Financial Viability In Health Care Organizations

Financial Viability in Health Care Organizations

Financial viability refers to a healthcare organization’s ability to generate more revenue and exceed its costs. A healthcare facility risks failing if the income level does not fulfill the financial requirements to provide care (Dewar, 2017). A health organization’s primary revenue sources include direct patient payments and insurance disbursements. A health organization may also generate revenue from grants and tax cuts. The incoming revenue should exceed or at least equal costs if an organization is to continue providing services.

One factor that affects a firm’s financial viability is its operating environment. The operating environment determines the number of clients visiting a hospital facility (Dewar, 2017). For instance, a hospital in a rural environment may receive few clients, so it becomes unsustainable to continue operating. However, more clients will likely frequent a healthcare facility in an urban environment, hence more returns.

Also, explicit and implicit production costs determine a firm’s financial viability. To that end, a physician operating a clinic whose physical assets belong to the physician will likely make more profits. The excess revenue originates from opportunity costs that would have been incurred if such a physician could have been paying rent or regular fees for the hired equipment.

Another key determinant of the financial viability of an organization is the pricing of its products and/or services. In healthcare, pricing decisions are made and shared with insurance payors beforehand. A healthcare organization may make less or more depending on the pricing regime. For instance, pricing and setting costs per case, commonly referred to as diagnosis-related groups (DRG), tend to earn hospitals less money (Higbea & Cline, 2021). On the other hand, payment based on physicians who handle the patient will get the hospital more money.