HCM410IP4

Health Care Financial Planning

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For a health care organization to continue in business and perform its function of providing health care, the health care organization must be financially viable. Financial viability is achieved in many organizations by the use of diverse financial functions, such as financial planning, budgeting, and accounting. Each function is necessary to ensure an organization’s financial viability. This session will focus on financial planning and the sources of revenue for health care organizations.

Strategic Financial Planning

Strategic financial planning starts with the executive management of a health care organization developing a strong preliminary strategic plan for the organization that includes the following:

• Identifying optional or potential strategic plan directions and goals • Forecasting outcomes for each of the optional or potential strategic

goals • Developing models and calculating the potential revenue and expenses

associated with a particular business endeavor • Comparing the return and cost of each strategic alternative to assist in

determining what priorities are feasible • Evaluating the different costs of different financing options • Providing comparative financial data to decision makers regarding

options

The presentation of data and alternatives should be in a format that supports decision-making purposes.

Sources of Health Care Revenue

A health care organization must be able to identify sources of revenue to effectively evaluate its options and make strategic decisions. The following are three primary sources of revenues for health care organizations:

• Government health insurance programs • Employer-sponsored health care insurance • Revenues from individual recipients of health care services

The primary government health insurance programs are Medicare and

Health Care Financial Planning

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Medicaid. The programs derived from the Social Security Act of 1965.

The first primary source of funding for most health care organizations is Medicare. Medicare provides health insurance for the disabled, widows of Medicare beneficiaries, and senior citizens. Qualifying recipients are required to pay annual premiums and deductibles to receive the health insurance. Through the years, Medicare has changed to accommodate new medical innovations, such as the increase of managed health care providers in the United States. Because of the increase, new legislations were passed that allowed Medicare beneficiaries to enroll in health plans with reduced copayments and access to prescription medications, while not increasing the costs to taxpayers.

The second primary source of funding for most health care organizations is Medicaid. Medicaid is a partnership funded by the federal government and participating states that provide health insurance for their poor. All states that participate in the Medicaid program must adhere to federal requirements. Like Medicare, many health care organizations serve Medicaid beneficiaries. Because Medicaid has a fast reimbursement period, many health care organizations rely heavily on Medicaid funding as their primary line of business to help pay their overhead costs, such as payroll and utilities.

The third primary source of funding for most health care organizations is the employer-sponsored health insurance programs. Employer sponsored health insurance programs are funded by health insurance companies who charge employers for the costs of providing health insurance for their employees.

Health care organizations may seek other sources of revenue, such as grant funding for infrastructure building. For example, a community health center may seek grant funding to provide specific training to health care workers.

When used properly, the listed sources of revenue for health care will serve as a main catalyst in ensuring an organization’s financial viability.