Skip to main content
Updated date:

The Role of Finance in Healthcare


Jeff Zod is a health, fitness and nutrition enthusiast.He enjoys eating healthy food and exercising.


Health care organizations are like any other business organization that depends on financial management for it to operate. The major role of having financial management in health care is to manage money and the risk that may happen so as to help them attain their financial goals. Considering the high cost of health care in the country, it is very important to have financial management department.

There are several tasks that are conducted in the health care industry which include; maintaining the expenditure within the budget, setting contingency funds, making sure that money is available to satisfy every expense such as payroll and negotiating a contract with tradesmen and suppliers. Planning of the budget is a central role that is conducted by the financial management department together with the board of directors to ensure that all the required equipment, personnel, and supplies are easily procured to ensure smooth operations.

The financial management department is mandated with myriad tasks than any other industry in the country. Therefore a competent and experienced staff is required to handle the financial trends and in most cases, the financial management team is managed by an MBA who is directly accountable to the board of directors and in many instances, large organizations have more than one accountant. A health care organization that has stable and organized financial management strategies is able to offer quality services to patients (Cleverley & Cleverley, 2017).

Diagnosis codes and their impact on reimbursement

Diagnostic coding is the conversion of written details on illnesses, injuries and diseases into codes following a certain classification. Any health care provider, pharmacy, medical equipment supplier or physician filling and submitting a claim to any third party, has to adhere to the set new codes, ICD-10-CM to describe the diagnoses of the patient so as to make the provision of services easier.

As an inclusion in the implementation of the ICD-10, the new DRG grouper practices will be required to transform the new codes into the DRGs to proceed with payment. For the inpatient services, the rates of reimbursement depend on the rates of cases negotiated and this directly impacts the DRGs.

Medical records ought to be coded to determine the revenue neutral and what it means for the health care industry. Health care providers may be limited to interpreting revenue neutrality or lack enough data to evaluate the issue. In another instance updates to the ICD-10 may impact the reimbursement where the payment policies are to be changed as well as the reporting system which will be based on the diagnostic codes.

Based on the current contract reviews, there ought to be a critical evaluation when dealing with provisions that focus on revenue neutrality, policy and manual compliance (Tsopra et al., 2016)

Features of third-party payers

A third party payer is an entity that is contracted with the reimbursement and management of health care expenses. Examples of third-party payers are public insurers, private insurers, self-insurance who cater for the expenses from their own incomes and commercial insurers. This type of insurance is a great income source for health care providers in the health care industry.

he health insurance companies were created by the government so as to help the public against health care burdens. The third party payers cater for the healthcare expenses on behalf of the patients. The patients pay a premium and in other occasions co-pays to these third-party payers and in most instances, they help reduce the finances of the patients. Normally, the third party payers do not pay all the expenses as there are deductibles that are first cleared by the patient.

Today, the deductibles may require that the insured individual pay up to $5,000, their own pocket before the third party payers gets to pay the expenses (Noland & Mentch, 2014).

Reimbursement Methods Used and Effects of Coding On Reimbursement

There are five common methods of hospital reimbursement; shared savings, bundled payments, fee-for-service, value-based reimbursement and discount from billed charges. First, fee-for-service is a model that includes specified negotiated rates for every service of procedure required; nonetheless, overtime and other additional management components and cost controls are encompassed.

Second, a discount from billed charges affords the providers with the lowest level of risk with the payer allowing reimbursement at an agreed discount employing the Charge Description Master which functions by tracking the activity and the billing services.

Third, Value-Based Reimbursement model compensates the health care providers using a fee-for-service technique using quality and resourceful components. Fourth, the shared savings model gives onward incentives and offers lower risks to individuals to enhance harmonization of outcomes and care based on a recognized patient population. Last, bundled payments make available reimbursements to the health care providers for explicit care episodes.

The reimbursement for health care services and procedures is made by commercial payers such as United Health care, Aetna or federal intermediaries that represent health programs. The claims made by the health care providers employing the procedure codes and the medical diagnosis determine the reimbursement.

Medical coding has a significant impact on the performance of the revenue cycle. The health care organizations cannot afford to make mistakes that may impair its operations thus has to use quality medical coding. Quality medical coding is also important to any provider as it saves them from denied claims.

Denial of claims can strain the organization as it is a major strain on the revenue where payments to the providers can be withheld, delayed or stopped. Preferably, combating any instance that may lead to denial is the best option to prevent associated costs and controls. When there is denial, the cost of working them out is not regarded as an expense but an investment that will return high returns (Tsopra et al., 2016).


Cleverley, W. O., & Cleverley, J. O. (2017). Essentials of healthcare finance. Jones & Bartlett Learning.
Tsopra, R., Peckham, D., Beirne, P., Rodger, K., Callister, M., White, H., ... & Wyatt, J. C. (2018). The impact of three discharge coding methods on the accuracy of diagnostic coding and hospital reimbursement for inpatient medical care. International journal of medical informatics, 115, 35-42.
Noland, J., & Mentch, C. (2014). U.S. Patent No. 8,712,800. Washington, DC: U.S. Patent and Trademark Office.

© 2018 Jeff Zod


Miebakagh Fiberesima from Port Harcourt, Rivers State, NIGERIA. on October 15, 2018:

Good to noted.

Jeff Zod (author) from Nairobi on October 15, 2018:

@Fiberesima, Corruption occurs whether there is political stability or not.

Miebakagh Fiberesima from Port Harcourt, Rivers State, NIGERIA. on October 14, 2018:

Hi, Jeff, political instability or rather the polity can factor in this, right? You can correct me. Thanks, and good day.

Jeff Zod (author) from Nairobi on October 14, 2018:

Hi Liz and Fiberesima,

In Kenya, the health care system is riddled with corruption and bureaucracy.

Miebakagh Fiberesima from Port Harcourt, Rivers State, NIGERIA. on October 14, 2018:

Hello, Liz, I appreciated it. in Nigeria, a health insurance scheme is being formulated. But it is to be financed by the government, employers of labour, and employees. It is still in its initial stage. But some states, like the Arabic and Hausa speaking states, has taken off with it freely to capture political votes. Thank you.

Liz Westwood from UK on October 14, 2018:

I think we are very fortunate to have a National Health Service, but its finance is an ongoing concern.

Miebakagh Fiberesima from Port Harcourt, Rivers State, NIGERIA. on October 14, 2018:

@Liz, quite the opposite in Nigeria. You pay as delivered. Exceptions can be made for infants, toddlers, and older persons.

Jeff Zod (author) from Nairobi on October 14, 2018:

You are welcome Fiberesima.

Liz Westwood from UK on October 14, 2018:

Our healthcare system in the UK is very different. We have the tax-funded National Health Service, which is free at the point of delivery but appears to be creaking at the seams, unable to keep pace with demand. We also have the private sector largely financed by insurance premiums or direct payment. It will be interesting to see what the future holds for health care in the UK.

Miebakagh Fiberesima from Port Harcourt, Rivers State, NIGERIA. on October 14, 2018:

Hi, Jeff, this is a good article but it seems somehow a little technical and professional. Thank you for sharing.

Related Articles