Health Financial Management: A Comprehensive Report

This report provides a comprehensive analysis of health financial management, focusing on key areas within the Australian healthcare system. It begins by exploring potential improvements to Medicare, including revising the age eligibility and implementing pay-for-performance schemes. The report then differentiates between revenue and expenditure in the healthcare context, detailing the sources of income and the various costs involved. Furthermore, it explains Activity Based Funding (ABF) and how funding allocations are determined within the NSW Health System, emphasizing the role of the National Health Reform Agreement. Finally, the report describes Casemix and the Australian Diagnosis Related Group (DRG) system, illustrating how these classification systems are used to assess and categorize healthcare facilities and services. The report concludes by referencing relevant literature to support its findings and recommendations.

Running head: HEALTH FINANCIAL MANAGEMENT
Health financial management
Name of the student:
Name of the university:
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Table of Contents
Question 1: 2
Question 2: 3
Question 3: 3
Question 4: 4
References: 6

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Question 1: How Medicare could be improved and how this would be achieved?
Medicare is considered to be the universal health care system that is funded by the public
themselves; Medicare had been introduced in Australia in the year of 1984 by the collaborative
management of Australian health services department and public funding. Medicare is by far the
primary funder of health care services all around the globe; as it has facilitated the concept of
universal health coverage significantly, it has contributed a massive impact on the increased
accessibility and cost effectiveness of the health care services. In simple terms, Medicare is a
public fund operated insurance scheme that provides a varied range of health care services
depending on the coverage of the scheme. The inoculation of the concept of universal insurance
scheme in the health care market, has contributed significantly to remove the financial strain
associated with seeking out health care services and Medicare on its own has enabled different
socio-economic sectors of the society access health care services without the added stress of
financial strain (Marmor, 2017). However, for a health care coverage scheme that has been
operating for decades with an appreciable universal client base, there are many challenges that
have surfaced in the entire process, and there is need for strategic actions to improve the impact
of mediocre on health care.
First and foremost, one of the highest number of beneficiaries in the Medicare scenario are
the senior citizen, who are by far the most frequent users of the Medicare coverage services;
however, one of the most significant grievances is that fact that most of the benefits in the
coverage scheme only start from the age bar of 65, which has become irrelevant in the current
scenario. Most of the health care concerns in the current age start much earlier than 65 years
hence the age bar must be revised to 50 years to satisfy the biggest customer base. Along with
that, coverage policy with Medicare is determined by the clinical evidence, a key improvement

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can be introduced by using the Medicare coverage determination as the policy lever to mandate
appropriate use of medical technologies and more advanced evidence based practice. Lastly
introducing pay-for-performance scheme to eradicate financial risks associated with health care
services can also help in improving the individual experiences of Medicare users (Munyisia,
Reid & Yu, 2017).
Question 2: What is the difference between revenue and expenditure in the health system?
Revenue and expenditure in health care are two very overlapping concepts when it comes to
the health care industry. Firstly, revenue can be described as the total profit or income made by
any organizational entity, however in the health care scenario, the annual revenue generated
refers to the funding that a particular health care facility has received in a year. This annual
funding is generally the amalgamation of the total amount generated by the government
subsidization, returns from the insurance companies, and the additional amount from the public
who avail the health care services (Raghu et al., 2014).
The expenditure on the other hand is the entire cost that any organizational entity had carried
out in order to run the entire business process for the year. In case of the health care industry, the
expenditure includes the administrative cost, drug costs, therapy billings, surgical bills,
diagnostic charges, and the payment for the entire health care staff (Reeves et al., 2015).
Question 3: What is Activity Based Funding and how are funding allocations determined in the
NSW Health System?
Each and every individual of the society deserves equal right to primary health care services
and one the greatest challenge in facilitating equity in the health care industry is the challenges
associated with the management of public funding. One of the chief measures that had been

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introduced in Australia to ensure appropriate and justifiable usage of the public funding is the
introduction of activity based funding. Activity based funding allows the payment to be
circulated competently between the different health care sectors, by initiating the pattern of
payment per health care activity availed so that the patients do not need to spend their money for
services they have not utilized (Gillett, Houlihan & Williams, 2015).
In case of NSW, there is a very organized and well articulated funding framework that
controls optimal and still justifiable utilization and circulation of the health care funds. This
national funding framework is known as national health reform agreement or NHRA. The budget
allocation and circulation is managed by health care ministry, LHDs, and speciality networks
from the government operated consolidated funds. The external funding is operated and managed
by the director general of the health care ministry as well. The quarterly expenditure is managed
and monitored by the expenditure review committee (Hjermstad et al., 2016).
Question 4: Describe Casemix and the Australian DRG system of classification.
Case mix is the measurement system that assesses the performance of different health care
facilities and it also performs auditing on the health care facilities by an incentive reward system.
This rewarding framework incorporates and appreciates all the initiatives that attempt to improve
the quality and efficacy of the care provided. Along with that, this particular auditing framework
also serves as an informational device that classifies health care organizations into different
classes or categories. It classifies the health care facilities on the basis of activity based costing
very efficiently correlating the billing activities to ICD10 or similar international standards
(Cleverley & Cleverley, 2017).
DRG system is another classification system that is abundantly used in the Australia also
known as the diagnosis related grouping system. This classification system comprises of 7

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subdivisions and the health care facilities are grouped into one of those seven groups depending
on the type of care facility that the patient is availing. The DRG system in Australia differs from
the universal standards, and hence is known as the Australian refined DRG system or ARDRG,
and this system has ICD10-AM groups under it. This classification system has been used in
Australia since the last decade and recently the version 8 is being used in Australia. The ARDRG
system is monitored by the DRG technical groups, the government operated subdivisional
committee that overlooks the effectiveness and efficiency of the system (Jackson et al., 2015).

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References:
Cleverley, W. O., & Cleverley, J. O. (2017). Essentials of health care finance. Jones & Bartlett
Learning.
Gillett, S., Houlihan, K., & Williams, W. (2015). Investigating the predictors of chronic care
annual funding requirements under activity-based funding. BMC health services research,
15(8).
Hjermstad, M. J., Aass, N., Aielli, F., Bennett, M., Brunelli, C., Caraceni, A., ... & Jakobsen, G.
(2016). Characteristics of the case mix, organisation and delivery in cancer palliative care: a
challenge for good-quality research. BMJ supportive & palliative care, bmjspcare-2015.
Jackson, T., Dimitropoulos, V., Madden, R., & Gillett, S. (2015). Australian diagnosis related
groups: Drivers of complexity adjustment. Health Policy, 119(11), 1433-1441.
Marmor, T. R. (2017). The politics of Medicare. Routledge.
Munyisia, E. N., Reid, D., & Yu, P. (2017). Accuracy of outpatient service data for activity-
based funding in New South Wales, Australia. Health Information Management Journal,
46(2), 78-86.
Polyzos, N., Karanikas, H., Thireos, E., Kastanioti, C., & Kontodimopoulos, N. (2013).
Reforming reimbursement of public hospitals in Greece during the economic crisis:
implementation of a DRG system. Health policy, 109(1), 14-22.
Raghu, G., Chen, S. Y., Yeh, W. S., Maroni, B., Li, Q., Lee, Y. C., & Collard, H. R. (2014).
Idiopathic pulmonary fibrosis in US Medicare beneficiaries aged 65 years and older:

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incidence, prevalence, and survival, 2001–11. The lancet Respiratory medicine, 2(7), 566-
572.
Reeves, A., Gourtsoyannis, Y., Basu, S., McCoy, D., McKee, M., & Stuckler, D. (2015).
Financing universal health coverage—effects of alternative tax structures on public health
systems: cross-national modelling in 89 low-income and middle-income countries. The
Lancet, 386(9990), 274-280.