The Role of Hospital Financial Management in Cost Reduction

The financial management of hospitals plays a larger role today in administering the business of healthcare institutions than ever before. The leading aspect is planning for the acquisition of equipment and appropriate the funds (capital) that will allow the institution to run efficiently along with the fiscal responsibility to stay solvent. Hospital financial management, according to the American College of Healthcare Executives, requires some very specific functions. Chiefly the role for the future fiscal health of the institution and how to control costs. They include:

  • The decisions on investments and strategic planning regarding new facilities and fixed assets.
  • The development of capital for how the processes will fold out in terms of the internal and external funds. Whether they will be used to pay off long-term or short-term debt.
  • How management will work together to make decisions regarding incoming securities and actions to reduce costs.
  • Regarding the short-term approach to asset management as well as how receivables and inventories will be managed.

Ultimately, how can a hospital financial management department save money and reduce costs? How Yale New Haven Health System Saved $125 million in Costs A report on a survey conducted by the Yale Health System in the June 2015 Healthcare Finance News, revealed that physicians are not aware of hospital costs and didn’t have access to the information. However, Yale chose to make this information available in an attempt to see how this may change the approach to expenditures. Yale was reaching for a way to reduce costs by about 20 percent without having to lay off staff. The Yale hospital finance management staff created an approach of combining “quality metrics” and their cost accounting system. Yale project leaders said they concentrated on, “labor, non-labor, human resources and clinical redesign,” to reach their goals and reduce costs. At the same time they enlisted the heads of the clinics to monitor costs in each department to get a better sense of expenditures. The result was a savings for the year was $125 million. If you would like information on how we can help you with your hospital financial management, be sure to contact us today.

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