Healthcare Finance

Question one

There are two main objectives of financial management in healthcare business, which are; profit maximization and shareholder wealth maximization. Even though they are crucial in managing healthcare finances, they are different in one way or the other as elaborated below;

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Profit maximization is a traditional approach of financial management that proposes the strategy in which the healthcare business can use to maximize the returns by increasing the earnings that each shareholder gets based on shares and monetary resources as well. Therefore, profit maximization is an approach whose principle objective is to maximize profit in the business and the only way to analyze how the business behaves is by referring to its ability to make maximum profit (Cleverley, Cleverley & Song, 2010).

On the other hand, shareholder wealth maximization is a modern approach of financial management that aims at maximizing the net present value of what the business engages in to increase the wealth of the shareholders (Brigham & Houston, 2012). The Net Present Value (NPV) is the deviation between the present gains the healthcare business has realized and the present cost value which the firm has incurred. The NPV can either be positive meaning that it is desirable by the firm because it makes profit, or negative which is undesirable by the firm because it makes loses. Most importantly, the principle objective of the shareholder wealth maximization is to maximize shares’ market value which is used to judge the performance of the healthcare firm (Windsor & Boatright, 2010).

Question two

Prospective payment plan for healthcare is an approach that aims at assigning a fixed rate of payment to particular types of treatments established on preset factors. The rates of payment can be adjusted regularly as an explanation for inflation, large scale economic factors as well as the cost of living, but they cannot suit any individual patient. In prospective payment plan, the payment is the same for every similar treatment to every healthcare provider. In addition, even though similar multiple treatments receive multiple payments, every payment remains the same. Besides, any case that requires multiple treatments is sectioned in order to make it easier to assign each treatment in correspondence to its payment rate (Cleverley, Cleverley & Song, 2010).

 On the other hand, retrospective payment is an approach where healthcare providers receive their payment on the basis of their factual charges. This means that after healthcare providers offer treatment to the patients, they send an enumerated bill to the insurance provider that gives a brief description of the items used for treatment and the kinds of services offered during the treatment. When the insurance providers receive the itemized bill, they can either deny it or approve it based on the entire bill or some services provided. Nevertheless, healthcare providers are supposed to receive full payments as indicated in the bill without any objection from the insurance company (Cleverley, Cleverley & Song, 2010).

Question three

`If patient are not covered by a health insurance policy, their medical expenses are said to be unreimbursed because they lack an insurance provider. In addition, all those medical expenses that that are unreimbursed can be the same expenses not covered by the insurance policy. On the other hand, community benefit is the contribution that tax-exempt organizations make in support of the well-being of the needy people to improve their health exponentially. This means that community benefits are only eligible to the low-income earners as well as the vulnerable people in the society by providing the right strategies to incorporate in ensuring that all community members get the healthcare services regardless of their financial status. Therefore, because unreimbursed cost of Medicare is only eligible to the patient based on their insurance policy and not their financial status, it is not included as an element of community benefit (Ouslander et al., 2010)       


Brigham, E. F., & Houston, J. F. (2012). Fundamentals of financial management. Cengage Learning.

Cleverley, W. O., Cleverley, J. O., & Song, P. H. (2010). Essentials of health care finance. Jones & Bartlett Publishers.

Ouslander, J. G., Lamb, G., Perloe, M., Givens, J. H., Kluge, L., Rutland, T., … & Saliba, D. (2010). Potentially avoidable hospitalizations of nursing home residents: frequency, causes, and costs. Journal of the American Geriatrics Society, 58(4), 627-635.

Windsor, D., & Boatright, J. R. (2010). Shareholder wealth maximization. Finance ethics: Critical issues in theory, practice, 437-455.

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