Finance can be described as the science of managing funds. It involves saving and lending money. It deals with the ideas of money, time and risk, not forgetting how money is spent and budgeted. Accounting on the other hand, is defined as the art of recording, classifying and summarizing events in terms of money, transactions and other events of financial character and construing their results thereof. Though the two terms may seem related, it is important to notice that they don't mean the same thing. Finance deals with management of funds while accounting is concerned with the keeping of records (Gove, 1961).
The pace of advancement in health care promises an improvement in the health of the masses through better-integrated healthcare systems, quality improvement and access to care for more people. Nevertheless, financial strain from the government is part of exceptional challenges affecting the delivery system management. It is therefore imperative that we look at the financial health of hospitals and health care systems. Certifications by certified public accountants require that financial statements for hospitals and healthcare systems be fair and appropriate representations of economic events and operations of the health care unit (Prince, 1994).
There are three main categories of indicators that can result from certified financial statements. These include: liquidity and cash flow, net income and debt burden. These key financial indicators are basic for tracking the financial viability of healthcare organizations. They are just a starting point though, since there are many other measures that can be used. For example, return on net assets, the ratio of salary and benefit expenses to net patient value, and charity courses are other indicators which can be used to track the financial viability of healthcare organizations. For a hospital to pursue its healthcare mission on a long term basis, it must be financially stable regardless of changes in its surrounding. This means that financial trends should be evaluated to form the starting point of a strategic plan for the institution. As such, operating budgets and plans will have to support this financial plan. For a hospital to be successfully operational, it has to be able to generate capital. Prince (1994) asserts that this is a basic principle as setting aside funds for the replacement and innovation of new products is not a luxury but a necessity.
For hospitals, a pricing policy should be put in place for renewal of programs so as to stay current with the market. Fund raising for example, can be a source of income, whose money can go towards assisting the hospitals to acquire new equipments. Hospitals and healthcare systems should monitor their productivity, which is determined by a pleasant working environment. Factors such as market, performance, community needs and services and many more are seen to be top indicators of future performance and viability of healthcare systems. There are two important factors to consider while using Medicare cost reports in the approximation of the expenditure on patients' care. Firstly, Medicare payment rules do not include costs that hospital consider essential to good care. Secondly, the cost reports distribute cost to Medicare patients using basic rules.
The viability of any organization depends on today's balance sheet and dollar flow, as well as the organization's market and management. According to Elliot (2004), there is need for organizations to earn positive returns and not just to break even. So as to remain a viable community resource, a healthcare organization ought to have the capacity to finance continuing improvements on its key areas such as employee welfare and new knowledge. There is also the need for a number of payment policies which allow hospitals and healthcare systems to meet the vast community wants and to finance potential improvements.
There has been a rise in the levels of financial risk in the health care sector within the recent past. At the same time, pressures from managed care and purchasers from the private sector have also increased economic risk for providers. Due to this, the financial markets have been required to have consistency in their performance so that organizations can be seen as creditworthy. Investment rating services from time to time make public, or publishes average financial ratios for healthcare organizations which have been categorized into bond rates. In conclusion, there is need for better understanding of the links amid the viability of healthcare delivery organizations. There needs to be concrete information on the financial good of healthcare systems.