment. Capitation reimburses the provider a fixed amount regardless of the service provision (Gapenski, 2008). The growing number of uninsured and underinsured population is another factor influencing financial management in health care. The uninsured and underinsured receive health care without paying, placing a strain on the health care industries finances.
Implementing new policies is a continual process, requiring training, and more expenditure. The Universal Health Care reform law will affect the effects of the uninsured and underinsured populations. The Congressional Budget office predicts that Universal Health Care “will reduce the uninsured population by 32 million, leaving 23 million without coverage. Without the mandate, 39 million people will be uninsured in 2019” (Gorin, 2011, p. 84). Conclusion The type of provider and the size of the organization affect the structure and size of the health care organization’s finance department.
The finance activities include budgeting, planning, financial reporting, capital investment decisions, financing decisions, working capital management, contract management, and financial risk management (Gapenski, 2008). The policies unique to each financial environment, for-profit, not-for-profit, and government, depends on the nature of the organization. Common financial management practices exist among government, for-profit and not-for-profit health care entities. Effective financial management in health care is more difficult than in other industries.