Many people who work in healthcare environments never have to think about finances and the way that money impacts on the healthcare experience. If you work as a nurse, for example, you’re likely to be so occupied with the busy work of taking care of patients and administering medication to be concerned about the overall financial picture of the hospital or clinic at which you work. And if you’re a doctor, it’s probable that you will too be so focused on clinical care – like making diagnoses and drawing up treatment plans – to immerse yourself in the nitty gritty of the financial planning – and that makes sense.

But financial management and decision-making matters, for a number of reasons. It’s integral to ensuring the long-term sustainability of the healthcare institution and the people whose wages it pays. It has consequences for the care of patients, who tend to benefit when their healthcare provider is adequately resourced. And it’s important to remember, too, that patients often have to think financially in relation to their healthcare options, perhaps when they contact their insurance provider or receive a bill after treatment. So even if you’re not a senior decision maker, it’s definitely wise to have financial decision-making on your radar. On that note, here’s a run down of just what financial decision-making looks like in healthcare, and how it interacts with and can even improve patient care.

What is financial decision-making?

First off, you may be wondering just what financial decision-making actually is. In short, it’s a set of practices carried out at management level to plan an organization’s financial health, often with an ultimate goal – such as avoiding a loss, or making a profit, or ensuring that adequate budget resource is available for the organisation or business to carry it out its functions. It’s a core task for any organisation, but it’s especially important for healthcare environments – not least because patients outcomes, and because the jobs of so many clinicians and primary care practitioners, are dependent on the organization’s continued existence as a functioning and solvent institution.

One example of a financial decision is investment. Say an organisation has a fixed amount of funds available to spend that is not required to cover the costs of its essential work and services. It may take the financial decision to ring fence some of these funds in case they are ever needed for emergencies, such as a major building issue. And it may then decide to direct the balance towards investment: this could mean buying a new site, for example, or hiring a team of doctors from a particular area of specialism in which the organisation wants to expand its offer. Financial decision-making is, sadly, not always positive. Sometimes, it’s necessary for senior decision-makers to make difficult financial decisions. Cutting spending, for example, is an example of a financial decision – and of one that can have profound effects.

Finally, it’s vital to understand who makes the financial decisions in a healthcare environment. The casual outsider may be under this misapprehension that all decisions taken in a healthcare environment are taken by doctors; it’s understandable that this misapprehension has sprung up, not least because patients often see doctors as the most powerful person in the consulting room or on the ward, with lots of abilities to make decisions with far-reaching consequences (even in the era of patient-centered care).

In some small cases, the healthcare practitioners themselves may also provide this sort of leadership. But the reality is that financial decisions in healthcare environments are often taken by senior managers who are either not clinically trained or who are no longer practicing as clinicians. In this sense, financial decision-making can be understood as the product of a division of labour. The Chief Executive Officer, or a person in a similar managerial role, may well be the one who has ultimate responsibility for financial decision-making, or sets the priorities for doing so (and the context in which it is executed). A Finance Director may be responsible for actually executing the decisions, or even making the decisions to begin with in some contexts. It depends in part on the size of the healthcare organisation: for example, a very large organisation is likely to have a number of personnel working on this, while a smaller clinic may have one.

And how does it impact healthcare? 

Some of the ways in which financial decision-making affects healthcare outcomes are obvious. A hospital that has a comparatively large amount of ready cash available to spend is probably more likely to have positive patient health outcomes because it can purchase or lease cutting-edge equipment, hire top quality doctors who have studied at excellent schools, and so on. Crucially, though, it’s the case that both the cash has to be available to spend but also that the decision-makers in charge of it are willing to go ahead and spend it: if they’re not, the impact for patients may never be felt, as the organisation may instead be sitting on the funds and treating them as reserves.

One key question for patients and healthcare professionals alike to grapple with is the question of whether or not financial decision-making should be, or can be, totally separate from healthcare and clinical work. One prominent school of thought on this suggests that there ought to be total and firm distinctions between the two, and that the presence or lack of financial resources should never have an impact on the decision a doctor makes regarding a patient.

This is despite the fact that many of the services offered by the best healthcare professionals are clearly non-efficient in a purely economic sense, at least at the time at which they are taken. Entering a patient into a treatment plan is in many ways hard to cost, because it’s not always clear or predictable whether the treatment will work; in that sense, healthcare organizations are taking on a lot of financial risk, and running up “losses” when treatment doesn’t immediately work.

In some economic ways, then, it makes no sense to have a separation between financial decisions and clinical decisions; some might argue that it’s better to have both clinical and managerial staff involved in making these choices so that both perspectives can be ensured and that organizational health can be protected as well as clinical health. Those who take an Executive Master of Health Administration online at an institution like the University of Ottawa are likely to study the concept of efficiency in a healthcare sense – and it’s easy to see why.

But the argument in favor of not doing it that way is a moral one: by keeping the two separate, patient care can truly be put first and patients can be looked after “no matter what”, and that their care is guaranteed because it’s insulated from the risk of being decreed too expensive or inefficient. And there’s also an economic argument, too: by creating bonds with patients and investing in the open-ended and potentially complex process of helping them get better, the organisation is expending time and resources but it is also building a long term customer base that will let patients trust the organisation and come back for repeat healthcare in the future.

Patient choice

It’s interesting to consider whether or not the financial decision-making of a healthcare environment ought to be taken into account by patients making decisions about their healthcare trajectory. It’s not, of course, the case that all patients always have access to a broad range of choice. Often, people are directed towards a particular healthcare environment or institution because their insurer obliges them to do so, and in that sense the financial decision-making of the healthcare environment is unlikely to come into the equation, or at least not at a patient level.

But there are plenty of situations in which patients have, for whatever reason, got more choice over which healthcare environment they want to use. They may have funds in place to pay a particular medical bill directly rather than using insurance, or they may be accessing a healthcare environment that isn’t insurance-based – perhaps because of their location. Either way, in these situations it’s prudent for a patient to do a little bit of research into their healthcare provider’s financial decision-making and the effects that this has had – and is likely to have – on their care.

Patients can use a variety of techniques to discover the financial decision-making practices of their healthcare organisation. One way is to look at accounting records, perhaps through the relevant department in your state. But perhaps the best way to do it is simply to ask the organisation. Any healthcare organisation worth its salt should be happy to tell you how it manages its finances, and also give some indication of where and how it spends and invests its money. If you have specific concerns, such as whether the healthcare organisation has enough funds to have a long term plan that will outlast your particular treatment journey, don’t be afraid to ask and to see some information.

Data and insights

No discussion of the role of financial decision-making in a healthcare context would be complete without also looking at the role that data and insights can play in making decisions which are beneficial both to an organization’s finances and also to patient care. The theory goes that organizations which capture effective data on the financial end can then apply this to patient outcome data, and look at the two holistically – rather than in separate siloes.

The good news is that there are sophisticated healthcare data systems out there today which can not only capture data on both ends of the spectrum but can also cross-compare and analyze the results. Take the use of medical equipment as an example: a sophisticated healthcare data system will be able to keep records of how much this costs, of course, perhaps through logging the initial capital outlay on the device followed by the cost of it degrading (such as its declining value with each passing year that it is owned). And then it can also capture the same piece of equipment’s impact on patient care: for example, it can show how often the piece of equipment gets used, and what exactly it is used for. From there, it can produce a report showing the value of the piece of equipment in all senses of the word. Another example might be drugs: certain pharmaceuticals can be particularly expensive or volatile in price, leading to some financial decision-makers having to wonder what’s worth it. But by combining this pricing information with long-term patient outcome data on each drug, financial decision-makers can see with a higher degree of certainty what exactly is worth pursuing.

As mentioned above, however, the presence of cash alone doesn’t necessarily mean that patient outcomes will be improved, as it’s contingent entirely on what the decision makers within the organisation choose to do with that information – and the same is relevant to data. If the decision makers refuse to use the data, or fail to understand the importance of capturing and governing and analyzing this data correctly, then it is likely to never inform the budget or investment decisions, and therefore the benefit of holistic data is likely to never reach patients.

For that reason, company culture is as important as the presence of data or cash when it comes to financial decision-making in a healthcare context. Senior leaders within healthcare organizations have to ensure that they are flexible, adaptable and responsive enough to actually act on the information they have in a way that boosts patient care. This might involve some difficult changes, including to senior personnel, especially if the current environment is slow and sluggish.

The government

Finally, it’s also important to keep an eye on what is happening at state and federal government level. It’s of course the case that in the US healthcare costs are covered from different sources: in many cases, a person’s employer will pay for their healthcare through an insurance package, while in other cases people will use government schemes such as Medicare or Medicaid. All healthcare organizations have to build their budgets and financial plans around their particular mix of income lines, and it’s a pretty basic task.

But it’s also important for financial decision-makers to be aware that the policy context is subject to change. It’s not out of the question that an expansion of Medicare could occur in the medium term, especially given current context. Just last month, President Joe Biden announced that he is “going to extend the Medicare trust fund for at least two decades”, and promised to take the fight to state governments that are resisting Medicare expansion. For that reason, it’s pretty prudent for those in positions of financial power in major healthcare environments to be sure that they have some resilience and flexibility within their financial plans just in case they one day have to make decisions in a policy context that is very different to the one they currently occupy.

Ultimately, then, financial decision-making is integral to the way that a healthcare environment functions. Decisions around where funds are directed to can make or break the patient experience; it can also allow a healthcare environment to make investments which boost patient care, such as through hiring more nursing staff or buying top of the range medical devices. That’s not to say there are no question marks over how financial decisions should be taken in healthcare environments; on the contrary, healthcare providers often have to make tough choices, such as laying off staff, and balance that with the vital need to not allow economic considerations to have direct sway over individual care decisions for patients. By ensuring that it invests in managerial staff with business planning and finance skills and expertise, though, it’s possible for healthcare professionals to successfully navigate – and answer – these questions.