Effective Fiscal Leadership: Key Indicators Every Health Care Leader Needs to Know

group of health care leaders around a meeting table

Understanding the financial intricacies of your health care organization is vital yet challenging. Finance expert Ann Martel likens health care finance to the way businesses keep score. The three fundamental rules of business finance are:

  1. Know Your Cost. In the health care industry, this translates to comprehending the costs of medical supplies, staffing, and facilities operations.
  2. Price Your Product Above Costs. This can help ensure sustained growth. There is complexity in health care pricing, especially with diverse payer scenarios. Ann says the challenge lies in determining the right pricing strategy to cover all costs adequately.
  3. Convert Sales into Cash. This is a critical factor for operational sustainability.

Financial Statements in Health Care: A Crucial Overview 

 In health care, the preparation of financial statements is a crucial step to comprehend the operational story of an organization. Three main financial statements play a pivotal role: the profit and loss statement (P&L), the balance sheet, and the cash flow statement. 

 1. Profit and Loss Statement (P&L)

The P&L, also known as the income statement, provides insights into operational activities. It narrates the revenue generated from services, expenses incurred, and the resulting profit or loss. Even in non-profit health care organizations, understanding profit is essential, as it represents the difference between revenue and expenses.  

 2. Balance Sheet

The balance sheet acts as a scoreboard, depicting assets, liabilities, and owner equity. It provides a snapshot of the organization’s financial position at a specific time. In health care, assets include buildings, equipment (MRI machines, imaging devices, etc.), and financial obligations. Equity, especially in non-profits, represents net assets accumulated over time, reflecting positive margins. 

 3. Cash Flow Statement

The cash flow statement is critical for understanding the flow of cash in and out of the organization. Unlike profit, cash flow reflects the actual cash position. A company can sustain operations and investments even with net losses by analyzing the cash flow statement. 

Navigating Health Care Performance: Metrics and Emerging Trends 

As the discussion shifts to managing performance, Ann emphasizes leveraging data for meaningful Key Performance Indicators (KPIs). Traditional KPI categories include patient care, facility management, staff performance, and financial indicators.  

Patient care KPIs encompass quality indicators, patient satisfaction, and penalties for re-admission. Facility management KPIs scrutinize the operational efficiency of your organization, examining average wait times and identifying potential bottlenecks. 

Staff performance KPIs delve into the engagement and effectiveness of your workforce, considering turnover rates and engagement levels at your organization. Finally, financial KPIs, including the operating margin, look into the economic health of your organization.  

All these traditional KPIs are important, and have their place, but it’s also essential to tailor your KPIs to your organization’s specific needs. Streamlining KPIs to focus on what truly matters to your organization can significantly enhance performance measurement.  

Ann stresses you should not overlook emerging trends in health care performance management. Sustainability is gaining prominence not just as an environmental initiative but as a holistic approach encompassing patient empowerment, streamlined delivery processes, and reduced carbon initiatives.  

Additionally, health equity is emerging as a critical consideration, addressing disparities in health care access and outcomes among diverse populations.  

Align your KPIs with your organization’s missions, but also be ready to adapt those KPIs to the changing dynamics of the health care industry.   

As a leader at your health care organization, mastering effective fiscal leadership is essential to help steer your team and the organization toward success. Understanding key financial indicators is not just a skill, it’s a strategic advantage. Start by watching Ann’s webinar, The Business of Health Care: Understanding Key Indicators Impacting Your Industry.  

To further enhance your financial acumen, Finance and Accounting for Non-Financial Professionals is a three-day professional development program designed to help you master the financial language of business and discover how to make decisions that lead to financial success for your department and your health care organization.  

This blog was written with assistance from AI.