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Healthcare Finance: An Overview

April 14, 2024

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Two doctors meet with a businessperson in a hospital corridor

MRI scanners, ultrasound imaging, and contract labor are all expensive — it costs money to deliver quality health care. Healthcare finance is important because only through careful and strategic resource allocation can medical organizations administer that care consistently.

Health care is not only one of the fastest-growing industries in the United States but also one of the most costly. Data from the Centers for Medicaid and Medicare Services (CMS) indicates that total healthcare expenditure will surpass $6.2 trillion by 2028.

Individuals who have a passion for health care and a head for finance may be drawn to healthcare finance careers. By pursuing an advanced education in health administration, accounting, and related fields, healthcare finance professionals can make a meaningful impact on patients, providers, and entire organizations.

What Is Healthcare Finance?

According to HealthAffairs, healthcare finance is “how financial resources are used to ensure that the health system can adequately cover the collective health needs of every person.” It is an integral element of health care, and it affects all aspects of care administration and delivery.

The work of healthcare finance professionals can be lifesaving because it has a direct impact on patient outcomes. It’s important to understand what healthcare finance is and how it can further the mission and affect the day-to-day operations of medical organizations.

Healthcare Finance’s Purpose

Every medical organization’s goal is to deliver top-quality patient care. Through effective financial management, organizations can make the best use of their finances and promote positive outcomes for the patients they serve. Without effective healthcare finance, organizations are not able to deliver quality care and barriers to care increase.

Simply put, professionals who work in healthcare finance ensure that their organizations have the financial solvency to continue operating.

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Healthcare Finance Day-to-Day

Healthcare finance professionals may work to reduce financial risk, maintain a healthy cash flow, and find the best investment opportunities for their organizations. They may also establish measures to reduce fraud and achieve full compliance with financial regulations.

An easy way to think about healthcare finance is to break it down into the four C’s: costs, capital, cash, and control.

Costs. Costs take into account all expenses required to run a hospital, clinic, or private practice. These costs can include anything from the money to pay for latex gloves, to new X-ray equipment, or for doctor and nurse salaries.
Cash. Cash is the amount of money that is on hand on any given day. A major component of the finance department is to ensure that sufficient cash is always available to cover any urgent costs.
Capital. Healthcare facilities need to make strategic investments in their ongoing success. Capital is money that can be invested in a building expansion, a major equipment purchase, the development of a second campus, and so forth.
Control. Finance professionals control where money is spent and ensure that their organizations are operating within regulatory and legal parameters.

Core Components of Healthcare Finance

The role of healthcare finance professionals is multifaceted. They must consider how to bring in money, how to invest it, how to finance patient services, and much more. Consider the components of any healthcare finance strategy.

Income

First, any successful healthcare organization needs to generate income. A big part of the finance department’s role is to determine the best ways to do so. This may involve researching the profit potential of a new service line or considering telehealth options to provide the organization with a chance to reach more patients. It may also mean negotiating with insurance payers.

Compliance

The laws that govern healthcare organizations change constantly. It is up to the finance department to maintain compliance with them. Doing so is an important way to continue the organization’s tax-exempt status, and it also helps preserve the organization’s reputation.

Investment

Another important strategy applied by healthcare finance professionals is determining the best areas to invest capital. This can mean investing in research and development for new medicines and clinical protocols, or it can mean financing new facilities, new equipment, and new types of care.

Risk Management

Healthcare organizations need to reduce their liquidity and credit risks. They often do this by focusing on prompt payment of invoices. At the same time, minimizing risk when it comes to the safety of patients, doctors, nurses, and other personnel is crucial. Workplace accidents resulting in absenteeism or litigation can put a big dent in a healthcare organization’s finances.

Fraud

Healthcare finance professionals strive to minimize financial fraud. A common issue in a healthcare setting is physicians directly ordering their own equipment or supplies. This can be a smart way to minimize lags in the supply chain, but it may also leave the door open to fraudulent spending. Regular audits can help prevent this, creating an environment of total transparency.

Forecasting

Finance professionals must also make cash flow forecasts, predicting how much money is going to be coming into the organization, as well as how much money will be going out. This may involve careful analysis of data from the organization’s financial history.

Financing

Clinical organizations generate income through their patient care services, but other avenues of financing are also important. For example, finance professionals may seek additional financial support through donor fundraising and business loans.

Lease Management

Many healthcare organizations lease space. Finance professionals often manage leases, negotiating with property owners to save money and minimize disruption. Lease management may encompass measuring the square footage being used, conducting inspections, and clarifying renewal terms.

Spotlight on Healthcare Finance Job Roles

The healthcare finance field is complex, creating many different avenues for ensuring the success of a clinical care facility. Those drawn to this field may choose from many healthcare finance job roles that directly impact the overall health of healthcare organizations.

Consider a few of these healthcare finance jobs.

Financial Controller

Most hospitals and larger healthcare organizations employ a financial controller. This management-level position oversees the accounting department, supervising its accounting practices and procedures. The controller does not directly shape the financial strategy of the organization but may collaborate with other decision-makers to ensure that the organization’s accounting practices are in line with broader organizational goals.

Financial controllers should have strong mathematical skills and be adept at financial reporting. Since they need to explain complicated financial information to colleagues and stakeholders, they should also possess effective communication abilities. According to Payscale, financial controllers earn an average salary of $90,500 as of July 2023.

Healthcare Mergers and Acquisitions Director

One way for a hospital or a healthcare network to grow is by purchasing other facilities. This may be done to expand geographic reach, acquire new facilities, or simply eliminate competition from the area.

Of course, decisions about whether to buy another facility, or for that matter to sell, require a great deal of financial forecasting, legal due diligence, and risk management. The healthcare mergers and acquisitions director oversees these functions.

Mergers and acquisitions directors should possess strong communication skills and be confident negotiators. They should also have an in-depth understanding of business development and strategy concepts. According to Payscale, the average salary for mergers and acquisitions directors is $163,700 as of May 2023.

Healthcare Compliance Officer

A popular healthcare finance job is a healthcare compliance officer. This role involves keeping abreast of current policies and procedures that may affect a facility, auditing current areas of vulnerability, and identifying the best strategies to ensure compliance in the future.

The person in this role may also be called upon to educate senior leaders and managers about changes in the regulatory environment or in internal procedures.

Compliance officers should have strong analytical skills and keen attention to detail. They should also be able to communicate effectively to ensure compliance standards are being upheld among teams. Payscale reports that compliance officers earn an average salary of $74,700 as of July 2023.

Hospital Chief Financial Officer

Individuals who desire healthcare finance jobs in the C-suite can aim to become a chief financial officer (CFO) of a hospital. This executive-level role oversees all the financial activity in a hospital or, in some cases, a network of hospitals, with the goal of expanding margins and reducing debt.

Hospital CFOs should have advanced knowledge of budgeting, accounting, and other financial processes. They should also have strong leadership, communication, and analytical skills. According to Payscale, chief financial officers earn an average annual salary of $146,600 as of July 2023.

Healthcare Finance Managers

One of the most significant and consequential healthcare finance jobs is the healthcare finance manager. The healthcare finance manager role is worth exploring in-depth.

What Is a Healthcare Finance Manager?

A healthcare finance manager may work for any healthcare organization, including hospitals, clinics, private practices, extended care facilities, nursing homes, and pharmaceutical companies. These managers oversee the organization’s financial activity, and they are ultimately responsible for ensuring that the organization brings in profits.

To accomplish these goals, they may collect and analyze financial data, manage risk, and create policies to support the organization’s economic well-being.

Healthcare Finance Manager Job Description

While the day-to-day duties can vary by organization, a typical job description may look like the following:

Collecting, analyzing, forecasting, and presenting financial data
Monitoring the financial activity of each department within the organization
Advising management on strategies to increase revenue or reduce expenses
Supervising insurance claims and compensation processes
Making decisions about major investments, such as capital expansions
Negotiating contracts with health insurance providers
Analyzing market trends to determine the best prices for medical services

How to Become a Healthcare Finance Manager

Finance managers are crucial in shaping an organization’s fiscal policies, so they must have the right portfolio of skills. To hone these skills, gaining an advanced education and on-the-job experience is paramount. The following is an outline of the typical healthcare finance manager career trajectory:

Obtain an undergraduate degree. Getting a bachelor’s degree is a vital step in the process because it provides an opportunity to hone foundational skills. This may be a degree in finance, economics, accounting, business administration, or even statistics.
Pursue an advanced degree. Most high-level finance jobs will require a graduate-level degree; this demands not only greater technical competence but also finely honed leadership abilities. A master’s degree in health administration can be a foundation for success in countless roles, from financial management to leadership in public health advocacy.
Seek experience. Before assuming a management-level position, getting a sense of how healthcare finance departments actually work is important. This means seeking internships, entry-level roles, and midlevel roles (accountant, analyst).
Earn certifications. While professional certifications are not always necessary to become a healthcare finance manager, they can often lead to higher salaries and positions of greater responsibility. Some certifications to consider are Certified Public Accountant (CPA), Certified Healthcare Financial Professional (CHFP), and Chartered Financial Analyst (CFA).

Essential Skills of Healthcare Finance Managers

By achieving the right balance of education and experience, healthcare finance managers can cultivate the ideal combination of skills. These skills are broadly applicable to many healthcare finance jobs.

Finance. Naturally, success in the role requires a high level of financial literacy and expertise in a range of financial management and investment principles. Technical skills, such as balancing books, are also paramount.
Math and statistics. Success in the role also requires an affinity for math and statistics — specifically, competency in probabilities, risk margins, and more.
Communication. Finance managers may have to supply forecasts and more general financial reports to C-suite executives and department heads. Both oral and written communication skills are vital.
Leadership. Management-level roles usually entail managing personnel, making effective, persuasive leadership skills invaluable.
Critical thinking. Finance managers must often analyze particular problems, whether it is lost market share or an uneven payer mix, to devise practical and strategic solutions.

Healthcare Finance Manager Salary

Those interested in healthcare finance careers should be aware of the typical salaries and job outlook for a healthcare finance manager and how they may vary.

Healthcare Finance Manager Salary

The median annual median salary for a finance manager was about $131,700 as of May 2021, according to the U.S. Bureau of Labor Statistics (BLS). Several factors can affect the salary, including the level of education, years of experience, geographic location, and size of the organization.

Healthcare Finance Manager Career Outlook

The BLS notes that the job outlook for finance managers is quite strong, with anticipated growth of 17 percent between 2021 and 2031. This growth rate is much faster than the average for all professions.

McKinsey & Co. projects 4 percent profit growth in the industry between 2021 and 2025. Given the continued growth in the healthcare sector, healthcare finance, in particular, will likely remain in high demand.

Seek Long-Term Success in Healthcare Finance

Healthcare organizations promote patient health, wellness, safety, and comfort. To accomplish these goals, sound and strategic financial management is especially important. Those who pursue work in healthcare finance can play a direct role in delivering top-quality patient care.

To prepare for long-term success in this position, advanced education is essential. Explore Tulane University’s Online Master of Health Administration (MHA) degree path, which provides exposure to core concepts in finance, healthcare compliance, leadership, and beyond. Earning this degree can be an important step toward a meaningful role in shaping financial policies for a healthcare organization, empowering organizations and their patients.