Health Financial Management: Revenue, Expenditure, Casemix & DRG

This assignment provides a detailed overview of health financial management, focusing on the distinctions between revenue and expenditure within the health system, explaining revenue as the income generated by a healthcare organization and expenditure as the costs incurred to generate that revenue. It delves into Activity Based Funding (ABF) in the NSW Health System, detailing how hospitals receive funding based on the volume and complexity of treated patients, from service provision and medical record documentation to DRG categorization and resource allocation based on performance data. The assignment also describes Casemix and the Australian DRG system, which are used to classify patients and associate costs with different treatments, aiding in the identification of cost-activity relationships within healthcare. The DRG system classifies patients with acute diseases using ICD-10-AM/ACHI/ACS coding, which is performed by clinical coders to allocate patients to specific DRG classes.

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:.....................................................................................................................2
Answer to Question 3:.....................................................................................................................3
References:......................................................................................................................................5

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Answer to Question 1:
In the health system, revenue could be defined as the amount of money that an
organisation makes in a specific financial year. On the other hand, expenditure is a cash payment
or barter credit or the incurrence of a liability by an organisation for products or services (Petty
et al., 2015). In case of a healthcare organisation, there are certain types of revenue. These
include the following:
 Estimated accumulations from patient care activities
 Non-patient activities like academic revenue, research revenue and operating investment
income
The expenditure in case of healthcare organisations primarily comprise of the following:
 Salaries and benefits
 Supplies and external services
 All other expenses
Hence, it could be concluded that revenue is the money that the company earns for carrying
out its business operations, while expenditure is the money paid for generating that revenue like
rent, utilities, lighting and other expenses inherent to maintain the daily functioning of the
healthcare units.
Answer to Question 2:
Activity-based funding is a technique, in which the hospitals are funded in respect of the
number and mix of patients that are treated. The logic is that if more patients are treated, more
funding would be provided to those hospitals (IHPA, 2018). This system works in the following
for providing funding allocations to the hospitals:

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 Services are provided to the patients initially
 They are documented into medical records
 The medical records are then coded
 The information is categorised into “Diagnosis Related Group (DRG)”
 The data related to performance are generated and reviewed
 Finally, based on the data drivers and efficiency, resources are allocated
Thus, proper support is to be provided to ensure effective health services along with
enhancing the worth pertaining to public investment in healthcare so as to ensure effective and
sustainable network related to the public health services.
Answer to Question 3:
Casemix is defined as the method, in which the healthcare sector is provided with an
unswerving technique to classify the kinds of patients, the way of treating them and the costs
associated with them. More precisely, casemix signifies the mixture of the patient types that a
particular hospital or any healthcare service provider treats (Guo et al., 2018). The main benefit
of casemix is that these classifications would help in identifying the association between costs
and activities in the healthcare sector.
The DRG system of classification is used in order to classify the patients suffering from
acute diseases having other casemix classifications that are used to categorise other patient care.
When the patients are admitted to the hospitals, the admissions are coded using
“ICD-10-AM/ACHI/ACS”. The clinical coding task specialised in the same undertakes the
coding. The coded information and some patient demographic information are utilised for
allocating the admissions of acute patients to DRG class. Thus, it is performed either on the part
of the clinical coder or hospital or pertinent state health authority.

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Figure 1: Australian DRG system of classification
(Source: Cleverley, 2017)

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References:
Cleverley, W. O. (2017). Essentials of health care finance. Jones & Bartlett Learning.
Guo, P., Dzingina, M., Firth, A. M., Davies, J. M., Douiri, A., O’Brien, S. M., ... & Murtagh, F.
E. (2018). Development and validation of a casemix classification to predict costs of
specialist palliative care provision across inpatient hospice, hospital and community
settings in the UK: a study protocol. BMJ open, 8(3), e020071.
IHPA. (2018). Ihpa.gov.au. Retrieved 30 May 2018, from https://www.ihpa.gov.au/what-we-
do/activity-based-funding
Petty, J. W., Titman, S., Keown, A. J., Martin, P., Martin, J. D., & Burrow, M. (2015). Financial
management: Principles and applications. Pearson Higher Education AU.