Managing Financial Resources in Health and Social Care - Essay Example

Managing Financial Resources in Health and Social Care With the advancements and innovation, not only profit driven organization are making use of financial and administrative resources, but the service organizations have also adopted the utilization of advanced methods and resources. Along with providing public services, financial management has become an important aspect of the public service sector in the current era. This paper will discuss the financial management and its significance in the social and health care services. Financial Management Every organization, whether profit-drive or non-profit, have finance as an important resource for the going concern. Financial Management is therefore an important aspect which refers to the effective and efficient management of funds (money) in such a way that the objectives and goals of the organziation are accomplished. The department of finance requires the specialist functions that are connected with the top management at hierarchal ladder. Financial Management has been defined by Joseph Massie as the operational activity in a business organization which serves the purpose of obtaining the funds and utilizing them in an effective manner for the efficient business operations. Weston and Brigham describe this term as a domain of financial decision making that harmonizes the enterprise goals and individual motives (Weston, Fred and Brigham, Eugene, pp. 25-46). It is evident from the definitions that researchers and financial experts have recognized the purpose of financial management as an activity which pertains specifically to the planning, obtaining, monitoring, controlling and managing the funds or money in a business. It is a domain of business management activities within an organization that is dedicated to the careful selection and utilization of the capital and sources of finance for enabling a business organization to proceed into the direction of goal achievement (Weston, Fred and Brigham, Eugene, pp. 25-46). Thus, financial management involves the raising and allocation of capital judiciously. In order words, it is directly related to the concept of capital budgeting. Financial Resources in Health and Social Care Finance is the lifeblood of any organization. The financial management, until the period of 1960s, was considered to be of a descriptive nature in all industries along with its key role being to secure the financial requirements for fulfilling the operating objectives of the business. However, in the present era, the capacity of financial management contributes vitally to the management of any organization irrespective of its nature and structure. Now, the key significance of financial management is its role in planning for, acquiring, and making use of the funds (capital) for the maximization of value and efficiency of the enterprise. Thus, it can be understood that the financial management of a profit driven health care body is almost same as that of the other profit-driven entities in many aspects (Cleverley, n.p.). They all encounter overhead and staffing issues, cost-related and purchasing concerns, pricing issues, and all these matters impact the bottom line. In a health and social care organization, the financial resources need to be managed for the following reasons: 1. The hospital and social care organizations must maintain their financial capability. 2. The organizations must make ample profits in order to make continuous provision of present range of social and health services to the community. This refers to the fact that the equipments and buildings should be replaced and renovated as they become obsolete. 3. It is essential that the health and social organizations earn revenues for the purpose of investing in the new medical services and technologies just when they are required and developed. 4. The social service providers and hospitals must not depend solely on the government grants or philanthropy program for the purpose of funding its growth and operations. 5. The service and health sector will make efforts to facilitate the customers and community with the quality services at cheaper costs, given financial requirements are managed and fulfilled properly. The main users of the financial information in health and social care services include the stakeholders of the organizations. The following figure shows the primary users of the financial information: Figure: Users of Financial Information in Health and Social services The users of financial information include all the stakeholders involved in the provision and consumption of health and social services organziation. Everyone, from customers and patients to the suppliers of the services and consumers from the community are engaged in the financial management of the health care organization in one way or the other. Accounting Principles in Healthcare The healthcare organizations follow the general principles and practices of accounting as incorporated in the Proposed Audit and Accounting Guide "Audits of Providers of Health Care Services", 1988. This manual was developed by the Health Care Committee and the Health Care Audit Guide Task Force for the American Institute of Certified Public Accountants. It is usually referenced with respect to the guiding practices, concepts and principles for healthcare and social service organization (Office of Statewide Health Planning and Development. n.p.). According to the general principles and code of accounting, consideration of revenue measurement, a particular periods expenditures and deductions from revenue help determine the net income earned over an accounting period. It is necessary that the revenues of hospitals are recorded when they are earned. After the determination of revenue, the amount of expense must be measured in undertaking the services which formed the basis of revenue determination. If there is a contractual arrangement, then the hospital can possibly make agreement in acceptance of less than 100% of payment charges in full. The agreed upon payments and gross charges, is termed as a contractual adjustment. An account may be written as bad debt by the hospital when the debtor denies making payment even if the individual is able and determined to pay. All the provisions made to account for bad debts result in being deducted from revenue. A hospital is permitted to provide treatment to those patients who are not able to pay for medical services provided to them. Such type of care is termed and written-off under the charity care title and is subtracted from revenues. The general principles mentioned in the document recognize the basic accounting period as duration of one year. This can range over thirteen four-week periods, twelve monthly periods, or any other type of annual accounting period that may be utilized by the hospitals (Office of Statewide Health Planning and Development. n.p). The hospitals function through the interdepartmental services that are explained as the provision of utility that one department of hospital provides to another extraneous to and prior to the allocation of cost. The generally accepted accounting principles rule out the balancing off of expenses with their relevant revenue. Thus, all types of reimbursements such as refunds or rebates be made a recorded of in Other Operating Revenue. There exist differences of timing which affect the policies and procedures of accounting practices. They need to be reflected on the according records of the hospitals. These timing differences include third-party cost reimbursement contracts and income tax allocations. The wages and salaries of the hospitals include all the compensation that should be paid to the employees by hospital in cash for the actual or original hours worked. The actual hours worked by employees are the productive hours that should equate the total hours that are paid minus the number of hours employee is not present on the job. Costs and overheads Just like other businesses, the social and health service providers also incur costs and overheads in the form of different cost categories. There are different types of costs that occur in the hospitals and other organizations: Fixed Costs Fixed costs are usually similar to the administrative costs, because, they too lie in the spending areas that are tougher in terms of controlling and monitoring. In nature, fixed costs are usually relevant to the facilities, building maintenance, equipment amortization, utilities, and building leases. The hospitals and social service organizations can avoid the unexpected and expensive repairing costs by keeping the buildings well maintained (Roberts, Frutos, et.al. pp. 644-9). Variable Costs The variable costs are defined as those expenses that fluctuate in accordance with the usage. Similarly, the variable costs at hospitals and social service organizations include the expenses that vary with different medical needs and patient. Precisely, they can be expressed as the expenses which cannot be controlled by the physicians. For instance, medications; laboratory tests, nursing expenses, and medical supplies are supplied. After salaries, supplies are observed to be the second largest expense in the hospitals (McGourty and Shulkin, n.p). Administrative costs/ Overheads The administrative costs are defined as the non-patient contact costs that the hospital staff incurs. These costs are usually incurred by the activities that are non-revenue generating and the costs are required to be allocated to all those departments that generate revenues. They are typically set aside for the departments in accordance with the facility space used by the department staff. Effective Cost Management in Hospitals In order to engage in effective cost management procedures in hospitals, the management needs to undertake the management assessment so that the alignment, thinking, overhead management, operational planning, and other functions of the hospital system may be detailed. In this manner, the determination of cost management initiative can be undertaken. The financial resources used to manage the healthcare and social service organizations are as follows: Financial Statement Analysis In the health care organizations, the financial statement analysis also plays a vital role for the managers, boards, lenders, payers, and other decision makers. Ratio analysis is one of the widely accepted ways of evaluating the financial statements. The data from the income statement and balance sheet is utilized in order to produce such values through which the financial meaning can be interpreted easily. Most of the health care systems, hospitals, and various other healthcare organizations assess their financial health routinely through the computation of different ratios and comparison of the financial values of previous and current periods. Many organizations working in the social service domain also make comparison between their own ratio values and those of other organizations with similar operation in order to indicate areas of improvements and weaknesses. The financial performance dimensions are established in order to provide an overarching framework for identifying the corresponding financial indicators. Various financial indicators compute differing financial dimensions within the organizations. For instance, the liquidity and profitability ratios provide the information regarding the financial standing of the organization in order to make a sound and well-informed judgment with respect to the organizations financial health (McCue, McCall, et al. pp. 69-81). The profitability ratio provide the idea of the profit and revenue generation within an organization, but the liquidity indicators exhibit to the organizations in the payment of bills and the capital structure indicators depict the huge increases in the debts of organization. Budgets Budgeting process carries great significance for the organization in all types of businesses. A budget is defined as a quantitative term for a financial schedule for a particular time period. It comprises of elements such as resource quantities, planned revenues and sales volumes, assets, expenses and costs, cash flows and liabilities. In the budgets, the strategic plans of organizations, business units, events or activities are planned in measurable terms (Sullivan, Arthur; Steven, pp. 502). The budget management in social and health care serves the primary purpose of providing a prior analysis of resource performance given the money and time constraints so that the suitable interventions may be adopted if necessary. One of the many types of budgets may be prepared with regards to the resource ration of the organization. This would include, for instance, the number of people/staff to undertake a certain takes in a ward. For a health and social organization, a distinction has to be made between revenue and capital expenditure. The capital expenditures refer to the capital allocated once only, for large, new and expensive items like big equipment and building. The revenue expenditure, on the other hand, primarily includes the ongoing commitments or daily expenses such as drugs, payroll, and other materials including replacements and repairs of surgical and medical equipments and drugs. Traditionally, the decisions regarding the strategic budgeting are formulated at the organizational level on an “as needed” foundation relying upon the circumstances. It is at the corporate level that the in-depth analysis is undertaken in order to establish the viability and requirements of the project regarding the facility in question. Tactical budgeting has been another type of budgeting that is usually established at the “home” or branch facility where the “home” administrators and managers are equipped with the expert knowledge with regards to their management (Blanchard, pp. 14-20). After the compilation of the local tactical budgets, the process of review and acceptance or denial at the organizational level is undertaken. Financial Regulations in different countries The healthcare policies are regulated in accordance with the respective policy contexts in different countries. In Australia, for instance, the healthcare policy provides coverage to all the Australian residents. The health care systems are financed by Medicare, or the universal public health insurance covering all the hospital/ primary care and the pharmaceuticals along with the inpatient hospital charges (voluntary private insurance) (Moorin and Holman, 2006). In the country, it is the responsibility of territory/state government and Commonwealth to manage the social services. A blend of non-government organisations and government agencies deliver these services to the citizens. A single health and human service providing government agency plans and funds them in certain jurisdictions, while at other places, it is a faction of a distinct government department. The Australian community and health service policy is reformed by the Council of Australian Government (COAG). The entire system revolves around this perspective which performs the restructuring with regards to the funding, organisation, and community service and health management. In Canada, the health and social services are regulated through a combination of private funds and public (taxation). The federal funds in Canada are usually distributed among three territories and ten provinces and the physician services and hospitals are all publicly funded. Privately and publicly funded services, including pharmaceuticals and long-term care and cosmetic surgery are financed in this way. There are three governance levels for the networks of integrated service namely: (i) Local level (ii) (Ministry of Health and Social Services at the regional level (iii) Care Programs The government in Canada also finances the home care and long term care at a provincial level. Moreover, the coverage varies widely within and between the provinces with regards to the cost-sharing arrangements, covered services, and eligibility conditions. Since 2004 the all the specialized and generalized hospitals, along with the local community service centers and LTC hospitals in every local territory are required to coordinate their activities and merge with numerous other providers of services including inter-sectoral bodies such as municipalities and community organisations. United Kingdom has also got the financial management regulations of health and social care in place. Around 83% of the health and social service institutions are funded publicly through the system of central taxation. The National Health Services facilitate the provision of an extensive range of care services, usually free of charge at the point of consumption. Besides this, the local authorities fund the social care services such as home help, social work, counseling, day care, meals on wheels, and nursing and residential home care through a combination of local and central taxation. The inspection regimes and performance management is undertaken by the central government, however, the services have remained to be the subject to certain form of locally prevailing political control (Hultberg et al., 2005). The CPA or Care Programme Approach is one of the systems initiated by the government of United Kingdom for the purpose of coordinating and collaborating with the peoples care in the supervision of the experts of mental health services from the times of its inception in England in the year 1993. Besides this, the Health Act 1999 section 31 mentions the ‘flexibilities’ – i.e. the relief in the standard statutory boundaries and responsibilities– that are permissive instead of being mandatory (Hultberg et al., 2005) had been consolidated and replaced by the National Health Service Act 2006 (s.75) (Audit Commission, 2009). The United States has established a multi-payer, decentralized system with a blend of public and private sources of finance. There is approximately 44% of the funding of healthcare that is obtained from the public sector, along with the operation of Centers for Medicare and Medicaid Services (CMS) for principal schemes of public sector. Partial cost of care is reimbursed by the CMS that is rendered by the insurance plans sourced by private funding. The fee-for-service system is used to pay the physicians. There are wide variations in the Private Health Plans with respect to the cost and coverage for the enrollee (deductibles, premiums, conditions of reimbursement and cost sharing). The federal administered program in UK is the Medicare which is as insurance programme having a highly formulated and implemented medical model. However, it does not provide coverage for any other type of care or home care. Besides this, the United States provides the programs of long-term care through the private home care providers and private institutional facilities. The social support and health care programs are administered by the Department of Veterans Affairs with the assistance of numerous sub-Cabinet agencies, such as the Veterans Health Administration. Besides this, one of the other programs is Medicaid which is managed and administered by the state and regularized by law. The organization provides the services and “payer of last resort” (Ryan and Super, 2003) to the consumers along with the wrap-around services and long-term care, and some other form of acute care, i.e. transportation, outpatient prescription drugs, vision, dental care and hearing. Conclusion Financial Management is the lifeblood of every profit and nonprofit organization. All the institutions operating in the corporate world depend upon finance as one of the basic resources to make it a going concern. The elements of financial management in healthcare and social services are managed through income statements, capital expenditures and other schedules such as budgets. The governments of various countries have also initiated and implemented the acts and regulations for the management of financial and funding resources in the health and service sector. Bibliography Ahgren B. and Axelsson R. "Evaluating integrated health care: a model for measurement." International Journal of Integrated Care, 5, (2005): n.p. Web. 10 April 2014 Ahgren B. Axelsson R. "Determinants of integrated health care development: chains of care in Sweden." International Journal of Health Planning and Management, 22 (2007): 145-157. Audit Commission. Means to an end: Joint financing across health and social care. London, Audit Commission (2009). Web. 10 April 2014 Blanchard, G. “Information asymmetry, incentive schemes, and information biasing: the case of hospital budgeting under rate regulation”, The Accounting Review, Vol. LXI No. 1 (1996): 14-20 Cleverley W.O. "Financial and operating performance of systems: voluntary versus investor- owned." 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