Home > Free Essays > Health & Medicine > Healthcare Financing > Financial Management System in Healthcare
Cite this

Financial Management System in Healthcare Essay

Key concepts and principles essential to effective financial practices and operations of a healthcare entity

An effective financial management system in a healthcare entity is of great importance. In this regard, there are essential components and principles of financial practices that must be implemented. Financial reporting is characterized by accurate and complete disclosure of financial-related information (Kongstvedt, 2001). Accurate reporting of financial reports is necessary for effective control of the healthcare system.

In most cases, financial reports are used by grantors who contribute to the healthcare entity. In addition, financial reporting is a federal regulation subjected to all healthcare entities that require reimbursements. On the other hand, the auditing of the entity’s progress is based on financial reports (Kongstvedt, 2001).

Accounting records and source documentation are considered to be the principles of financial management in a healthcare setting. Important information about assets, expenditures, and income are derived from these documents. The inclusion of canceled checks and payrolls is critical in providing information. Additional information required for compiling accounting records is sourced from payroll contract documents. The importance of source documentation is to support the use of funds as implied in the accounting records. From accounting records and source documentation, a healthcare administrator understands the financial condition of the system (Kongstvedt, 2001). Therefore, any improvement in operations will be based on current record-keeping practices.

The concept of internal control determines the effectiveness of a financial management system. An administrator has the obligation of ensuring that funds from the grantors are safeguarded against misuse (Kongstvedt, 2001). To ensure that financial resources are used for the intended purpose, an effective system of internal control is maintained. In this context, an effective control system is harnessed through the organizational environment, the accounting system, and procedures. The environment entails a management philosophy, organizational structure, and effective methods of operation. The element of an accounting system is comprised of methods and daily records of transactions. The procedures include policies and objectives as established by the organization and financial management system.

The presence of a budget control mechanism acts as a guide to an effective financial system. The idea is to derive estimates of the expenditure and income from making critical decisions. The principle of allowable cost in health finance management is part of the federal regulations. The federal regulations on allowable cost ensure that law guides financial management in healthcare.

Finally, a cash management system and compliance of both federal and state regulations are vital in managing healthcare finance (Baker & Baker, 2014). The management of cash receipts and disbursements requires the use of advanced technology such as electronic fund transfers and non-check payment policies. In addition, compliance with state and federal regulations requires strict observance of contracts and program manuals.

Financial challenges to expect

Administrators in healthcare facilities are subjected to financial challenges ranging from Medicaid reimbursements to government funding cuts (Thomson, 2009). The challenge of Medicare reimbursements creates difficulties in finance management. Due to government funding through Medicare and Medicaid, administrators avoid bad debts and poor healthcare facilities. The challenge of improving funding affects operations in a healthcare facility. The majority of hospitals have difficulties with the increasing costs of supplies, insurance, managed care, and human capital (Thomson, 2009).

How to monitor and address challenges

An effective way of addressing financial challenges in healthcare organizations is to emphasize the use of budgets as a plan and control tool (Thomson, 2009). Using statements to encourage accountability in financial reporting is a recommended accounting practice. The continuous use of internal structural change is important in controlling financial spending among the stakeholders (Thomson, 2009). Employee training and development is critical to improving the quality of healthcare and patient experience. Transformational technologies, especially in keeping records and electronic money transfers, are necessary for managing finance.

Understanding the impact of reimbursement cuts on healthcare services is important to the administrators. In this context, administrators can substitute services offered and develop new cost structures.

Key information to access

In order to implement radical changes in a financial system, crucial information about organizational needs, expenditure, cash flow, income, and revenue is required during the planning phase (Baker & Baker, 2014). Information from key departments, especially human resources, on accounts and procurements functions, is essential in this process. The information also includes the employees’ salaries. Additional information regarding advanced technologies is crucial in the decision-making processes. Importantly, understanding federal and state rules and regulations pertaining to finance is a prerequisite.

Managing the financial health of the organization

The role of a healthcare administrator is not restricted to operation management, it also includes financial matters. In this context, understanding the financial goals of the healthcare entity is vital for determining the most effective approaches to managing the same. In most cases, the goals of the healthcare financial system are not restricted to improving the quality of health, reducing morbidity and mortality, and making a profit (Baker & Baker, 2014). In other instances, the objective of increasing employees’ salaries is considered parallel to the maximization of return on investments (ROI).

The financial responsibility of a healthcare administrator is to ensure the employers and creditors are paid on time. The responsibility of ensuring that accurate financial records are filed appropriately is bestowed on the organization’s administrator. The basic process of managing financial resources within a healthcare facility involves a framework of requirements to establish an effective system.

The planning process of a financial management system is to establish operational targets, plans, and budgets. The next step is establishing an activity-based accounting system to cater to all the organizational functions. In addition, financial monitoring tools are essential in assessing the effectiveness of the same. The utilization of accounting reports is critical for understanding the underlying challenges and opportunities. However, the same is used appropriately when making financial-based decisions.

Third-party payer requirements, reimbursements, Medicare and Medicaid standards

The new financial management system can accommodate third-party payers. However, the administrator must be conversant with the required Current Procedural Terminology (CPT) codes. In this regard, the new financial system will be restructured so as to comply with the coding and billing needs of third party payers (Baker & Baker, 2014). The same requirements will consider patients under both Medicare and Medicaid insurance covers. It is necessary to use the correct documentation, especially the timed codes and audit reports, in order to accommodate third-party payers, Medicaid, and Medicare standards. Moreover, the new requirements acknowledge compliance with electronic recording, billing, and electronic money transfer.

Auditing plan

The following process is effective for the audit compliance of healthcare finance systems.

  • Conduct a background check on staff members involved in compliance-sensitive functions.
  • Ensure staff members involved in compliance auditing follow federal and state laws and regulations regarding healthcare financial management.
  • Report any misconduct in healthcare financial management.
  • Develop appropriate penalties for noncompliance with regulations related to healthcare financial systems.
  • Restructure redundant regulations in a healthcare financial system.


Baker, J. J & Baker, R. W. (2014). Health care finance: Basic tools for nonfinancial managers. Burlington, MA: Jones & Bartlett Learning.

Kongstvedt, P. R. (Ed.). (2001). The managed health care handbook. Burlington, MA Jones & Bartlett Learning.

Thomson, S. (2009). Addressing financial sustainability in health systems. Copenhagen, COP: World Health Organization.

This essay on Financial Management System in Healthcare was written and submitted by your fellow student. You are free to use it for research and reference purposes in order to write your own paper; however, you must cite it accordingly.
Removal Request
If you are the copyright owner of this paper and no longer wish to have your work published on IvyPanda.
Request the removal

Need a custom Essay sample written from scratch by
professional specifically for you?

Writer online avatar
Writer online avatar
Writer online avatar
Writer online avatar
Writer online avatar
Writer online avatar
Writer online avatar
Writer online avatar
Writer online avatar
Writer online avatar
Writer online avatar
Writer online avatar

certified writers online

Cite This paper

Select a referencing style:


IvyPanda. (2020, November 25). Financial Management System in Healthcare. Retrieved from https://ivypanda.com/essays/financial-management-system-in-healthcare/

Work Cited

"Financial Management System in Healthcare." IvyPanda, 25 Nov. 2020, ivypanda.com/essays/financial-management-system-in-healthcare/.

1. IvyPanda. "Financial Management System in Healthcare." November 25, 2020. https://ivypanda.com/essays/financial-management-system-in-healthcare/.


IvyPanda. "Financial Management System in Healthcare." November 25, 2020. https://ivypanda.com/essays/financial-management-system-in-healthcare/.


IvyPanda. 2020. "Financial Management System in Healthcare." November 25, 2020. https://ivypanda.com/essays/financial-management-system-in-healthcare/.


IvyPanda. (2020) 'Financial Management System in Healthcare'. 25 November.

More related papers
Pss... Stuck with your
assignment? 😱
Pss... Stuck with your assignment? 😱
Do you need an essay to be done?
What type of assignment 📝 do you need?
How many pages (words) do you need? Let's see if we can help you!