Running header: THE CURRENT FINANCIAL ENVIRONMENT IN HEALTHCARE AND ITS INFLUENCE ON DECISION MAKING 1 THE CURRENT FINANCIAL ENVIRONMENT IN HEALTHCARE AND ITS INFLUENCE ON DECISION MAKING 2 The Current Financial Environment in Healthcare and its Influence on Decision Making It is essential that healthcare managers understand the external factors that have a profound influence on the practice of healthcare finance. A key factor to understanding healthcare finance is the knowledge of all the different and unique setting that provide health services. Healthcare services are provided in numerous settings, including hospitals, ambulatory care offices and clinics, long-term care facilities, and integrated delivery systems. Hospitals afford diagnostic and therapeutic services to those who need more than several hours of care. Hospitals must be licensed by the state and undergo inspections for compliance with state regulations (Gapenski 2013). Most hospitals are accredited by The Joint Commission, which is intended to promote high standards of care. Accreditation provides eligibility for participation in the Medicare and Medicaid programs. Hospitals are classified as either general acute care facilities or specialty facilities. General acute care facilities provide general medical and surgical services and selected acute specialty services (Gapenski 2013). These facilities account for most hospitals and have comparatively short spans of stay. Specialty hospitals limit the admission of patients to specific ages, sexes, illnesses, or conditions (Gapenski 2013). Specialty hospitals frequently sustain lower expenses than general hospitals because they do not need the overhead connected with providing various diverse forms of care and services. Hospitals are classified by proprietorship as governmental, private not-for-profit, or investor owned. Government hospitals constitute 25% of all hospitals and are divided into federal and public entities. Federal hospitals serve special purposes such as DOD and VA hospitals. Public hospitals are funded wholly or in part by a city, county, tax district, or state. Federal and Public hospitals provide substantial services to indigent patients (Gapenski 2013). Private not-for-profit hospitals are nongovernment entities organized for the sole purpose of providing inpatient healthcare services (Gapenski 2013). Roughly 80% of all private hospitals are not-for-profit entities and 60% of all hospitals are private hospitals. For serving a charitable purpose, these hospitals obtain several benefits, including exemption from federal and state income taxes, exemption from property and sales taxes, eligibility to receive tax-deductible charitable contributions, favorable postal rates, favorable tax-exempt financing, and tax-favored annuities for employees. The residual 15% of all hospitals are investment-owned hospitals, whose titleholders profit directly from the revenues created by .

1. Running header: THE CURRENT FINANCIAL
ENVIRONMENT IN HEALTHCARE AND ITS INFLUENCE
ON DECISION MAKING
1
THE CURRENT FINANCIAL ENVIRONMENT IN
HEALTHCARE AND ITS INFLUENCE ON DECISION
MAKING
2
The Current Financial Environment in Healthcare and its
Influence on Decision Making

2. It is essential that healthcare managers understand the external
factors that have a profound influence on the practice of
healthcare finance. A key factor to understanding healthcare
finance is the knowledge of all the different and unique setting
that provide health services. Healthcare services are provided
in numerous settings, including hospitals, ambulatory care
offices and clinics, long-term care facilities, and integrated
delivery systems.
Hospitals afford diagnostic and therapeutic services to those
who need more than several hours of care. Hospitals must be
licensed by the state and undergo inspections for compliance
with state regulations (Gapenski 2013). Most hospitals are
accredited by The Joint Commission, which is intended to
promote high standards of care. Accreditation provides
eligibility for participation in the Medicare and Medicaid
programs.
Hospitals are classified as either general acute care facilities or
specialty facilities. General acute care facilities provide
general medical and surgical services and selected acute
specialty services (Gapenski 2013). These facilities account for
most hospitals and have comparatively short spans of stay.
Specialty hospitals limit the admission of patients to specific
ages, sexes, illnesses, or conditions (Gapenski 2013). Specialty
hospitals frequently sustain lower expenses than general
hospitals because they do not need the overhead connected with
providing various diverse forms of care and services.
Hospitals are classified by proprietorship as governmental,
private not-for-profit, or investor owned. Government hospitals
constitute 25% of all hospitals and are divided into federal and
public entities. Federal hospitals serve special purposes such as
DOD and VA hospitals. Public hospitals are funded wholly or
in part by a city, county, tax district, or state. Federal and
Public hospitals provide substantial services to indigent patients
(Gapenski 2013). Private not-for-profit hospitals are

3. nongovernment entities organized for the sole purpose of
providing inpatient healthcare services (Gapenski 2013).
Roughly 80% of all private hospitals are not-for-profit entities
and 60% of all hospitals are private hospitals. For serving a
charitable purpose, these hospitals obtain several benefits,
including exemption from federal and state income taxes,
exemption from property and sales taxes, eligibility to receive
tax-deductible charitable contributions, favorable postal rates,
favorable tax-exempt financing, and tax-favored annuities for
employees. The residual 15% of all hospitals are investment-
owned hospitals, whose titleholders profit directly from the
revenues created by the business. Dissimilar from not-for-
profit, these hospitals pay taxes and sacrifice the other benefits
of not-for-profit status.
Physicians hold a chief responsibility for defining which
hospital services are delivered to patients and how long patients
are hospitalized. Therefore, physicians play a crucial role in
shaping a hospital’s costs and profits and henceforth its
financial condition.
Ambulatory care encompasses services provided to patients who
are not admitted to a hospital or nursing home. Associated to
hospital-based services, these innovative settings offer patients
more amenities and convenience and, in many situations, lower
prices. Patients who required hospitalization due to the
intricacy, strength, invasiveness, or peril connected with certain
procedures are now able to be treated in ambulatory locations.
Health insurers have instituted payment mechanisms that
provide incentives for providers to perform services on an
outpatient basis. Ambulatory facilities are not as expensive to
run and are less often subject to licensure and certificate-of-
need protocols than are hospitals.
Home health care is a substitute to nursing home care but is not
readily accessible in numerous rural areas. Third-party
financiers, particularly Medicare, have shown mixed signals
sufficiently compensating for home health care. Several home
health care businesses have been forced to close due to a new,

4. less lavish Medicare payment system.
Long-term care entails healthcare services provided to people
who lack all or some functional capability. Long-term care is a
hybrid of healthcare and social services. Nursing homes are a
main provider of this care.
Nursing home care is accessible at two levels: Skilled Nursing
Facilities (SNF) and Nursing Facilities (NF). SNFs offer the
level of care contiguous to hospital care. Services must be
delivered under the direction of a physician. NFs are
envisioned for those that don’t need hospital or SNF care but
whose mental or physical circumstances necessitate daily
continuousness on one or more medical services.
Long-term care facilities are more plentiful than hospitals, but
are smaller than hospitals, and are licensed and inspected by
states. The elderly are excessively high users of healthcare
services and are chief users of long-term care. Upsurges in
demand for long-term care facilities are estimated, as the
proportion of the US residents aged 65 or older is anticipated to
raise from less than 15% in 2010 to 20% in 2030.
Integrated delivery systems can be organized in several ways,
however, the significant features of such systems are that the
organization has the capacity to undertake full clinical
obligation for the healthcare requirements of a distinct
population. In agreements with some insurers, the integrated
delivery system obtains fixed expenditures for each plan-
covered life and henceforth shoulders both the financial and
clinical risks connected with providing healthcare services.
To be an active competitor, integrated delivery systems must
curtail the delivery of needless services, for the reason that
extra services generate further costs but don’t automatically
result in added profits. The objective of integrated delivery
systems is to provide all required services to its member
population in the lowest-cost setting. Clinical integration
between the various providers and mechanisms of care is
critical to attaining quality, cost efficiency, and patient
satisfaction.

5. There are numerous potential benefits attributed to an
integrated delivery system. Patients are kept in the corporate
network of services. Providers have access to managerial and
functional specialists. Information systems that track all
features of patient care can be established more easily than
under a fragmented care model, and the costs to develop them
can be shared. Larger, versatile establishments have improved
access to capital. The ability to recruit and retain management
and professional staff is enhanced. Healthcare insurers can be
presented a complete on-stop-shop of services. A full array of
healthcare services can be better planned and delivered to meet
the needs of a distinct population. Many of these population-
based labors characteristically are not offered by stand-alone
providers.
Despite the advantages of integration, health system
administrators have found that handling large, diverse
enterprises is problematic. Frequently, the financial and patient
care gains projected were not obtained, and several systems
have dissolved. Healthcare reform lawmaking has formed extra
incentives that are anticipated to foster the formation of a new
category of integrated delivery systems, the accountable care
organization.
The healthcare sector of our economy is growing rapidly in size
and complexity. The role of financial information in the
decision-making process cannot be overstated. It is incumbent
on all healthcare decision makers to become accounting-literate
in our financially changing healthcare environment.
References
Gapenski, C. (2013). Fundamentals of Healthcare Finance, 2nd
Edition. Retrieved on December
9, 2016 from:
https://kaplan.vitalsource.com/#/books/9781567935714/cfi/27!/
4/[email protected]:0.00
Cleverley, W., Cameron, A. (2003). Essentials of Health Care
Finance, 5th Edition. Jones & Bartlett Publishers. Retrieved on

6. December 10, 2016 from:
https://books.google.com/books?isbn=0763724955