Understanding the Importance of Financial Management in Healthcare Organizations

Understanding the Importance of Financial Management in Healthcare Organizations

While all industries rely heavily on efficient investment management, it is critical in the healthcare industry due to the high cost of medical care. The importance of financial management in healthcare organizations is clear: people who run medical practices of any sort need someone to handle the business and financial aspects of operating a medical facility. A finance team focuses on overseeing facility operations, information technology, personnel, and accounting—all while improving patient care and reducing the costs of medical services. 

What is Healthcare Investment Management?

As the healthcare industry faces challenges, such as new legislation, advances in technology, and growing market share, healthcare administrators must strategize and address these matters to stay financially viable. To accomplish this, health organizations must recognize the significant cost factors and identify potential solutions to achieve financial savings. 

Through strategic healthcare investment management, healthcare companies can outsource maintaining financial operations that provide quality patient care, investing in necessary updates, and creating new revenue streams to financial experts. Routine tasks involving finances—including maintaining budgets, negotiating contracts, and ensuring sufficient funds are available to meet expenses—are also dealt with by the financial management team. Budget planning alongside the board of directors is an additional task that financial management departments oversee to ensure the acquisition of all supplies, equipment, and personnel necessary in maintaining operations.

The Benefits of Financial Management

Although financial management in the healthcare sector exclusively deals with financial matters, it offers various benefits across the healthcare industry for providers and their patients:

Analysis and Reporting

Investing in medical research and specialized equipment through a financial management company allows practice owners to more effectively track and analyze their expenses and the overall cost of related patient outcomes. Strategic medical investing can also provide healthcare facilities with the information needed to establish successful and cost-effective tactics to create smart investments for future growth. In a 2010 case study from the Journal of Business Case Studies, Cleveland Clinic established a strategic financial management plan that would ensure a long range of financial success focused on the mission and vision of the organization. 

Risk Management

Though the healthcare industry has an acute focus on preventing patient-related risks, healthcare risk management makes it a priority to monitor other threats beyond patient-related concerns. 

This includes ensuring that the healthcare facility’s medical records are protected from hackers to help prevent fraud or the misuse of funds. To ensure confidentiality of records, an understanding of the reimbursement policies of the government and insurers is crucial in order to have a vital comprehension of compiled patient information. 

Quality of Care

As healthcare providers implement value-based payment models, caregivers are paid based on the health outcomes rather than the services that doctors performed. This model allows healthcare providers to assist patients in reducing their risk of chronic disease and reducing the long-term cost of care by improving their immediate health concerns.

New Revenue Sources

Hospitals should be cautious about the new revenue streams they can—and should—invest in as the healthcare marketplace continues to grow and shift. Through healthcare investment management systems, new strategic revenue opportunities are developed per the following guiding principles:

  • Alignment with the healthcare facility’s broader mission
  • Respect towards the facility’s core business capacity
  • Delivery of a strategic advantage

To discover new revenue sources, hospital facilities must follow the current trends dominating the healthcare industry.  

Emerging Healthcare Trends

Modern technology is impacting every aspect of our world—including healthcare. Trends like artificial intelligence (AI) and big data can assist in developing digital health tools for preventative care and technology-based services for enhancing access to patient care and satisfaction. 

As we see a decline of in-patient hospital admissions, outpatient service models allow for additional revenue growth by influencing hospital facilities to partner with or buy out physician practices to deliver outpatient services. 

Demographic trends are also a source for potential opportunities to develop programs, products, and strategies to serve specific populations. Similarly, telemedicine and the increasing prevalence of digital healthcare apps also help drive patient growth and create value for investors by rendering their services to elderly patients or patients in remote locations who cannot visit a hospital.

The Healthcare Industry—A Growing Market

As the American population continues aging, the healthcare industry grows faster than any other in the United States. By 2030, there will be a critical need for medical professionals who specialize in the distinct needs of the elderly as we observe a 50% shift in age demographics with 72 million Americans aged 65 or older. 

The healthcare industry continues to have ample career opportunities across various markets, such as the expectation of a 49% increase in personal care aide employment by 2022. Other healthcare careers expected to grow 41% or more by 2022 include diagnostic medical sonographers, therapy assistants, and home health aides. 

The importance of financial management in healthcare organizations should not be discounted. Although financial management is a challenging task that faces new financial difficulties each day, providers remain diligent in improving patients’ lives. With strategic cost-reduction efforts and unconventional revenue-generating ideas, healthcare facilities have an opportunity to increase profitability, improve patient care, and provide ample job opportunities within the following years.

Azhar Hirani blog author
Azhar Hirani

Azhar Hirani manages the private equity sales team, which involves relationship management, advising and educating retail clients on new private investments, analyzing private equity portfolios, and oversight of clients’ invested capital in internal private projects. Passionate about business, marketing, and sales, Mr. Hirani maintains deep expertise in high ticket sales and has a record of success in sourcing capital and acquiring new customers.


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