Seven trends transforming healthcare finance and organizations

Healthcare Financial Concepts

Dyrda (2017) writes about 7 trends in healthcare, and this article covers off a wide range of healthcare finance concepts. The author argues that healthcare organizations are looking to transform themselves, and finance plays a critical role in this transformation process. The author lists the seven trends are being balancing inpatient and outpatient investments, updating the financial leadership model, value-based payments, creative partnerships and affiliations, cybersecurity investment, data analytics and avoiding overbuilding. Each of these points is given elaboration by the author and presents the idea that healthcare finance is highly complex, and takes into account a wide range of different needs, all of which can challenge financial managers in the industry. The first concept, which is the trade-off between inpatient and outpatient activities, is a classic budgeting concept. The organization, during the budgeting process, has to allocate money depending on what its priorities are. To increase revenue, the organization has to determine which of inpatient or outpatient represents the best revenue opportunity, and then allocate its operating and capital budgets in that direction. The author notes that there is a trend towards treatment in ambulatory settings, and if this trend continues, healthcare organizations have to make their determination about how to respond to that particular trend. The second trend, towards updating the financial leadership model, which again speaks to budgeting considerations. In this area, the author notes that there might be a move from the classic old-fashioned budgeting model and more towards a rolling forecast system. This will have implications not just for financial leadership but for how things like capital budgets are built into a rolling system, which seems better-suited for operating budgets. This also represents a shift in what is considered best practices in budgeting. If three has not been much shift in best budgeting practices in recent years, there are particular implications for financial leadership if the budgeting process is becoming overhauled. The third trend, which is towards value-based payments, has massive implications for financial management. The idea of value-based payments is that government payers can exert greater cost controls, in particular seeking to match the payments towards inputs and patient outcomes. This has implications in particular for cost controls, where a health care organization has to be able to deliver a higher standard of service, but without increasing the cost, because their payments might not change. The value-based payments also represent a benchmark. Some organization s are already meeting these benchmarks, and the payers are basically letting all providers know that these targets can be achieved, a form of third-party driven competitive benchmarking. The fourth trend is towards creative partnerships and affiliations. The author notes that for many providers, upwards of 30% of revenues are risk-based. The use of partnerships and affiliations can be a risk management tool, where one provider specializes in something, and allows other providers to not have that department – risk falls to the one provider, which in theory should be the best one. The fifth trend is towards cybersecurity investment. This is absolutely necessary for risk management. Cybersecurity is an area where there is specific risk. This risk not only focuses on data theft, but hacking and other risks. Healthcare organizations have been found in violation of HIPAA for cyberattacks, so investment in cybersecurity reduces risk significantly. This is also something that has to be worked into the budget, and while it would generally be an operating expense, there is the question of the capital expense associated with substantial infrastructure upgrades to ensure that the organization is ready for cybersecrutity challenges. Data analytics pertains to demand forecasting, and other elements of optimization. The more data that is available, the better decisions that can be made, such as with respect to ROI, to forecasts, to cost structures and to risk management. So there is a lot to be gained on the financial side from data analytics. Capital budgeting in particular is influenced by the trend towards not overbuilding, as most building occurs within the context of the capital budget, not the operating budget. But finding ways to finance the building that is done is also important, and should be considered to be an important part of financial management.

How I can Apply these concepts I can definitely apply a lot of these concepts. Financial concepts are a mix of explaining what has happened, and modeling what could happen. Things like financial ratios and those sorts of calculations can help to understand the current and past situations of health care organization, identifying areas that need improvement, and areas of operational focus. But a lot of the concepts that were presented in this article pertaining to planning functions – budgeting, forecasting and understanding the operating and capital budgeting decision make process. These skills can be applied in my current organization, by examining what the best practices are today, and applying some of those to our budgeting process. Things like cybersecurity and risk management are not always built into that process, but yet they form an important part of healthcare financial management in 2018. So I feel that I can contribute with a higher level of knowledge on these subjects in order to present a stronger budget going forward, one that properly protects the organization and gets it ready for the coming years. All told, these concepts are common in financial management in healthcare organizations. It is interesting to see the trends, and then link them to other trends. For example, one cannot talk about cybersecurity investment in a vacuum. Rather, it is important to understand how this affects the budget, how it affects risk management, and that there are limits that HIPAA places on how much cybersecurity investment you can make – it is not your choice because if you are found to have underinvested you could receive a fine under HIPAA for not protecting health care investment enough. Conclusions When I look at my organization, I see that in general financial management techniques are current. The budgeting process is a bit dated, however, and could be updated. Further, the organization might be underinvesting in cybersecurity, which is really because the financial managers do not necessarily have a full picture of what that risk actually is. So there is definitely room for improvement. That said, a lot of these fairly basic concepts are incorporated into the financial management practices of most healthcare organizations, especially the leading ones. Emerging concepts like value based payments, and industry changes like the trend towards increased cybersecurity risk, are among the areas that prove the financial management in the health care sector is always evolving. Technology is driving changes to service delivery, and that will also have an impact on the budgeting process for most organizations. All told, understanding the process of financial management and its key concepts is imperative. One of the key reasons for this is that all of the different areas of operations and finance are tied together, and as a result, changes in one area will affect changes in other areas, a key concept.