The Use of Financial Management Skills


The importance of health is being appreciated more by a large section of the population, due to its immense implication on the overall productivity in the social, political, and economic arenas. Australia has embraced enormous changes in the last few decades that have transformed the health system into an efficient vehicle, capable of helping in addressing the health challenges facing Australians.

Despite the efforts put in place, the Australian health system is not yet out of the woods. A June 2009 report cited major challenges and deficiencies in the functioning of the overall health system. This paper will identify one of the health areas under consideration for reform; critically analyze its impact financially and implications on the Australian health services. The paper will further examine its viability as well as its merits and demerits to the people of Australia.

Health area under reform

While there is a huge misconception that efficiency is about providing services at fair prices, literature has shown its ethical nature, and intertwining with all other processes makes it a key pillar especially in the delivery of affordable care that is sustainable in the long term. The health care system is riddled with a lot of wastefulness and inefficiencies hence compromising the effectiveness and productivity of the sector.

Given this, various parameters such as life expectancy and access to healthcare have experienced reduced ratings owing to inaction (Courtney &Briggs, 2004, p. 23). The big budgets complemented with complex payment methods in Australia have rendered the health sector inefficient. In addition, the variations in medical charges among the state-run health facilities are an obvious observation that underpins the need for synchronization. Inefficiency and stagnation have resulted in the general practice and have watered down the gains made through the establishment of the primary health sector.

More importantly, inappropriateness in caring for the aged caused by lack of specialized services and care personnel has opened up the system to wide criticism. Hospital directives requiring patients to undergo several unnecessary diagnostic tests have led to cost ineffectiveness and delaying of treatment hence resulting in widespread frustration among patients and care providers (Baker & Baker, 2006, p.67; National Health and Hospitals Reform Commission, 2009).

The financial impact of the healthcare reform

The financial impact of the inefficiencies in the health sector has received immense studies from scholars (Baker & Baker, 2006, p.67). Estimates from the national health sector and reform commission indicate that there is a possibility of improving the life expectancy with an average of two to three years. In addition, concerted efforts in the organization of health care delivery can result in an estimated 10-20 % increase in capacity levels.

The potential to improve the overall capacity has made the concerned stakeholders and policymakers go back to the drawing board. Conservative estimates indicate that an increase of partly 5% in the productivity of the health sector can translate to an excess of $3 billion in net savings in the budgetary allocation. In the 2007-08 budgets, the government spent more than $100 billion in health and related expenses that represented slightly more than 9% of the GDP.

While the proportion used on healthcare may seem minimal compared to the United States, the worrying trend falls on the inefficiency exhibited at the organizational level hence resulting in the diversion of resources from its intended use. The largest chunk of the resources went to public hospitals ($39.557 billion) with the smallest portion of $3.4 billion catering for oral health services (Baker & Baker, 2006, p.67).

Organizational deficiencies across all levels of management have a tangible impact on the resources while affecting healthcare delivery. The fact that budgetary allocation compromised mainly recurrent expenditure makes it imperative for efficient mechanisms to be put in place, to ensure patient care services are delivered in time. More than $18 billion spent on medications could be highly minimized particularly with immediate policy implementation.

A sizeable proportion of this amount is lost through unnecessary high inputs coupled with skyrocketing administrative costs. More importantly, the propensity for clinicians to request several diagnostic tests has occasioned massive losses in terms of medical supplies and drugs, which form the bulk of the medical costs. The number of working hours lost due to the tedious process of diagnosis and admission in the health facilities is huge in both the private and public sectors. With a combined budget of $40 billion, the private and public sector requires visionary leadership with good financial management skills, to enhance the correct utilization of the funds (Ferguson, 2004, p. 24).

The prices of providing care per patient have skyrocketed in the last 10 years with wide variations in cost reported among public hospitals. While the variations may result from differences in medical care and specialized care, several studies have shown that efficiency levels played a major role in bringing out the differences. The prices ranged from $3200 to $4500 per person in 2007-2008 compared to a conservative figure of $2100 to $3600 in 1997-98.

More importantly, the health expenditure has increased from 3.8 of GDP in 1961 to a high of 9.1% of GDP in 2007-08. While the increase may seem marginal, the trend is worrying, taking into account the massive investments in primary health care, technological advancement, improved diagnostic techniques, and involvement of professional managers in running of healthcare. The total cost for treating the seven diseases with the heaviest burden to the economy is estimated at almost $30 billion (National Health and Hospitals Reform Commission, 2009). As part of the measures to streamline delivery, a reduction in the number of elderly patients cared for in the acute hospital should be emphasized, lowering the cost of patient care.

The expenditure of the government on healthcare for the aged was reported to have surpassed the $9.2 billion mark for the first time. The increase in confinement in residential homes and integration of community services may have resulted in the skyrocketing of the allocation. However, studies in the management of aged care services have indicated imbalances and discrepancies in the allocation, with poor services denoted in several residential homes.

A study conducted in 2003 noted the possibility of bringing down the cost of running by a marginal 17%. Achievement of this milestone also meant that more than 23,000 elderly people could be cared for using the same amount. In addition to the above reduction, the study also underpinned that decrease in the financial expenditure of 7% ($638 million). However, it is worth noting that achieving efficiency in all facilities around the year is not achievable owing to the erratic nature of the referral and the skewed location of the facilities (Rao, Coelli & O’Donnell, 2003, p. 65).

Inefficiency within the health systems also underscores the need for financial management induction for staff working in the sector. Despite having lots of information on the previous prognosis of the patient, the medical personnel’s persistence on such tests served as duplication hence, resulting in squandering of results. A survey carried out in developed countries painted a gleaming picture of the Australian health care system in terms of duplication of tests.

Australia recorded 12% of repeated tests compared to 18% for Germany and United States. Although the figure is modest compared to the latter, it represents an increase of1 percent from the 2005 figure, which is greater, compared to that of countries such as the Netherlands and the United Kingdom. About 5% of the medical care costs can be saved if the clinicians observe professionalism that should be complemented with effective record keeping in tandem with the laid down guidelines on patient confidentiality (The Commonwealth Fund, 2008, p. 14).

Impact of reforms on Australian health services

The Australian health care system is modeled in a unique way that puts it ahead of the United States and the UK, in terms of service delivery. However, the lack of proper planning and management has ensured the system remains ineffective in the face of changing needs and demographic trends. Drummond et al (2005, p.68) assert that incorporation of economic evaluation techniques in the running of healthcare programs is imperative in achieving efficiency.

Through strategic reforms introduced by recent regimes, Australia’s financial management of healthcare funds has received a boost, with more funds put aside to cater to the increased number of elderly persons. The incorporation of funding and purchasing models, while relating efficiency with outcomes has resulted in efficiency in the funding. Benchmarking and utilization of best financial practices have ushered in a new era where the patients receive quality care hence getting value for their money (Drummond et al, 2005, p.69; Finkler, 2007)).

Jopling, Lucas, and Norton (2004, p. 43) assert that financial integrity has to be embraced to instill the confidence levels of consumers and other stakeholders. The government remaining as the major financier of healthcare means that policy guidelines touching on the budgetary allocation, financial management, and evaluation will take center stage during elections. Given this, Australia is experiencing stability in the healthcare sector due to the embracement of best accounting and management practices. Moreover, patient care has improved steadily while other parameters such as life expectancy, infant mortality, and aged care services have improved in tandem, with better financial management (Isouard et al, 2006, p. 43; NSW Department of Health, 2006, p. 32).

Improvement in the organization and financial management within the healthcare system would result in better services for Australians. This is because a large portion of the resources will be used in patient care services, instead of administrative services (Isouard et al, 2006, p. 43). In addition, the usage of evidence-based practice coupled with innovative techniques has resulted in the provision of better services in health facilities. It is therefore worth noting that the beneficiary, in this case, remains the patient, who enjoys the best care services combined with efficiency in accessing the services (Australian Institute of Health and Welfare, 2009).


In conclusion, Australia has shown massive improvements in inpatient care services while ensuring that organizational performance remains above average. The use of financial management skills and increased goodwill to maximize improvements based on set parameters, such as benchmarking and a balanced scorecard, have helped health facilities to achieve tremendous progress in the long term. However, the concerned stakeholders must come up with strong organizational frameworks that will ensure sustainable improvements in the overall running of the system.

Reference List

Australian Institute of Health and Welfare. (2009). Estimates of the impact of selected NHHRC reforms on health care expenditure, 2003 to 2033. Canberra: AIHW.

Baker, J. and Baker, R.W. ((2006). Health Care Finance: Basic Tools for Non-financial Managers. 2nd Edition. Mass.: Jones and Bartlett.

Courtney, M. and Briggs, D. (Eds.). (2004). Health Care Financial Management. Marrickville NSW: Elsevier Australia.

Drummond, M., Sculpher, M., Torrence, G., O’Brien, B. and Stoddard, G. (2005) Methods for the Economic Evaluation of Health Care Programmes (3rd Ed.) Oxford: Oxford University Press.

Ferguson, L.J. (2004). Casemix: Key issues for health care managers. In M.Clinton (Ed). (2004). Management in the Australian Health Care Industry, 3rd Edition. Sydney:Pearson Education Australia.

Finkler, S.A. (2007) Budgeting Concepts for Nursing Managers and Executives. 3rd Edition. Edinburgh: Elsevier Saunders.

Isouard, G., Messum, D., Briggs, D., McAlpin, S. and Hanson, S. (2006) Improving organisational performance in health care. In M Harris and Associates (2006). Managing Health Services Concepts and Practices (2nd Ed). (pp. 349-380). Sydney: Mosby Elsevier. 362.1068.

Jopling, R. Lucas, P. and Norton, G. (2004) Accounting for Business: A Non-Accountant’s Guide. Sydney: McGraw Hill.

National Health and Hospitals Reform Commission. (2009). The Australian health care system and the potential for efficiency gains: A review of the literature, Background Paper. Web.

NSW Department of Health. (2006). Funding Guidelines 2008/2009. Web.

Rao, D., Coelli, T. & O’Donnell, C. (2003), Efficiency of aged care facilities in Australia, The Centre of Efficiency and Productivity Analysis. Melbourne: The University of Queensland.

The Commonwealth Fund. (2008). International Health Policy Survey of Sicker Adults. Web.

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