Financial Management in the Healthcare Industry

Technological advances, changes in legal systems, and demand for personalized care pose new challenges for financial management in the healthcare industry. Planning and budgeting, monitoring, and evaluation are critical processes in the financial management cycle. Understanding these processes is a foundation for building an organization’s strategy. In this essay, I will focus on the significance of financial management and what kind of data is the most crucial for overall management.

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A thorough financial analysis ensures that a particular entity can survive in an extremely competitive market. Since the early 1970s, government at all levels, as well as private companies, have expressed concerns due to the increasing costs of healthcare services. Therefore, the healthcare industry felt the urge to adapt to the necessary requests with the help of financial management. Financial management requires the accumulation and assessment of various data sets.

There are several types of data that should be gathered by managers in order to plan accordingly, especially at the planning and budgeting stage. The first source of data refers directly to the market and the needs of the population within an area. Not only does it predict the demand, but it helps organize communication strategy. Besides, considerations of the external factors like reimbursement policies and tax incentives define the planning in the mid-term and long-term perspective. Another crucial source of data is an estimate of the capacity of each facility that should match the predicted demand, including emergencies. Since the human capital serves as the basis for the healthcare facility operation, salary expenditures may account for as much as 70% of the total expenses (Vraciu, 1979). Hence, the evaluation stage of the financial cycle will require the analysis of the actual performance in comparison to planned activities and budgets. Transparent control and evaluation system can make the assessment process smoother and faster.


Vraciu, R. A. (1979). Programming, budgeting, and control in health care organizations: The state of the art. Health Services Research, 14(2), 126-149.

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