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Managing Healthcare Finance
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TABLE OF CONTENTS
Introduction .................................................................. 3
Health station business case .................................................. 3
Stage 1 Strategic context ................................................... 3
Stage 2 Identifying and defining objectives and assessing benefit criteria .. 4
Stage 3 Evaluation of sources of funding available .......................... 4
Stage 4 Measuring the benefits .............................................. 6
Stage 5 Identification and Quantifying the cost ............................. 6
Stage 6 Identification sensitivity of risk .................................. 8
Stage 7 Identification of the preferred option .............................. 8
Stage 8 Presenting the outline business case ................................ 9
Stage 9 Development of preferred option of performance measures ............. 9
Conclusion ................................................................... 10
References ................................................................... 11
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INTRODUCTION
Financial management refers to the effective and efficient management and control of funds
in such a way as to accomplish the objectives of the organization. Finance management of
healthcare organization play very significant role in meeting objectives and aims of the association.
In addition to this it can be said that it is the process through which financial needs of the entity can
be evaluated, and the best and suitable way to avail funds to fulfil these requirements will be
assessed (Whaley, 2010). Hence, it can be said that major task of financial management is to decide
that how to raise the capital and how to allocate it such as capital budgeting. The present research
report will provide knowledge regarding various kinds of financial resources available for the
business. Financial risk evaluation will be discussed in the study as through this overall risk
associated with acquiring funds can be decided. For this purpose series of stages are presented and
on the basis of this management can make effective decisions.
HEALTH STATION BUSINESS CASE
The present research report is based on case of Small Voluntary entity that was funded by an
urban development fund provided by the UK government to alleviate the effects of long term
unemployment and urban deprivation. SV organization is operating project Station, and facing
issues of financial crisis so it has been decided whether to transfer the present project to local NHS
bodies or retain it (Berger, 2008). In order to make effective decision the following Stages should be
followed to evaluate the present case.
Stage 1 Strategic context
It is significant to set strategic context because this is helpful in providing clear reason in
relation with the financial needs of the project and ensuring that the activities of project can be
carried out in future or not. Hence, it can be said it is significant in making effective decision
regarding important business issues such as should company continue the work or stop. The
managerial team of Small Voluntary organisation must determine the affordability of the proposal
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while creating strategic context for the business case (Courtney and Briggs, 2004). On the basis of
given information, it can be stated that currently, the entity is not able to perform operations of
health station project because it do not have sufficient finance to carry out overall operations.
Additionally, for solving the present issues and finance problems, the healthcare association
must find out and evaluate the suitable sources of funding through which it can easily treat patients
who are culturally sensitive linked with maternity and child care etc. By taking this kind of action
and evaluating the present situation through risk analysis, the managers can make effective decision
that firm will not transfer operations to the local NHS body and company will continue the
operations of Health Station project. Hence, this is possible to deal with the negative condition of
financial crisis with the help of financial analysis, and then monetary needs can be also satisfied
efficiently (Gapenski, 2012).
Stage 2 Identifying and defining objectives and assessing benefit criteria
After finding out the strategic context, the objectives and benefit criteria must be defined by
the managers of health care entity. In addition to this it can be said that in order to develop business
case, the management must define the objectives and benefits criteria, which is helpful for further
assessment. Hence, the objectives and benefits of services are evaluated on the basis of
requirements of every patient because each client have special and unique healthcare need. On the
other hand the entity desires to avail funds through ranges of sources, and the main objective of it is
to fulfil the financial need of present project Station. The main benefit of this is that health care
entity can easily treat its patients with advanced technologies and condition such as transferring
operations to local NHS body can be prevented easily (Harrison and Harrison, 2012). The major
objective of the station project is to improve maternity care and child care services in three year,
especially in the provision of late clinic, health education and sickle cell awareness programmes.
Identifying benefit criteria
Benefit criteria are concluded from service objectives which motivates to select the option
and to asses it which is generated in the investment appraisal. Benefit criteria can be divided in
three different parts such as financial benefits, non financial benefits and benefits which can be
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quantified easily. Furthermore, on the basis of given case, benefit criteria can be grouped as
improvement in services, situation of financial inadequacy will not arise in the future, requirements
of consumers can be satisfied easily, improvement in quality of services etc (McLean, 2002).
Additionally, it can be said that needs of the patients can be easily satisfied to sustain in the market
for long time period. On the other hand, by identifying and evaluating best source of funds,
company can fulfil its financial needs and can continue the business operations.
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Stage 3 Evaluation of sources of funding available
It is the major stage of present business case, which is helpful in evaluating various kinds of
sources of finance available for Small Voluntary organization to achieve objectives so as to gain
benefits. Normally, followings are the key sources of funding available for the association (for
health care project Station).
Bank financing: Bank is the financial institute which accept the savings of people and
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corporation and provide loans and overdrafts to general public and corporation (Moseley, 2009). It
charge interest on loans and overdrafts which is called as cost of this funding option. Hence, it can
be said that this is very easy and popular way of availing long or short term funding for health care
association. The management of firm can take loan by comparing interest rates of different banks.
Normally, there will be very small differences between interest rates of different banks. The major
benefit of this source of funding is that company can easily fulfil its big financial needs and can
repay the loan in small instalments. On the other side, the key limitation of this is that association
must pay interest which increases financial burden.
Trade credit: The health care entity is operating in this sector from last many years, and the
managers have big list of trade contacts or persons, that may be able to provide any amount of
money for business operations. Hence, this is very effective, easily and best options of financing
which the association can consider to deal with the adverse condition which is being faced
currently. Generally, trade friends charge low amount of interest, and hence it can be said that cost
of this source will be low than other credit option such as bank loan (Paterson, 2014). On the other
hand the major disadvantage of this method is that the amount of credit may be low and time of
credit may be very short. Thus, the association cannot avail funds for long time period with the help
of it. However, presently, there are various businessman which are ready to pay high amount of
funds with very low interest for long time period.
Sales of unproductive assets: This is also very easy way of availing funds for the business.
The association may have big amount of assets which are not useful for the healthcare entity. This
kind of unproductive assets can be sold out in the market to arrange money to fulfil current needs.
The main advantage of this method is that it will reduce cost of security, insurance, maintenance of
the assets. Additionally, it does not include any kind of financial costs (Penner, 2004). On the other
side, the key limitation of this source is that it will reduce assets from balance sheet and company
can get very low price to sale this kind of assets.
Hire purchasing: It is the process through which assets can be purchased easily by paying
price of equipments with the help of instalment system. This source of funding can be used by the
healthcare entity to buy the assets. The major advantage of this tool is that company can pay price
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of the equipment in instalments which reduce financial burden. The main limitation of it is that the
ownership of asset transfers by paying final instalment.
Leasing funding: It is the best way of sources in which company can arrange the assets for
its project. Lease is the contractual arrangement calling for the lessee to pay the lessor or owner for
use of an asset (Akintoye and Chinyio, 2005). The entity only need to pay dawn payment and rent
continuously. The major benefit of it is that company can arrange the assets or equipments without
paying big amount of money. On the other hand, the main limitation of this is that the ownership
does not transfer owner to entity.
Stage 4 Measuring the benefits
In this stage non financial benefits of the business case will be found, which can motivate
the entity to deal with the main challenges being faced. Furthermore, the advantages derived are
matched to the option costs and measured for ranking the sources present with the healthcare station
project. Hence, in order to measure benefits of every sources of funding, ranking is the best way.
The rank from 1 to 5 will be given to every funding source (Silva and Ferreira, 2010). The
following table shows the importance of source of funding by ranking.
Source of funding Score out of 5
Bank loan 2
Trade credit 4
Sales of unproductive assets 4
Hire purchasing 1
Leasing 1
On the basis of above table it can be said that trade credit and sales of unproductive assets
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are two important sources of funding that can be adopted by the entity to get maximum benefits.
Both the sources are best and suitable for the organisation as these include variety of advantages.

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Stage 5 Identification and Quantifying the cost
Cost of Station project and options selected must be identified and quantified by the
management team of healthcare entity in order to achieve aims and objectives easily. Costing is the
process of quantification of the values of resources needed by the entity to provide services to the
patients. By identifying the quantifying the cost of the project, management can decide the amount
of required funds and on the basis of it the effective source of financing can be easily selected
(Akortsu and Abor, 2011). Hence, following are the different type of cost that healthcare
organization has to bear with the main purpose to deliver effective services to patients.
Capital expenditures: These are the expenditures that play main role in generating income
for the healthcare entity such as hardware, land building, vehicles, fee and equipment. The health
care entity must buy the building which is the major capital expenses of the entity. Generally,
capital expenditure requires big amount of money.
Revenue costs: These are the expenses which not directly connected with capital costs but
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connected with daily running expenditures like salaries and wages, repairs, maintenance, interest
paid etc (Butters, 2004).
Cost centre and cost codes: Cost centre is the place in the company where expenditures are
collected and cost code is connected with recording business transaction which is segregated into
two parts where first one is cost centre and another is indicator of type of expenses.
Variable, fixed and semi-variable expenditures: These three types of expenditures play very
significant role in business functioning. Fixed costs are the expenses that entity must pay even the
company is not producing any unit of product or service (Desombre, 2007). Furthermore, the
expenditures which does not changes with the changes in output such as depreciation, salary,
insurance, rent etc. On the other side variable costs are known as the expenses which change with
the level of output, such as computer system, electricity, medical expenses, laundry etc. Semi
variable expenses are the combination of fixed and variable expenses.
Incremental or marginal costs: It can be defined as the cost of producing one addition unit
of the product or services.
Per unit cost: This is the cost of producing one unit of product or service, and this is helpul
in making pricing policy. This is calculated by following formula (Ezeoha, 2011).
Per unit cost = Total cost / Total output
Opportunity costs: Many a time business must select one option out of available two
profitable options. Hence, the profit of the second option which has been rejected by the entity is
know as opportunity cost.
Contributional costs: This is the difference between variable costs and income of the
healthcare association. Thus, this is also very significant cost of the business which must be
evaluated to make effective financial decisions (Helfert, 2009).
Stage 6 Identification sensitivity of risk
Sensitivity analysis is the major part of investment appraisal process, that is connected with
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identification of the feasibility of the proposal. The entity must evaluate the financial risk associated
with obtaining finance from different sources. The association can use the systematic procedure
through which the sensitivity of the risk can be easily identified. Thus, the following process can be
used by the entity for this purpose.
The first stage of identification of sensitivity of risk is to identity the source of risk exposure
in which sources of risk are classified into three parts such as risks that are not measurable
and unknown, risks that are known but not measurable and last one are risks that are both
measurable and known (Mohsin, 2013).
The second stage is quantification of the exposure in which model is adopted in identifying
the risk and cost benefit analysis performed in relation with this. This kind of exercise will
be helpful in deciding the actual benefits of particular source of funding. Hence, it can be
said that estimated results from the option will be found in this step.
In the third stage, impact of every source of finance on the business of the healthcare
organization will be evaluated (Nilsson and Furker, 2012). For example, if the entity will
use hire purchasing, it will improve the productivity of the business and its employees.
Firms capacity to repay the amount of adopted sources will be analysed in this step.
Currently the association is facing financial inability but operating business in the market
that helps in generating new opportunities in the future.
In final stage risk management strategy will be used to reduce risk.
Stage 7 Identification of the preferred option
As per the above risk analysis it can be recommended that health care organization should
use trade credit and sales of assets as the sources of funding, in order to fulfil the present
requirement of finance. The major reason behind this kind of selection is that both these options
includes very low costs than other. The entity is operating in the market from very long time period,
and it has big trade contacts. Hence, managers can avail funds through their trade contacts easily.
On the other side they can sale their unproductive equipments to arrange the money to run business
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operations (Sedevich-Fons, 2014). This kind of action will be also helpful in reducing various types
of costs such as maintenance, security, insurance of assets. Additionally, by using these options of
funding company can manage its financial needs easily and run health care services properly, and
then it is not required to transfer operations to other NHS.

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Stage 8 Presenting the outline business case
This stage is designed to present the outline of business case, through which viability of
different alternative sources of funds can be demonstrated easily. The major points covered in the
business case report can be listed as below.
Sources of funding available for Small Voluntary organizations such as bank loan, leasing,
hire purchasing, trade credit, sales of unproductive assets etc.
Preferred or suitable options for the entity i.e. trade credit and sales of unproductive
equipments (Shaoul, Stafford and Stapleton, 2010).
Different types of costs of healthcare association like per unit cost, variable, fixed and semi
variable costs, opportunity cost etc.
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Stage 9 Development of preferred option of performance measures
Performance measurement is the process through which success and failure of the business
case can be determined easily. The major reason of success or failure of any plan can be analysed
with the help of effective performance measurement. Generally, there are ranges of tools and
techniques through which performance of the business can be measured and performance can be
improved by modifications. The key methods can be discussed as below.
Balance score card: It is the strategic performance management tool through which
performance of plan can be measured. In addition to this, this is a semi-standard structured report,
supported by design methods and automation tools, that can be utilized by management for keeping
track of the execution of tasks by the employees within their control and to monitor the
consequences arising from these actions (Whaley, 2010). Furthermore, it is framework which entity
adopt to execute the strategies and tracking the activities of the staffs. By using this technique
healthcare station can easily implement proposal of raising funds and easily measure the
performance of proposal.
Benchmarking: This is the procedure of comparing actual performance of the entity with
standards. The company can set the benchmarks for each and every activity of the proposal, and
then they can control and manage the activities according to standards. Finally, by comparing the
actual performance with benchmarks, management can measure the performance easily. Healthcare
organization can also set the standards for its Station project to control, manage, monitor and
measure performance of project easily (Ezeoha, 2011).
CONCLUSION
On the basis of above study it has become easy to understand the importance of managing
financial resources in health and social care for rendering effective services to clients. Small
Voluntary Organisation is not able to deliver suitable services to its patient because of inadequacy of
funds, and hence they must make decision that which source of funds should be used to deal with
the financial crises. Thus, on the basis of above risk analysis it has been found that company should
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utilize trade credit and sales of unproductive assets in order to improve the present condition. The
study concludes that sources of funding should be evaluated with the help of cost of capital,
availability, implementation, financial risks etc. factors.

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REFERENCES
Books and Journals

Akintoye, A. and Chinyio, E., 2005. Private Finance Initiative in the healthcare sector: trends and
risk assessment. Engineering, Construction and Architectural Management. 12(6). pp.601
616.
Silva, P. and Ferreira, A., 2010. Performance management in primary healthcare services: evidence
from a field study. Qualitative Research in Accounting & Management. 7(4). pp. 424 449.
Akortsu, A. M. and Abor, A. P., 2011. Financing public healthcare institutions in Ghana. Journal of
Health Organization and Management. 25(2). pp. 128 141.
Berger, S., 2008. Fundamentals of Health Care Financial Management: A Practical Guide to Fiscal
Issues and Activities. John Wiley & Sons.
Butters, J., 2004. Managing finances for a fulfilled Canadian retirement. Leadership in Health
Services. 17(1). pp. 12 18.
Courtney, B. and Briggs, A., 2004. Health Care Financial Management. Elsevier Australia.
Desombre, T, 2007. Healthcare Management. International Journal of Pharmaceutical and

Healthcare Marketing. 1(1). pp.96 97.
Ezeoha, E. A., 2011. Firm versus industry financing structures in Nigeria. African Journal of
Economic and Management Studies. 2(1).pp. 42 55.
Gapenski, C. L., 2012. Healthcare Finance: An Introduction to Accounting and Financial

Management. 5th ed. Health Administration Press.
Harrison, C. and Harrison, W., 2012. Introduction to Health Care Finance and Accounting. Cengage
Learning.
Helfert, M., 2009. Challenges of business processes management in healthcare: Experience in the
Irish healthcare sector. Business Process Management Journal. 15(6). pp. 937 952.
McLean, R., 2002. Financial Management in Health Care Organizations. 2nd ed. Cengage
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Learning.
Mohsin, A. I., 2013. Financing through cash-waqf: a revitalization to finance different needs.
International Journal of Islamic and Middle Eastern Finance and Management. 6(4).pp. 304
321.
Moseley, B. G., 2009. Managing Health Care Business Strategy. Jones & Bartlett Learning.
Nilsson, K. and Furker, C., 2012. Learning leadership through practice healthcare managers'
experience. Leadership in Health Services. 25(2) .pp.106 122.
Paterson, A. M., 2014. Healthcare Finance and Financial Management: Essentials for Advanced
Practice Nurses and Interdisciplinary Care Teams. DEStech Publications, Inc.

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Managing Healthcare Finance

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HEALTH STATION BUSINESS CASE

Stage 1 Strategic context

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Stage 2 Identifying and defining objectives and assessing benefit criteria

Identifying benefit criteria