Health Financial Management

This article discusses the dissimilarities between revenue and expenditure in the health system, activity-based funding, and casemix in healthcare finance. It also provides a brief on the Australian DRG classification system. The article is useful for students pursuing healthcare finance courses.

Running head: HEALTH FINANCIAL MANAGEMENT
Health Financial Management
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1HEALTH FINANCIAL MANAGEMENT
Table of Contents
Answer to Question 1:................................................................................................................2
Answer to Question 2:................................................................................................................3
Answer to Question 3:................................................................................................................3
References:.................................................................................................................................5

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Answer to Question 1:
The major points of dissimilarities between revenue and expenditure in the health
system are described briefly as follows:
Points of dissimilarities Revenue Expenditure
Concept It denotes the sum of money
received for services within a
specific timeframe.
Expenditure could be
described as the monetary
outflow from the health
system to another party used
for paying a particular
service (Cole, Chaudhary &
Bang, 2014).
Effect on equity Revenue takes into account
interest and assets, which
increases the equity of the
healthcare system.
Expense is realised at the
time of incurring any liability
or utilisation of asset, which
minimises the equity of the
particular health system.
Type In health system, revenue
could be realised in the form
of service revenue or non-
operating revenue such as
rent revenue and interest
revenue.
Expenses could be both
direct and indirect. The direct
expenses include material
and labour, while indirect
expenses comprise of rent
and insurance.

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Answer to Question 2:
Activity-based funding (ABF) is a technique to fund hospitals, in which they are paid
for the mix and number of patients treated. If more patients are treated, the hospitals receive
additional funding (Donovan et al., 2014). ABF leads to related group codes, which provide
meaningful techniques clinically to relate the kinds of patients that a hospital treats to the
resources needed. IHPA carries out updates and reviews of current allocations and it is
accountable to initiate new classifications for the service categories without a current
classification. In other words, it ascertains the amount of cost and the price to be paid to the
hospitals.
For developing the budget, activity needed is ascertained and after this process, it is
multiplied with the price to arrive at the budget. Two agencies are accountable to approve the
budget, which include Common Wealth and State Government. These two agencies merge
together to develop funding pools, which are then passed over to the state health agency. The
state heath agency then passes the same to the district in-charge from which the hospitals
receive their funding.
Answer to Question 3:
Casemix provides assistance to the healthcare sector with a consistent procedure of
categorising the types of patients; treatment needed and related costs (Finkler et al.,
2016). These classifications are beneficial, as they depict to describe the relationship between
healthcare costs and activity.
The Australian DRG classification system is utilised for categorising acute admitted
patients and other classifications are utilised for classifying other patient care. The patients
admitted to the hospitals have diseases and the processes that are undertaken at the time of
admission have been coded utilising ICD-10-AM/ACHI/ACS (Ihpa.gov.au,

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2018). Specialised clinical staffs undertake such coding and the coded information coupled
with the demographic information of the patients like gender, age and duration of their stay
are utilised for allocating acute patient admissions to Australian DRG class. This
classification is performed either on the part of the hospital or clinical coder or pertinent
health authority of the state.
Figure 1: Australian DRG system of classification
(Source: Ihpa.gov.au, 2018)

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References:
Cole, S. A., Chaudhary, R., & Bang, D. A. (2014). Sustainable risk management for an
evolving healthcare arena. Healthcare Financial Management, 68(6), 110-115.
Donovan, C. J., Hopkins, M., Kimmel, B. M., Koberna, S., & Montie, C. A. (2014). How
Cleveland Clinic used TDABC to improve value. Healthcare Financial
Management, 68(6), 84-89.
Finkler, S. A., Smith, D. L., Calabrese, T. D., & Purtell, R. M. (2016). Financial management
for public, health, and not-for-profit organizations. CQ Press.
Ihpa.gov.au. (2018). Retrieved 13 April 2018, from https://www.ihpa.gov.au/