The Integration Of Quality And Financial Management Plans

Healthcare finance is evolving in the recent years as organizations shift from volume-based to value-based care delivery. Healthcare managements assume accountability for the care of patient populations across the continuum, respond to healthcare reform, manage operations in the face of declining payment, and strive to meet demands for high-quality, cost-effective, and customer-oriented service delivery.

Financial management and control strongly relate to healthcare quality, whether at the governmental level or organizational based level. Starting from Pay for Performance that is implemented in certain countries like the UK.

Whereby the UK quality and outcome framework (QOF) was introduced in April 2004, which represents the worlds largest primary care pay-for performance Programme, aiming to reward general practices for delivering good-quality care. Extending to the US where the impact is clearly manifested at the eight basic payment methods in healthcare. These payment methods can influence the care provided to the patients in multiple ways. From quality perspective, the risk in those payment methods rises from ensuring that the money paid does not negatively affect the quality of care provided to the patients.

In addition to that does not drive decisions of physicians and healthcare providers that is not aligned with the perception that the physician’s first and primary responsibility should always be the patient. Sometimes changing in the payment method can have a sweeping effect- both good and bad. An example of that is in 1983 when Medicare inpatient payment jumped 3 steps from paying according to hospital costs to paying for diagnosis-related groups (DRG). Payment by DRG led to decreased hospital costs, shorter lengths of stay, reduced growth in Medicare payment, and even increases in hospital margins as hospital became more efficient.

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That successful experience by Medicare has been adopted by multiple payers in the US. By contrast payment today is a bubbling cauldron of experimentation. Accountable care organizations, medical homes, pay for quality, ‘value not volume’ and other concepts can take very different forms even within the same insurer. Currently the 8 basic payment methods remain applicable, but they are being combined in new ways.

To have a thorough understanding of quality and how it relates to health finance it is ideal to have a thoughtful apprehension of each. The Institute of Medicine defines health care quality as ‘the degree to which health care services for individuals and populations increase the likelihood of desired health outcomes and are consistent with current professional knowledge.’ It further defines quality as having the following properties or domains: effectiveness, efficiency, equity, patient centeredness, safety and timeliness. Efficiency relates to maximizing the quality of a comparable unit of health care delivered or unit of health benefit achieved for a given unit of health care resources used. While on the other hand the WHO defines the health financing as the “function of a health system concerned with the mobilization, accumulation and allocation of money to cover the health needs of the people, individually and collectively, in the health system.” The purpose of health financing is to make funding available, as well as to set the right financial incentives to providers, to ensure that all individuals have access to effective public health and personal health care” (WHO 2000). Seven dimensions of financial performance are defined as follows: 1) profitability refers to measures that involve the hospital’s ability in making a return, such as profit margin and return on assets; 2) liquidity measures refer to hospitals’ ability to fulfil cash obligations, such as days cash on hand and net days revenue in accounts receivable; 3) capital structure refers to the measures that evaluates a hospitals financing structure, such as debt service coverage and equity financing; 4) activity measures refer to the ability to convert products or services into sales, such as total asset turnover and fixed assets turnover; 5) cost measures refer to the amount of money used in various fashions, such as labour cost, hospital expenses per bed, total expenses per bed, and operating expenses; 6) revenue measures refer to the amounts and sources of acquired revenues, such as net patient revenue per bed, net revenue, net patient revenue per adjusted discharge, and revenue per admission; 7) utilization measures refer to the usage of facilities, such as occupancy rate and average daily census acute beds per swing beds (Oner et. al, 2016).

Risk management is concerned with understanding and managing the risks that a healthcare organization faces in its attempt to achieve its objectives. Organizations face many different types of risk. Financial risk is one of the important one. How organizations deal with that risk and how proper decisions are made is a key success for any administration. When performing cost analysis for management decisions, multiple ways can be used. First is full costing which is not appropriate and can give misleading results for choice decisions such as expand/contract or add / drop. Second is the deferential costing which is the right approach for most management decisions, in this technique costs are classified into variable , fixed, semi-variable and semi-fixed and it helps in using the breakeven analysis tool that can help in better understanding of the financial situation the organization is facing and using that knowledge in making better management decisions than with full cost. The contribution margin analysis is a technique that allows us to develop different kinds of income statements whereby those statements focus on how costs behave and contribution rather than financial accounting rules. However, there is another aspect that needs to be emphasized when thinking of financial risks, organizations managements always stands in a situation to alternative decisions. In any choice decision it is important to consider the following five steps in order to make the best choice: First, define the problem. Second, identify the likely alternatives (usually include the status quo). Third, evaluate the quantitative factors (how will costs and /or revenues change). Fourth, evaluate the non-quantitative factors. Finally, you make a decision.

In any healthcare organization management activities falls into 3 main categories. Professor Robert Anthony from Harvard Business school, the father of modern cost accounting has viewed those three management activities as a pyramid. First, at the top of the pyramid is the strategic planning that involves senior management and supports staff and typically looks out over a three to five-year period. At the bottom of the pyramid, is the operational control whereby a process to assure that specific operational, day to day tasks are carried out efficiently and effectively. Efficiency which is a link between finance management and quality measures the relationship between inputs and outputs. However, efficiency does not measure how well a task is being accomplished, effectiveness does. An example of that is a laboratory that very efficient in meeting labour standards for making lab tests but not effective by giving lots of false positive results which indicates lack of attention to quality. Management control fits in between, the middle of the pyramid and it is the process by which managers assure that resources needed to attain the stated goals are obtained and used efficiently and effectively.

In conclusion, the current evidence in the literature suggest that the integration of quality and financial management plans may be very beneficial for hospitals. Many organizations separate the two functions; however, this may not be the best option. Quality and financial are closely related and should be treated as such. Integrating the two plans and staff could lead to a higher quality, higher financially stable hospital. Financial plan and quality plan are both considered as integral part of the successful strategic plan of any healthcare organization.

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The Integration Of Quality And Financial Management Plans. (2022, Jun 10). Retrieved from

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