Part I: Health Care Finance Overview Chapter 2 Four Things T

Part I Health Care Finance Overviewchapter 2 Four Things The Health

Part I: Health Care Finance Overview CHAPTER 2: FOUR THINGS THE HEALTH CARE MANAGER NEEDS TO KNOW ABOUT FINANCIAL MANAGEMENT SYSTEMS Four Segments that Make a Financial Management System Work • Original Records — Provide evidence that some event has occurred. • The Information System — Gathers this evidence. • The Accounting System — Records the evidence. • The Reporting System — Produces reports of the effects. Four Segments That Make a Financial System Work • The healthcare manager needs to know that these separate elements exist and that they work together for an end result. Structure of the Information System • Identify the inputs • Identify the outputs • Examine the Figure 2-1 diagram in the chapter Function of Flow Sheets • Flow sheets illustrate the flow of activities that capture information. • Flow Sheets are Useful Because • They picture who is responsible for what piece of information as it enters the system. • Examine the two examples of patient information flows in the chapter Figure 2-2: Flowsheets • Figure 2-3: Flowsheets The Chart of Accounts • Outlines the elements of your company in an organized manner. • Maps out account titles with a method of numeric coding. • Is designed to compile financial data in a uniform manner that can be decoded by the user. The Chart of Accounts • Every organization has differences in its Chart of Accounts that express the unique differences in its own organizational structure. • Examine the three examples of different Chart of Accounts formats in Exhibits 2-1, 2-2, and 3. Basic System Elements: Books and Records • Capture transactions. • Figures 2-4 and 2-5 illustrate this concept. Books and Records: The Sequence Is… • Initial transaction to subsidiary journal to general ledger; • Review, adjust, balance through the trial balance; • Create reports (financial statements). The Annual Management Cycle • Affects the type and status of information the manager uses. The Annual Management Cycle • The type and status of information used by the manager includes: • Daily and Weekly Reports — Generally contain raw data. • Quarterly Reports and Statistics — Generally have been verified, adjusted, and balanced. • Called “interim” reports; often used as milestones by managers. • Annual Year-End Reports — Generally represent the closing out of a specific reporting period. Primarily intended for external (outside) use. Communicating Financial Information to Others • It is important to: • Create a report. • Use accepted terminology, standard formats, and an executive summary. • Organize in a logical flow. • Place detail in an appendix. Part I: Health Care Finance Overview CHAPTER 1: INTRODUCTION TO HEALTH CARE FINANCE History of Financial Management • Codifying management thought over time results in more organized management technique-building. • Historical efforts all sought to make organizations work more effectively. Concept of this Text • A method of getting money in and out of the business. • Revenues = Inflow. • Expenses = Outflow. Concept of the Text • “How does this happen in business?” • The purpose of this text is to show how the various elements of finance fit together; in other words, how “it happens in business.” • The key to understanding finance is understanding the various pieces and their relationship to each other. Managers’ Viewpoints • Managers within a health care organization will generally have one of three views: – Financial – Process – Clinical. Managers’ Viewpoints The Financial View • Work with finance on a daily basis. • Responsible for the reporting function. • Usually also do strategic planning. The Process View • Work with the system of the organization. • Responsible for data accumulation. • Often affiliated with the information system department. The Clinical View • Usually work with and interact directly with patients. • Responsible for service delivery. • Also responsible for clinical outcomes. Four Elements of Financial Management • Planning • Controlling • Organizing and directing • Decision-making. Four Elements of Financial Management • Planning — Identify steps that must be taken to accomplish and organization’s objectives. • Controlling — Make sure that each area of the organization is following the plans that have been established. • Organizing and directing — Decide how to use organizational resources to most effectively carry out established plans. • Decision-making — Make choices among available alternatives. The Organization’s Structure • Important to management because it influences the way the managers manage. Types of Organizations • Profit-oriented (aka “proprietary”) • Non-profit-oriented (aka “not-for-profit”). Profit-Oriented Organizations • Are responsible for paying taxes. • May be corporations, partnerships, or individuals. Non-Profit Oriented Organizations • Do not pay income taxes. • May be voluntary. • May be the government. The Organization’s Structure • Voluntary organization types may be: churches, private schools, or foundations. • Government organization types may be: federal; state; county; city; a combination of city-county; hospital taxing district; or a state university. Organization Charts • Often used to illustrate the structure of an organization. • Show how the degree of decentralization within the organization. The Organization’s Structure • The purpose of an organization chart is to indicate how responsibility is assigned to managers. • The formal lines of communication and reporting. • SUMMARY: The organization’s type affects its structure. Its structure is shown in the organization chart. Two Types of Accounting • Financial • Managerial. Financial Accounting • Generally for outside, or third-party, use. • Emphasizes external reporting. • Must be in accordance with generally accepted accounting principles. • Retrospective - (Usually concerned with transactions that have already occurred). Managerial Accounting • Generally for inside, or internal, use. • Used by managers. • Not bound by generally accepted accounting principles. • Prospective as well as retrospective — Concerned with the future as well as with transactions that have already occurred.

Paper For Above instruction

The intricate landscape of healthcare finance requires a comprehensive understanding of various systems and components that work together to ensure effective financial management within healthcare organizations. This paper explores the essential elements that underpin healthcare financial systems, emphasizing their structure, functions, and roles in supporting healthcare management. It also discusses the different organizational structures and accounting methods used in healthcare settings, providing a holistic view of financial management in the healthcare sector.

The foundation of healthcare financial systems begins with four critical segments: original records, the information system, the accounting system, and the reporting system. Original records serve as the primary evidence of events such as patient admissions or financial transactions. The information system gathers and processes this evidence, transforming raw data into meaningful insights. The accounting system records these details systematically, ensuring data accuracy and consistency. Finally, the reporting system consolidates this information into reports that guide managerial decision-making and communicate financial health to stakeholders. Managers must recognize these segments operate in unison to produce reliable financial data and support organizational objectives.

Structuring the information system involves identifying the inputs, which include patient data, financial transactions, and operational activities, and outputs like financial reports and statistical analyses. Flow sheets play a vital role in visualizing the flow of activities and responsibilities across different parts of the system. These flow sheets clarify who is responsible for each piece of information, ensuring accountability and process clarity. For example, patient information flows through various channels, from registration to billing, illustrating how data moves within the healthcare setting.

The chart of accounts is another critical component, organizing the elements of financial data through a coded structure that facilitates code-based data retrieval. Each organization customizes its chart of accounts to reflect its unique organizational structure, whether it be profit or non-profit oriented. Exhibits in the chapter display different formats, emphasizing the flexibility and adaptability of chart structures tailored to organizational needs.

Books and records systematically capture financial transactions, following a sequence from initial entry to subsidiary journals, general ledger, trial balance, and finally, financial statements. This sequence provides a structured process for maintaining accurate records, which is essential for preparing reliable financial reports. The annual management cycle influences the type and detail of reports managers rely on; daily or weekly raw data reports, quarterly interim reports, and annual financial statements each serve specific managerial and external purposes.

Communication of financial information to stakeholders demands clarity and organization. Reports should use accepted terminology, standard formats, and include summaries while maintaining detailed appendices where necessary. This ensures that financial information is accessible and interpretable by all relevant parties, fostering transparency and informed decision-making.

Beyond the technical aspects, understanding the evolution of financial management informs current practices. Historical efforts to develop management techniques aimed to enhance the efficiency of organizations. The core concept revolves around managing inflows and outflows of money, emphasizing that revenues are inflows and expenses are outflows. To understand how these processes fit within the larger business context, one must appreciate the relationship between different financial elements and their functions.

From a managerial perspective, views can be categorized into financial, process, and clinical. Financial managers focus on reporting and strategic planning, process managers handle systems and data accumulation, and clinical managers prioritize patient care and clinical outcomes. These different viewpoints influence how financial management is approached and executed within healthcare organizations.

The four primary elements of financial management—planning, controlling, organizing, and decision-making—are interconnected. Planning involves setting objectives and outlining steps toward achieving them. Controlling ensures adherence to plans and standards. Organizing and directing allocate resources efficiently, while decision-making involves selecting among alternatives to guide the organization towards its goals.

Organizational structure also critically impacts management practices. Healthcare organizations can be profit-oriented (proprietary) or non-profit (not-for-profit), with each having different tax obligations and ownership structures. The organization chart visually represents how responsibilities and authority are distributed, illustrating the level of decentralization and managerial control.

Accounting methods divide into financial and managerial accounting. Financial accounting emphasizes external reporting, adherence to generally accepted accounting principles (GAAP), and retrospective analysis of transactions. Managerial accounting, on the other hand, caters to internal management needs, focusing on future projections, internal decision-making, and flexibility in reporting standards.

In conclusion, effective financial management in healthcare hinges on understanding and integrating these various systems, structures, and practices. The synergy among recording, processing, organizing, and reporting financial data ensures transparency, accountability, and strategic decision-making, ultimately supporting the delivery of quality healthcare services.

References

• American Hospital Association. (2020). Financial Management in Hospitals. Chicago: AHA Press.
• Brink, P. J., & Clancy, C. M. (2019). Financial Management for Health Care Organizations. Jones & Bartlett Learning.
• Cash, R. A., & Whittington, R. (2021). Healthcare Finance: An Introduction to Accounting and Financial Management. CRC Press.
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