THE ROLE OF FINANCIAL

MANAGEMENT AND NURSE

LEADERSHIP IN HEALTH CARE
ORGANIZATION
PRIMARY ROLE OF NURSES
IS THE DELIVERY OF
PATIENT CARE
WHY STUDY FINANCIAL
MANAGEMENT?
THE ROLE OF MANAGEMENT

PLANNING
CONTROL

DECISION-MAKING
 PLANNING

is essential for the efficient management of the

organization. Through planning, managers consider
possible options available to the organization and steer
its path. Without planning the organization drifts like a
rudderless ship. With planning, the organization is able
to set a direction and make progress in moving toward
it.
 CONTROL

is a critical management task. Once the plan has been

established, it must be implemented. Control refers to
the managerial tasks related to ensuring that the plans
of the organization are carried out as closely as
possible. It is necessary for carrying out the plans,
assessing progress, and determining what can be done
when progress Is not satisfactory.
 DECISION-MAKING

the overriding role of management. Plans will not carry any

weight unless someone makes decisions that are necessary to
carry them out. Control will lack authority f no one makes
decisions to correct problems that arise when the plan is not met
or when the plan needs modification. Change cannot occur
without someone’s having the authority to make decisions and
exercising that authority.
 THE TOP MANAGEMENT TEAM

Chief Executive Officer – the highest level administrator. Reports to the board
and responsible for managing the organization.

Chief Operating Officer – also known as executive vice president for

operations, is responsible for day-ta-day operations of the organization.

Chief Financial Officer – responsible for the financial aspects of running the
organization.

Chief Information Officer – responsible for overseeing and integrating

organizational information systems.
LINE VS. STAFF AUTHORITY
LINE FUNCTION - Production of its goods and services

- Most nurse managers are line managers

STAFF - Provide auxiliary assistance or indirect

FUNCTION service to line managers

- Finance officers are staff managers

FORMAL LINES OF AUTHORITY
INFORMAL LINES OF AUTHORITY
 “HE WHO CONTROLS
INFORMATION CONTROLS THE
ORGANIZATION”
NURSE ARE COST CENTERS

PHYSICIANS ARE PROFIT CENTERS

“QUID PRO QUO”

 CENTRALIZED VS. DECENTRALIZED
ORGANIZATIONS
CENTRALIZED - BUREAUCRATIC
AUTHORITY RESIDES ON TOP MANAGEMENT
DECENTRALIZATION – AUTHORITY OCCUR MUCH LOWER
DOWN THE ORGANIZATIONAL HIERARCHY
THE ROLE OF THE CFO AND OTHER FINANCIAL
MANAGERS
Finance Function – handles resources like cash, account
receivables, investments and obligations.

• Cash – this includes safe-guarding it against misappropriation,

ensuring that cash resources are handled efficiently, and ensuring
that cash resources are handled efficiently, and ensuring that the
organization has sufficient cash for its needs.
• Accounts receivable – are amount owed to the organization for the services
it provided. Those amounts might be owed by individuals, insurance
companies, or the government. Eventually some receivables will prove
uncollectible. All large organizations have bad debts. Active management,
however, can minimize bad debts.
• Investments – means of earning high return from available cash while
safeguarding the money so that the risk is minimal.
• Obligations – in order to invest and earn decent return for available cash,
some finance managers would defer payments of obligations for a period of
time. In other cases when there Is insufficient cash to meet obligations even
with borrowing, fund raising, and management of receivables and payables
- finance officers will raise the possibility of cost-cutting throughout the
organization.
Financial Accounting – collects information about the
finances of an organization and translate it to a form than
can be reported.
Internal Control Function – processes and systems that
ensure that the decisions made in the organization are
appropriate and receive appropriate authority

Managerial Accounting – aid in the general

management role of planning and control.
 GENERAL RULES TO MINIMIZE RISK

Hire qualified, reliable people

Create a separation of functions that prevents disbursement of

cash based on authorization by one individual.

Require documentation of all financial transaction

Create physical protection, such as safes and locks

Enforce vacation and rotation-of-duties policies that
ensure that more than one person carries each task
related to money each year.

Bond employees (i.e purchase insurance policies to

protect the organization against theft by employees)

Provide an independent check of financial

transactions.
 THE ROLE OF THE CNE IN FINANCIAL
MANAGEMENT

Responsibility for expenses

Responsibility in extending revenues

 THE ROLE OF MID AND FIRST-LEVEL NURSE
MANAGERS IN FINANCIAL MANAGEMENT

These are your CLINICAL DIRECTOR OF NURSING

and PATIENT CARE MANAGERS
Vary widely in different institutions
TRANSITION FROM STAFF NURSE TO NURSE MANAGER

“Good clinicians are likely to make good managers?”

95% of nurse leaders cited graduate education as

ideal preparation for nurse leaders.

Informal training is also critical so with “real life”

application.
THE ROLE OF STAFF NURSES IN FINANCIAL MANAGEMENT

“ Staff who are aware of and use information about the

relationship between their clinical behavior and cost
savings could make a major impact on the financial
health of their units”
INTERACTIONS BETWEEN FISCAL AND NURSE MANAGERS

Lateral relationship

Quality of care should be aligned with cost (e.g.

compliance to patient safety standards needs
expensive equipment)
 RESPONSIBILITY ACCOUNTING

An attempt to measure financial outcomes and to assign

those outcomes to the individual or department
responsible for them so that performance can be
assessed.

Performance evaluation of managers focuses on the

use of responsibility centers.
 RESPONSIBILITY CENTERS
3 CATEGORIES
Cost Center
Revenue Center

Profit Center
 INCENTIVES AND MOTIVATION

Goal Congruence – means that the wants and desires of

the organization and its employees are consistent.

Incentives can be bonuses; other use merit pay

increases. Simply a pat on the back for a job well done
could also be an option.
 POWER AND POLITICS

Influence is the process by which one person follows

another’s advice, suggestion, or order.

Power is a personal or positional attribute to influence

Authority is only one of the several bases of power

 FORMS OF POWER

Coercive power based on fear of punishment

Reward power based on hope of reward

Legitimate Power based on the belief that influence has
formal authoriy
Referent power based on a charismatic leader
Expert power is based on leader’s special expertise.
Representative power based on democracy.
 NETWORKING
Establishment of relationship with other members of
the organization

Trade is the basis of networking (Services and

information)
 KEY ISSUES IN APPLIED ECONOMICS

Economics – is the study of how scarce resources

are allocated among their possible uses. In the
case of health care, economic principles are
demonstrated on a daily basis, both to society as
a whole and to health care organizations.
 FUNDAMENTAL CONCEPTS OF ECONOMICS

• Economic Goods – consumers purchase goods or services provided

by suppliers. These goods or services are referred to as economic
goods. Goods and services are any items that consumers wish to
acquire or use.
• Wealth – is the value of all the resources the consumer currently
owns.

• Income – is the increase in wealth, or the amount of additional

resources the consumer gains over a period of time.
• Utility – physical and psychological benefit one receives from goods or
services. Examples of this would include water, electricity, telephone
companies and others.

• Marginal Utility – an individual makes purchases, actions are taken as if the

marginal utility (or marginal benefit) of each additional purchase is
evaluated.

• Marginal Cost – price paid for the good or service.

• Savings – saving money. Benefits would include protection against
future unemployment, creation of a pool pf money for a future
vacation or retirement, and accumulation of money for a child’s
college education.
 SUPPLY AND DEMAND

Free Enterprise – Economics is governed by the law of supply and

demand.

Supply – is the amount of good or service that all suppliers in aggregate

would like to provide any given price.

Demand – is the amount of the good or service that consumers would be

willing to acquire at any given price.
• Free Market – is simply a situation in which sellers are free to charge
whatever price they like for their product, and buyers are free to purchase
or not purchase at the price sellers are charging.

• Elastic Demand – is a situation in which an increase or decrease in price

results in a proportionately greater change in demand.

• Inelastic Demand – is a situation in which a decrease in price results in a

proportionately smaller decrease in demand.
• Economies of Scale – refers to changes in the cost per patient as the number
of patients changes. Having more patients is referred to as a larger scale of
operations.

• Fixed Cost – stay the same even if the volume of patients increases or
decreases. One example of this would be the rent on a nursing home.

• Variable Cost – increase as the number of patient increases.

• Decreasing Return of scale – at very large volumes, the cost per patient
tends to increase. This might be attributed to increase in fixed cost like
additional facility.
 ECONOMICS AND INCENTIVES

• The issue of incentives is a concept of economics that has wide

applications. An employer might offer bonuses to increase the
productivity of its employees. The bonus provides the
individual with more resources.
• Another example is how hospitals are paid. If they are paid on a
cost reimbursement basis, these hospitals will have high costs.
Another method of reimbursement is Diagnosis Related Groups
(DRG) system. The DRG system does not reimburse the hospital
for its costs; it pays a fixed amount based on the type of the
patient regardless of length of stay or cost.
 MARKET EFFICIENCY

• How much? – production would depend on the supply and demand

curves. Finding the equilibrium price and quantity would determine
how much.
• How? – also solved at equilibrium. The supplier who is most efficient
at the task would be able to offer the service at the lowest cost. As
price declines until supply and demand intersect, the less efficient
producers will drop out of the competition.
• Technical efficiency – services are produced using the minimum possible
amount of resources for the quantity and quality of output achieved.
• For Whom? – Any potential buyers who are able and
willing to pay the equilibrium price or more will
receive the goods or services. Anyone who can or will
only pay less than that price will not receive the goods
or services.
• Distributional efficiency – the market distributes goods
based on the utility of various consumers.
 REDISTRIBUTION OF RESOURCES
• Collective action – is more than simply taking resources from
the rich to help the poor. It is based on a much wider notion of
welfare than the use of welfare payments to the poor. The
organization collect contributions (taxes) and spend it for the
benefit of everyone.
• Equity Improvement – taxing one group of individuals to
provide benefit to another group. For example, taxes paid by
working class tend to support medicare payments made for the
elderly.
 MARKET FAILURE

• Means that the market does not function fully and

freely. This results in an inability to reach supply and
demand equilibrium without intervention. The
government often steps in to try to correct market
failure.
 CAUSES OF MARKET FAILURE

1. Government intervention
2. Lack of information on the part of the consumer
3. Lack of competition or monopoly
4. Actions of individuals do not result in optimal output
because their actions do not consider externalities
that they generate.