Financial Management In Health Care Essay

Length: 7 pages Sources: 5 Subject: Literature Type: Essay Paper: #80857634 Related Topics: Financial Management, Lyndon B Johnson, Financial Institution, Debt Financing
Excerpt from Essay :

Financial Management in Healthcare

Medicare and Medicaid are programs run by the government and which provide medical services as well as services that are health care related to particular groups of individuals in the United States. It is imperative to note that these two programs are exceedingly dissimilar but are supervised and overseen by the Centers for Medicare and Medicaid Services which is a department that is found within the Department of Health and Human Services of the United States. The origin of these two programs dates back to the year 1965 when they were created after President Lyndon B. Johnson signed changes to the Social Security Act (Crosta, 2015) for the national health care program. This program was principally created at the time when individuals who were aged 65 years and above found it impossible to obtain private coverage for health insurance. In particular, this was a time when the major financial and economic concern was that an illness might send someone to the hospital and thereafter bring about immense bills. In addition, at the time there was no extensive use of prescriptive medication to cure illnesses., Medicare, on the other hand, has created accessibility to healthcare a basic right for each American once they attain the age of 65. For this reason, the health status and longevity of old citizens of the U.S. has greatly improved (National Academy of Social Insurance, n.d).

Medicaid is a health and medical services program that is entitled to particular individuals and also households that have low income and minimal resources. The main management and oversight of the program is done at the federal level. However, every state institutes the rate of payment, the standards of being eligible, and also oversees its own Medicaid program. On the other hand, Medicare is a medical health insurance program done at the federal level which pays for hospital services expenses and medical care for elderly individuals and disabled individuals in the United States. Medicare consists of four main parts. The first two, Part A and Part B, are for hospital insurance and medical insurance respectively. The other two parts, Part C, and Part D are custom care medical plans and prescription drug plans respectively (Crosta, 2015).

Physicians are reimbursed for providing services to Medicare and Medicaid patients in different ways. Medicare reimburses for inpatient medical and health services under its Inpatient Prospective Payment System (IPPS). The IPPS is referred to as prospective for the reason that instead of remunerating for every service centered on what the charges of the hospital, the rate has been fixed beforehand. The IPPS employs diagnosis-related groups (DRGs) to categorize patients into parallel treatment and period of hospital stay units and thereafter institutes prices for every categorical group. The physical location of a hospital, expenses on supply and labor influence the DRG compensation rate discussed with CMS. Hospitals are given the prearranged DRG sum irrespective of the real charge of care, even though alterations might be prepared in some cases (Magovern & Jurek, 2009). On the other hand, the Medicare Outpatient Prospective Payment System (OPPS) is utilized to recompense hospitals for health services to Medicare patients that are delivered on an outpatient context. These services include the majority of Part B Medicare services which is medical insurance. Similar to IPPS, the OPPS is centered on a future compensation system that makes use of a valuing unit known as the ambulatory payment classification (APC). These are apportioned for every outpatient practice, service, or entry. The full compensation the hospital obtains for the visit is calculated as the summation of the individual APC outflows for every service (Magovern & Jurek, 2009).


Magovern, S., Jurek, J. (2009). Hospital Billing. New York: McGraw-Hill Publishers.

Crosta, P. (2015). What is Medicare / Medicaid? Medical News Today. Retrieved 5 October 2015 from

National Academy of Social Insurance. (n.d). What is the History of Medicare? Retrieved 5 October 2015 from

Question 4

There are numerous economic factors which can be practical in the present-day issues and also circumstances that are existing in today's health care industry. Furthermore, there are a number of economic factors that can impact those interest rates not only in the short-term but also in the long run. One of these factors is the state of the economy. In times of economic growth, there is employment and, therefore, more savings made to the banks....


This increase in demand for money causes interest rates to increase. The opposite takes place during the economic recession. These interest rate fluctuations have an influence on consumer patterns, which as a result impact the level of demand for health care (Keegan et al., 2013). For example, due to recessions the consumers will experience the negative fluctuations in the economy which implies that there will be a decrease in the medical appointments made. In addition, recession impacts the demand levels with losses in health care coverage for numerous individuals and families insured through employer agreements (Keegan et al., 2013).

Another economic factor that influences the interest rates and particularly in the short-term is the level of inflation. This is because the rates which are recompensed for the majority of the loans are predetermined in the loan agreement. Inflationary pressures cause the interest rates to go higher whereas deflationary pressures cause the interest rates to decrease. This impacts the healthcare sector in a number of ways. The healthcare institutions will find it much harder to obtain funding because of the purchasing power and, therefore, such institutions will be forced to repay the funds at a higher rate (Financial Web, n.d). Thirdly, there is also the actions undertaken by the federal government. This largely has an effect on the interest rates in terms of the policies set in place and also in terms of taxation. Government interventions on the forces of demand and supply do impact the interest rates in the market. For instance, according to Heskett (2007), the only thing the government had better be tangled with is regulating the drug, coverage, and medical industry marketing spending which would decrease the costs in healthcare. In addition, the rates of taxation set by the company can impact healthcare. This is not only in the charges paid by the consumers but also those paid by the health care organizations as a whole (Heskett, 2007).

From a healthcare perspective, there can be advantages as well as disadvantages from selecting between debt financing and equity financing. To start with equity financing, one of the main benefits is that it is less risky in comparison to debt financing in the sense that the institution is not obliged to pay it back. In addition, the investment done through equity financing takes a long-term perspective which is ideal for healthcare projects. In addition, with equity financing, there is additional cash on hand. This makes it possible for the health care institutions to expand their businesses through projects and also more health care facilities. On the downside, equity financing will necessitate time and effort to attain the fitting investor in having similar views. In addition, the investor will have to be in agreement prior to undertaking any healthcare c projects which can be frustrating due to time sensitivity. More so, the investor takes up ownership and a share of the returns goes to the investor (Palepu et al., 2007).

The major advantage of debt financing is that the financing institution will have no say or impact on how the healthcare institution is run and operated. In addition, borrowing the funds this way implies that there will be no ownership or control given up. Another advantage is that the healthcare institution can attain funds for both short-term projects and also long-term projects. Lastly, the business association comes to an end when the debt is fully paid back. On the other hand, debt financing does have its downsides. To start with, debt financing can leave the healthcare organization vulnerable in the course of difficult times, particularly when revenues take a dip. The other downside is that the funds have to be repaid in a fixed amount of time irrespective of the conditions and the assets of the organization can be taken up as collateral (Palepu et al., 2007).


Keegan, C., Thomas, S., Normand, C., & Portela, C. (2013). Measuring recession severity and its impact on healthcare expenditure. International journal of health care finance and economics, 13(2), 139-155.

Heskett, J. (2007). What is the Government's Role in U.S. Healthcare? HBS Working Knowledge.

Financial Web. (n.d). Factors Influencing Interest Rates. Retrieved 5 October 2015 from

Palepu, K. G., Healy, P. M., & Bernard, V. L. (2007). Business Analysis and Valuation: Text and Cases. New York Thomson Learning.

Part II

In the contemporary, the United States healthcare system is going through a massive makeover and renovation. Nowadays, healthcare has become an imperative aspect that is largely being taken into consideration. In particular, the healthcare industry…

Sources Used in Documents:


Wareham, T. (2014). Funding the Transformation: Three financial considerations will shape hospitals' transition success. Trustee.

Scamperie, K. (2013). The fee-for-service shift to bundled payments: financial considerations for hospitals. Journal of Health Care Finance 39(4):55-67.

Addicott, R., Buck, D., Goodwin, N., Harrison, T., Ross, S., Sonola, L., ... & Curry, N. (2013). Transforming our health care system. The King's Fund.

Cite this Document:

"Financial Management In Health Care" (2015, October 18) Retrieved January 25, 2022, from

"Financial Management In Health Care" 18 October 2015. Web.25 January. 2022. <>

"Financial Management In Health Care", 18 October 2015, Accessed.25 January. 2022,

Related Documents
Healthcare Management Healthcare Clinic Analysis
Words: 546 Length: 2 Pages Topic: Healthcare Paper #: 14229801

These revenue sources fluctuate significantly over the year, often requiring a rationing of budget for critical supplies. The clinic's budget is one that fluctuations on a quarterly basis depending on funding from the foundation donors and how quickly Medicare, Medicaid and insurance companies reimburse for treatments given. The facility has never had excess revenue and routinely operates unprofitably, continually seeking funding from the foundation to keep the staffing levels

Healthcare Reform Ways the Healthcare
Words: 7972 Length: 29 Pages Topic: Healthcare Paper #: 55198694

Transparency empowers consumers to become better shoppers. Economists assert that transparency stimulates productivity, for example, in exchange for money, one individual obtaining fair value. In every aspect, except healthcare, Davis points out, transparency, is supported. The contemporary dearth of transparency in healthcare has led to many Americans not being able to effectively shop for the best quality of service at acute care hospitals. Davis argues that transparency permits consumers,

Health Information Management: Healthcare
Words: 1720 Length: 5 Pages Topic: Healthcare Paper #: 53945578

Healthcare: Heath Information Management Population health management (PHM) has gained prominence in mainstream healthcare organizations in recent years for the simple reason that healthcare is changing, and physician groups and healthcare systems are being forced to adapt to the new system, where they are rewarded based on how well they are able to meet the quality objectives of the entire patient group and not just individual patients. The 21st century healthcare

Strategic Management Health Care Feder,
Words: 473 Length: 1 Pages Topic: Health - Nursing Paper #: 92909867

The short-term financial implications for Beth Israel are initially, of course, that more patients will have Medicare coverage for the use stenting during carotid-cleaning surgery. There are other positive implications, too for the hospital over the long-term. In terms of staffing, as skill is less of a premium in stenting than previously thought, more physicians, and younger, training physicians can perform the procedure. This will free up the schedules of

Healthcare Financial Management to Quote Jonathan Clark
Words: 1064 Length: 4 Pages Topic: Healthcare Paper #: 20934207

Healthcare Financial Management To quote Jonathan Clark at the beginning of his article, "Improving the revenue cycle can be a daunting task due to the scope and complexity of the interdepartmental process." Of the suggestions offered by the authors, which concept(s) give you the greatest insight into creating an improved Revenue Cycle process in the organization where you work (or one in which you are familiar)? Be sure to identify which

Healthcare the Impacts of Case
Words: 4123 Length: 12 Pages Topic: Healthcare Paper #: 44424148

"Studies of the relationship between managed care penetration in the health care market and expenditures for Medicare fee-for-service enrollees have demonstrated the existence of these types of spill over effects" (Bundorf et al., 2004). Managed care organizations generate these types of spillover effects by increasing competition in the health care market, altering the arrangement of the health care delivery system, and altering physician practice patterns. Studies have found that higher