The dynamics of FP&A in healthcare are particularly challenging. Organizations must manage complex financial data while also navigating regulatory compliances. Resource allocation and patient and provider needs are also key considerations.
This article will explore the challenges, as well as the opportunities, in financial planning and analysis for healthcare organizations.
Along with best practices for healthcare FP&A, we will also provide insight into the process and share the best FP&A software to help healthcare organizations plan effectively.
FP&A in Healthcare: Overview
Healthcare financial planning is the process of forecasting future financial needs and ensuring adequate financial resources are available.
FP&A professionals play an important role in public and private healthcare organizations. They perform budgeting, forecasting, and other analyses to inform financial decision-making.
Challenges in Healthcare Financial Management
As we mentioned above, healthcare organizations face unique challenges. These challenges aren’t insurmountable, but understanding them will help you develop effective strategies for overcoming them.
Some of the more unique challenges in healthcare financial management include:
1) Regulatory Compliance
Along with a healthcare organization’s need to comply with HIPAA and other regulatory bodies, they must also ensure compliance with certain financial regulations.
For example:
- Healthcare Billing and Coding: Finance teams must ensure medical billing and coding practices adhere to established standards (ICD, CPT codes). Accurate coding is also imperative for proper reimbursement and preventing overbilling or underbilling.
- Stark Law: To comply with federal laws prohibiting physician self-referral and illegal inducements for referrals, finance teams must closely monitor physician relationships and financial arrangements within the organization.
- Anti-Kickback Statute: Paying for healthcare referrals in Federal programs is a crime under the Anti-Kickback Statute [42 U.S.C. § 1320a-7b(b)]. Finance teams monitor financial arrangements between healthcare providers to remain ethical and legal.
- Medicare and Medicaid: Finance teams also track any changes in reimbursement rates and eligibility criteria to ensure healthcare organizations align their billing practices with program-specific rules and regulations.
2) Revenue Cycle Management
Effective revenue cycle management is integral to the financial health of healthcare organizations.
In healthcare, revenue cycle management refers to the entire process of billing and collecting for services rendered, from the patient’s initial registration to payment at discharge (or at the end of the billing cycle for non-inpatient care).
It’s not easy, in part because the industry is so complex and because regulatory compliance is particularly complicated in healthcare.
From the aforementioned challenges of regulatory compliance to the intricacies of patient payments and insurance complexities, there are a number of moving parts in the healthcare sector to factor into FP&A.
3) Cost Control
Finance teams must also balance offering high-quality care while controlling costs.
They cannot simply cut spending in one area without considering how it will affect patient outcomes and staff. They must also consider the financial impact of changing healthcare regulations and policies.
For example, decreasing Medicare reimbursement rates can mean healthcare organizations have to find ways to cut costs without compromising patient care.
We will discuss these strategies and best practices more in a moment.
Importance of Accurate Financial Data
Accurate financial data is always important, but in healthcare, it is non-negotiable.
With access to real-time, detailed financial data, organizations can use this information to guide their decision-making and improve economic outcomes as well as patient outcomes.
If organizations effectively leverage financial data, they can better understand their revenue streams, expenses, and overall financial health. This understanding helps them identify areas for improvement, correct course, and plan accordingly.
Leveraging Financial Data for Strategic Decision Making
Here are a few key benefits and uses of financial data when it comes to strategic decision-making.
- Improved operational efficiency: Accurate financial data allows organizations to analyze their operational processes and spot bottlenecks, inefficiencies, or opportunities to save or increase spending.
- Financial planning and budgeting: Financial data is especially vital to financial planning and budgeting. It is the foundation for creating realistic budgets, forecasting future financial performance, and setting realistic financial goals.
- Risk management: Financial information is important as it helps an organization identify potential risks by analyzing financial data. It can point out areas of financial risk an organization can address by acquiring appropriate insurance policies or developing contingency plans.
- Allocating resources: Accurate financial data enables organizations to allocate resources efficiently. It helps them determine the correct number of personnel, equipment, or supplies needed to keep the operations functioning. Armed with financial health data, healthcare organizations can determine how best to allocate their resources.
Healthcare FP&A Best Practices
Organizations can take FP&A data and apply these insights to most of their processes, including budgeting, cost control, and revenue cycle management. The data they collect can inform where they need to improve, what’s working, and where opportunities lie.
Here are some best practices that help organizations use financial planning and analysis to its full potential.
Budgeting
Creating detailed and accurate budgets is the cornerstone of effective FP&A.
To create the most accurate and comprehensive budgets, healthcare organizations can:
- Include department heads, clinicians, and financial leaders in budgeting to identify key needs and constraints.
- Analyze past financial performance to inform budget projections and identify trends.
- Define financial objectives based on market realities, regulatory changes, and corporate capabilities.
Implement Robust Forecasting Techniques
Accurate financial forecasting allows healthcare organizations to predict financial performance and make informed decisions.
Best practices for healthcare financial forecasting include:
- Update forecasts regularly to reflect changes in the healthcare environment and your organization’s performance.
- Develop multiple scenarios to prepare for potential outcomes and mitigate risks to the healthcare organization’s financial health.
- Use data analytics tools to improve the accuracy of forecasts and identify emerging trends.
Enhance Revenue Cycle Management
Revenue cycle management must be efficient to generate a healthy cash flow. The data they collect with FP&A allows them to spot any weak points in this cycle and improve them accordingly.
For their part in speeding up the time to payment completion and improving the cycle as a whole, organizations must:
- Bill on time and accurately with automated processes and regular staff training.
- Implement procedures to reduce claim denials and speed up the appeals process.
- Improve patient collections and reduce bad debt with easy payment plans.
Cost Control Measures
Controlling costs is imperative for financial stability, but cost control must be balanced against patient outcomes and quality of care.
Best practices include:
- Using data-driven methods to allocate resources effectively across departments.
- Streamlining procurement processes and negotiating better terms with suppliers.
- Identifying and eliminating inefficiencies in administrative and clinical processes.
Leverage Technology and Data Analytics
Technology and data analytics play a crucial role in modern FP&A.
Healthcare organizations should:
- Implement electronic health record systems to ensure data integrity and accessibility.
- Now that healthcare and financial data have been digitized, organizations can use analytics tools to understand how financial performance impacts patient outcomes.
- Reduce errors and leave staff free to perform more valuable activities by automating mundane financial reporting tasks.
How to Use Datarails for Healthcare FP&A
Datarails is financial planning and analysis software that can be a game-changer for healthcare organizations.
Here are a few of the features and tools it offers that can benefit your company:
- Collect data in one place: Datarails consolidates your financial and operational data in a centralized database.
- Reliable forecasts: With Datarails, you can create accurate forecasts by incorporating historical financial data and current market trends.
- Use your own Excel spreadsheets and financial models: If you already have existing financial models and spreadsheets, Datarails lets you integrate them seamlessly without starting over.
- AI-powered software: With FP&A Genius, an AI-powered FP&A chat tool, your finance team can ask questions about your organization’s budgets, forecasts, and other financial information. FP&A Genius generative answers based on complete, consolidated, and real-time data and trends.
- Collaboration: Empower your team members and different departments to work collaboratively on the fly to break down data silos.
- Automate processes: Datarials automates workflows. This way, your team spends less time on manual tasks and more on value-added activities.
- Customize reports: Datarails’ customizable reporting features let you base your reports on what’s important to you and only what’s important to you. Whether it’s a customized dashboard or a detailed spreadsheet, Datarails has you covered.
- Data security: Advanced encryption for communication channels and access controls are in place to protect your sensitive financial data.
Next, let’s look at a case study to consider the real-life impact of effective healthcare FP&A.
Case Study: Nova Medical Centers
Nova Medical Centers provides occupational healthcare in over 70 locations across the country. When they needed an affordable, easy-to-use FP&A solution with in-house customer support, they turned to Datarails.
They also wanted to consolidate data from multiple systems, including Sage Intacct, Paycom, and proprietary software. Manual financial reporting was eating up their time, and by the time data was available, it was often outdated.
They chose Datarails because it met all their requirements: easy to use, fast, reliable, and affordable. Datarails’ native integration with Excel made their decision easy because it allowed Nova Medical Centers to continue using their Excel spreadsheets.
They included:
- Their payroll data management is streamlined so they can quickly analyze injury volume, payroll costs, and revenue challenges at individual clinics.
- Payroll processing time went from two to three weeks to less than an hour.
- Bonus and commission reports (which previously took three days) are now completed in less than three hours without errors.
To learn more about how Datarails is used in healthcare, check out these other case studies next:
Try Datarails Today
Experience the features, functionality, and power of one of the world’s best financial planning and analysis software—book a Datarails demo today.
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