Financial Analysis in Healthcare


Financial analysis in healthcare is an essential part of the strategic and financial management that allows hospitals to grow. It has become more comprehensive in health finance to hold financial records, and the need for consistency has risen. Many protocols have been developed to include competencies, and ethical principles are upheld in healthcare institutions in financial management. In assessment and preparation, expenditure decisions, contract management, work capital administration, and financial risk management, the control of the company is the use of financial details. To this end, the financial analysts in healthcare facilities use financial reporting tools such as prospective payment systems.

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Medicare was founded in 1965 by President Lyndon Johnson as a well-known national health insurance program in the United States (Tan, & Melendez-Torres, 2017). Research shows that lacking its economic income, medical background, or connection, it was developed under Title XVII of the Social Security Act to provide medical coverage for people aged 65 and older (Carter Clement et al., 2017). It was launched as a result of a quest for solutions for funding healthcare in the USA. Medicare was established as public health insurance at the start of the 20th century, as is the universal coverage we see today in other nations. Throughout that time, the campaign for this kind of program collapsed. It was not until the Great Depression and the Second World War did our country that many of our older Americans struggled to be covered by privatized health insurance.

Currently, the clinics and hospitals in our healthcare system depend heavily on Medicare reimbursements. Medicare expenditure accounts for about 20% of national spending on healthcare and 14% of the federal budget (Carter Clement et al., 2017). These costs continued to increase, and Congress attempted with little success to slow down Medicare expenses. From $3 billion in 1967 to $37 billion in 1983, the cost of Medicare has been influenced by the rise in healthcare costs.

The prospective payment system from Medicare has shifted the burden for benefit or loss, which means that the healthcare institutions have now been responsible for the profit and distribution of quality healthcare for the patient under the payment system. A Prospective Payment System is a compensation process in which Medicare is paid on a pre-defined, fixed basis (Tan, & Melendez-Torres, 2017). IPPS represents the prospective reimbursement method for inpatients used in an intensive care hospital for inpatients. When patients are admitted, a DRG code is allocated to each patient, depending on the number of resources used to care for individuals during their stay. The IPPS may also be adapted based on emerging technologies for care, the costs of living, or whether the hospital is an accredited university institution.

Another example is the IPF PPS, a prospective payment scheme for the hospital. The federal per diem base rate for IPF PPS services follows the rate of labor and non-labor with availability for patients and adaptation of facilities (Tan, & Melendez-Torres, 2017). Medicare coverage has also expanded significantly for people with end-stage renal disorders (ESRD).


In conclusion, although the Medicare prospective payment system is complex, health practitioners must recognize that it is a priority to provide quality care and meet the needs of patients, irrespective of the type of payment systems used within the health facilities. In addition, the payment scheme development is to support hospitals and patients because the accuracy of the hospital data had a higher impact on the reimbursement of services.


Carter Clement, R., Bhat, S. B., Clement, M. E., & Krieg, J. C. (2017). Medicare reimbursement and orthopedic surgery: Past, present, and future. Current Reviews in Musculoskeletal Medicine, 10(2), 224–232. Web.

Tan, S. Y., & Melendez-Torres, G. J. (2017). Does prospective payment systems (PPSs) lead to desirable providers’ incentives and patients’ outcomes? A systematic review of evidence from developing countries. Health Policy and Planning, 33(1), 137–153. Web.

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