Financial Forecasting in Healthcare: Challenges and Importance

This essay provides a comprehensive overview of financial forecasting within the healthcare sector, emphasizing its significance in maintaining financial discipline, improving strategic objectives, and ensuring high-quality patient care. It explores the inherent complexities in accurately predicting annual revenue and expenses for healthcare facilities, attributing these difficulties to the intricate nature of healthcare services, the micromanaged structure of forecasting systems, and prevalent myths surrounding healthcare costs. The essay further contrasts forecasting accuracy between hospitals and non-profit healthcare centers, noting the influence of costing systems and the focus on profitability. It concludes that population growth, while impacting demand and revenue, does not directly hinder effective forecasting, which primarily relies on accurate costing systems, healthcare facility type, and thorough data analysis. Desklib offers a wealth of similar resources and solved assignments to aid students in their studies.

Running head: FINANCIAL FORECASTING 1
Financial Forecasting
Name
Institution

FINANCIAL FORECASTING 2
Forecasting refers to the financial concept of estimating the current and future
financial information of an entity based on the based and the present trends. Forecasting is
important to a healthcare's budgeting process because it helps to maintain financial discipline,
improve strategic goals, and deliver quality services to patients. However, there are several
factors that make it difficult for healthcare facilities to accurately forecast their annual
revenue and expenses.
First, the complex nature of services provided by healthcare facilities makes it
difficult for accurate forecasting. Service delivery involves different resources such as
equipment, personnel, supplies, and spaces-each resource has its costs and capabilities
(Langabeer & Helton, 2015). Resource usage start when a patient makes the first contact
through the administrative, consultation and treatment processes and end with the last contact
with the facility. The treatment process depends on a patient's medical conditions and the
proposed treatment process. Therefore, accurate forecasting is difficult where there is no
uniformity in the treatment process because of the lack of a standardized system (Harrington,
2015).
Second, the nature of forecasting systems and healthcare facilities also influence the
accuracy of the forecasting process. Costing of medical services is micromanaged- each
department is required to have its own forecasting process. Micromanagement nature of
forecasting does little to improve the value of services or reduce the total cost incurred to
offer such services (Kahraman & Topcu, 2017). The objective of implementing forecasting in
a healthcare is to improve the efficiency and effectiveness of service delivery while keeping
the cost at the lowest level. There are three myths that influence the accuracy of forecasting
in healthcare centers. One, costs payable by patients is a good reflection of the services
provided to them. However, in a real sense such costs are based on estimations. Two, services

FINANCIAL FORECASTING 3
providers hold overhead costs are too complex to forecast accurately. And three, medical
costs are fixed and cannot be changed (Harrington, 2015).
Third, forecasting difficulties do not depend entirely on the type of healthcare
organization, such as a hospital or an outpatient clinic. However, compared to the not for
profit healthcare Centres, hospitals have a higher accuracy level for forecasting. Nonprofit
healthcare facilities depend on donations and grants to finance their operations (Harrington,
2015). Such facilities focus solely on the wellbeing of the patients as compared to the cost
incurred. On the other hand, hospitals are interested in increasing its profitability besides
patient's wellbeing. For-profit hospitals tend to implement different costing systems such as
Activity-based and Time-driven costing as a way to improve the accuracy of their forecasting
(Langabeer & Helton, 2015).
Lastly, the growing population within the Kingdom of Saudi Arabia have no direct
impact on the ability to forecast utilization effectively. Forecasting accuracy is based on the
costing systems used, type of the healthcare and accurate analysis of the past data. With an
accurate forecasting in place, population growth means two things. One, the demand for
healthcare service increases. And two, the cost and revenue increases as well. Therefore
accurate forecasting helps healthcare facilities to minimize its costs while maximizing its
profitability level (Kahraman & Topcu, 2017).

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References
Harrington, M. K. (2015). Health Care Finance and the Mechanics of Insurance and
Reimbursement. New York: Jones & Bartlett Publishers.
Kahraman, C., & Topcu, I. Y. (2017). Operations Research Applications in Health Care
Management. London: Springer.
Langabeer, J. R., & Helton, J. (2015). Health Care Operations Management. New York:
Jones & Bartlett Publishers.