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Comprehensive Strategy Healthcare Spending and Finance

Comprehensive Strategy Healthcare Spending and Finance

Healthcare spending is the measurement of national health expenditure by the government. Health spending together with the expenditure provides comparable data. It includes information on medical financing schemes of revenues, cost structures, and capital formation in the system of treatment. Data on the current health expenditure is also included, such as the final consumption of goods and services of healthcare, namely personal healthcare, rehabilitative care, curative care, and long-term care, as well as the collective services, for example, health administration, prevention, as well as the public health services. Nowadays, there are many ways in which medical treatment can be funded. One of the means of health financing includes compulsory health insurance and government spending. Other methods are voluntary health insurance as well as private funds that include NGOs and private corporations. Spending is determined in total and according to the form of financing. It is also measured as GDP share, a total share of health spending, as well as in USD per capita. Healthcare spending and financing in the modern healthcare environment have been influenced by many different factors, such as workforce, technology, payment system, capital planning, and physician integration.

Spending in the Healthcare System

To begin with, there is a lot of money that is utilized yearly to support the healthcare system. The expenses used have continued to rise due to the increased changes taking place in medical provision. Some of the factors that have contributed to the increased spending include a growth in the number of elderly people in society, a high prevalence of chronic illnesses, advanced technologies, as well increased obesity cases. Elderly people are more prone to diseases, while chronic conditions require more expenses to manage and/or treat them. Focusing on the current level of medical care expenditures, it is important to determine solutions to healthcare costs to determine whether the public’s healthcare requirements are fully met or not. A forecast of the economic requirements that are necessary for the future healthcare system should also be made. Chronic conditions, such as mood disorders, diabetes, asthma, as well as hypertension, lead to more costs (Medicare Payment Advisory Commission & Book, 2012). All the same, due to a range of better medical technologies, individuals are able to live longer. However, as they become older, they have a higher probability of developing chronic illnesses that may cost a lot of money to treat. Quitting smoking and consumption of proper products help individuals be healthy and also to avoid developing these diseases at an elderly age.

Financing in the Healthcare System

Governments all over the world are advocating the initiation of multiple financial sources through the cooperative health insurance program. It is coupled with the compulsory insurance scheme; thus, it is employed under a system called Compulsory Employment-Based Health Insurance (John & Kumar, 2017). Such schemes have made the insurance sector a major partaker in the financial matters relating to the health sector. The number of expenses that belong to the government’s responsibility is covered by the insurance sector. Therefore, insurance schemes are some of the alternatives used to finance the medical sector.

The state finances aimed at the health facilities are complemented by finances from civil charity organizations. The health-related organizations under the UN play a major role in the extension of financial health through civil charity programs. Therefore, the authorities are initiating charity programs in conjunction with organizations that are willing to extend financial assistance to a country’s health sector. Ministerial committees are set up to enhance the coordination of the various sectors within the health system in different nations (Scheffler, Fulton, Hoang, & Shortell, 2018). Committees all over the world have been advocating collaboration among the sectors on health matters, and financial issues are one of them. The stakeholders can provide financial resources in support of the medical system and also carry out research expeditions in order to find other ways of financing this industry.

Most countries are also pooling healthcare revenues. Pooling of revenues ensures that some of the finances obtained from the provision of medical services are further invested in this sector. However, the revenues obtained by healthcare facilities are dependent on the existence of a balance between demand and supply in this field. The state authorities, therefore, strive to develop more healthcare facilities to meet the ever-rising demand for healthcare services. Once the demand is met, the balance is maintained, thus ensuring consistency in the healthcare revenue being obtained. The countries are advocating the application of direct out-of-pocket payments. In such systems, individuals directly pay for healthcare services or invest in the health sector. Such payments can cater for the running costs of medical facilities in these nations, and subsequently, the medical activities run without interruptions. The out-of-pocket payments can complement the taxation system, whereby the funds are deducted from the individuals’ personal incomes (John & Kumar, 2017). Such payments constitute the private expenditure on health and are distinct from public spending since public expenses are the responsibility of the government.

Community financing is another budgetary source for the health sector in the world. It is based on the collective responsibility of the local community in the countries providing funds for the provision of the healthcare service. Therefore, the community can complement the government efforts aimed at financing healthcare by extending financial assistance to the local health facilities. Collective responsibility eliminates the misconception held by the public that the process of financing healthcare services is solely the government’s responsibility. The legislatures in most countries are formulating laws to monitor the relationship between major partners and the health sector. Such include the World Health Organization and UNICEF. The partners are useful in financing various health programs. In these countries, the state authorities can work in conjunction with such partners to adequately finance the activities and projects related to the health sector.


Healthcare organizations have become multifaceted as well as dynamic due to better technologies. Among the leading cost drivers in the system of healthcare is technology. However, technology solutions are helping in creating modifications regarding the way how healthcare organizations function. Medical devices and biotechnology as well as the pharmaceutical and equipment produced by the companies have improved medical care. However, the cost of new drugs and developments, such as ventricular assist devices, stents, defibrillators, as well as laparoscopic surgical instruments, and insulin pumps, are high. As a result, there has been a rise in healthcare costs.

Apart from that, there has been a rise in spending in the healthcare sector worldwide due to new medical technologies. The latter has played a very big role in the growth of life expectancy all over the world, which has led to demand for more advanced healthcare. The request for medical treatment has been more intense and often utilized by the elderly people as compared to the younger population, thus leading to increased cost. Chronic diseases, such as cancer, diabetes, as well as obesity resulting from unhealthy lifestyles, have increased the spending on healthcare, as these conditions require high and advanced technology to be treated. The integration of medical technology into the health system worldwide resulted in increasing the costs of treatment (Sultan, 2015). Medical technologies in the market are popular today, and they are more sophisticated. The treatment cost depends on the level of technology being used in healthcare. For instance, the use of ‘low-tech’ technologies, such as X-rays, laboratory tests, and electrocardiography, increases costs moderately (Agha, 2014). In other cases, the sophisticated technologies in healthcare together with some of the procedures, such as cesarean section, coronary bypass surgery, as well as breast cancer treatment, increase the treatment cost.

Moreover, there is a huge increase in hospital costs worldwide due to the use of the computer-based information network for image archiving. Initially, imaging diagnostics technology, such as magnetic resonance, computer tomography, and X-rays, were used on specific organs, but currently, their use has been expanded to other human body parts, thus resulting in increased spending. Some of the technologies, however, allow to decrease the costs of treatment. However, the advantage of reduced cost of treatment by some technologies leads to a rise in services to individuals who cannot afford specific treatments without such advancements. The increased number of these treatments or procedures offsets the cost savings per case, hence resulting in increased aggregate costs. The way in which technology affects the treatment cost varies with the patient population as well as the placement in the treatment pathways (Sultan, 2015). Apart from that, the advancements in technology have generated demand for care by consumers as well as demand for insurance. The expansion of insurance has led to increased incentives for the development of new technologies. The purpose of such incentives is long-term growth in expenditure since the cost of developing these technologies must be recouped by the industry.

Software development is moving far beyond limits, and it also plays a central role in mobile technology in the healthcare industry. Mobile technology offers a helping hand for healthcare organizations, as it acts as a central part of the management of chronic diseases as well as authorization of the expectant mothers. Another advantage of mobile health is that it offers services to unreserved areas. Through the M-health technology, it is easier to gather clinical health data through mobile phones after which this information is easily presented to the patients, physicians, as well as practitioners. The researchers can also use it for real-time monitoring of patient’s vital signs. As a result of M-health technology in developed as well as developing countries, there has been an increment in the number of innovations developed for diagnosis, treatment, prevention, as well as awareness.

Capital Planning

Capital planning is a very important component in the decision-making process. It ensures that behind every decision, there is a defined strategy. In healthcare, capital planning also guarantees that expenditure is directed where it is needed most. The medical industry has experienced a great deal of change in the past decades. Managing the economic crisis all the way to implementing some changes in the sector enhanced by Affordable Care Act shows how well and fast the sector is evolving. Due to these changes, many hospitals have experienced a change in the amount of resources required. Investing in capital improvements by healthcare organizations is a necessity for the purpose of ensuring quality care.

Some of the objectives that should be addressed through the process of capital planning are to ensure that safety codes for standard buildings are applied in hospitals. The requirements should be integrated into facility capital planning. It would guarantee that these parameters are adhered to by every investment that is made in a facility portfolio. Changing healthcare delivery needs is another key issue that should be addressed in the capital planning process, as there is a high reliance on hospitals for preventive health visits all due to Affordable Care Act. As the healthcare industry continues to evolve, capital planning requirements would also shift, as their flexibility would ensure that both the change in needs as well as demand for quality healthcare are met (Rybkowski, 2015). Old buildings and systems are also an issue that should be addressed through the capital planning process. Renovation should be done in some of the healthcare infrastructures that are aging to ensure optimal operation of key functions such as the medical gas. Apart from that, there is a need for different healthcare organizations to partner in order to gather information required for the development of the capital plan with an aim at meeting the challenging landscape of facility capital planning in the medical field. By doing this, these organizations can be able to prioritize their investment based on need.


The health workforce refers to both the skilled and unskilled persons working towards the enhancement of the population’s health status. Such medical practitioners include ones that directly provide care together with the administration and support workers who help the health system function. The remuneration of these specialists is the employment-weighted value in the system of healthcare. It also accounts for the working time as well as the skills of health workers together with their qualifications, age, and gender characteristics. The human resources for health (HRH) volume is measured by the type as well as headcount, including the full-time equivalent for stock and flow of analysis (Kudelina, Engelbrecht, & Golovkina, 2016). The prevalence of part-time, short-term, and multi-employment as well as the rotation and migration in the health labor market are the reasons for the need for multiple approaches.

The healthcare sector is facing some challenges in terms of a decline in the amount of workforce. It is mainly due to the short supply of medical providers (Kudelina et al., 2016). Such a problem is also related to the increased need for a quality healthcare system considering the rate of disease prevalence in society. Taking into account the available short-staffed facilities, there are difficulties in providing the patients with the level of care they require. Healthcare cost is going up every day. Apart from that, there are so many people in the world that are not receiving healthcare owing to its cost and limited workforce. Nowadays, there are many key factors on why labor costs are going up within the healthcare industry. For instance, there is a very high demand for healthcare services worldwide; thus, there is a need for more nursing workforce in order to meet these requirements. For healthcare centers to have a competitive advantage in the market, they use expensive ads in order to hire more people, which also leads to increased costs. The supply of health professionals can be increased by supporting the interested public to join medical courses. In addition, creating schedule plans of work by the employees might enhance efficiency, which helps in achieving goals and objectives.

Due to the increase in both the population and aging group, the demand for healthcare has become even higher, which has also led to the increased cost of labor. The future of decreasing labor costs depends on technology to reduce patients and smarter scheduling of patients. Growth in the number of patients has led to overtime work. Healthcare solution companies have been asked to develop technology that addresses overtime costs through the repositioning of staff. Additionally, technological advancements in reducing paper-based processes by innovative real-time data applications have been used, thus decreasing the labor costs associated with the healthcare workforce.

Payment System

A payment system involves any means that can be applied in settling financial transactions by transferring money to people, institutions, as well as companies. Technologies have continued to emerge in the payment system sector, hence leading to changes in systems by most entities. Despite technological advancement, payment systems have remained one of the major causes of increased costs in the healthcare system. Since a system has to be used, capital and resources have to be allocated to cover these costs. As a way of improving the quality of care offered and enhancing cost reduction in the healthcare system, policymakers have made a number of propositions. One of the proposed systems involves a value-based program that includes a payment for performance. With such changes, the cost incurred as a result of the payment systems utilized could decrease to a large extent.

Efficient payment systems are not only beneficial to healthcare providers but also to suppliers. In this way, the most effective systems should be selected to enhance the creation of productive relationships between the trading partners when the health center is acquiring resources (Wadhwa, Kalyan, Thakkar, & Patel, 2018). The payment method selected ought to depend on a number of factors. For instance, the distance between the stakeholders should be put into consideration. If it is large, electronic payments are preferred to reduce inefficiencies. The cost of utilizing a payment system is another consideration. It involves determining the amount of charges that would accrue after using a specific payment approach. If this is the only consideration to be made, the cheapest method should be selected to reduce the amount of expenditure used by the stakeholders. Legal requirements should also be taken into account. The reason is that there are political regulations that limit the use of various payment systems, especially illegal systems for transactions. Therefore, strategic considerations should be made before selecting the payment method to use in the healthcare setting.

Various payment methods can be utilized in different healthcare functions. Each of the methods can be determined through the unit of payment to be used, charges, beneficiary, recipient, cost, as well as capitalization. The methods can be considered to be highly specific in common terms, such as capitalization, cost reimbursement, as well as global payment. The methods also correspondent to the division of market financial risks between a provider and payer. It shows that there is a sharing of the costs to minimize the expenses. Although this payment system factor can be beneficial for some organizations, it leads to increased costs in the healthcare system. It is contrary to other organizations that act as either providers or payers, as both functions are involved in healthcare. The payments have to be made to the employees as well as other stakeholders when obtaining resources. Moreover, the money is also received from patients and during the disposal of assets. As a result, the organization may end up incurring high costs both as a provider of payment and receiver of the funds.

To understand payment systems as cost drivers in the healthcare system, the aspect of third-party involvement also applies. In order to get third-party payers who are involved in offering payment services, a healthcare center incurs a lot of costs. Such expenses are eventually transferred to the users of the healthcare services since they are considered financing costs. The patients may feel that the payment systems used are not transparent enough, but the problem is the amount of expenses that a health center has to utilize for payment systems.

Physician Integration

It is apparent that the utilization of resources in healthcare is mostly determined by the physicians’ collective decision. Large numbers of expenditures are influenced and controlled by medical professionals in healthcare. The physicians exercise a lot of influence on the organizational costs since they decide the patient that should be admitted and the type of service that they would receive together with the duration in which they would be hospitalized (McCarthy, 2018). In order to receive cost-effective care, the healthcare industry is modifying a physician’s behavior. Hospitals were previously organized with two forms of authority that included the administrator, which was operated by professional managers, and clinicians, which was operated by physicians together with the other medical staff of a hospital. In this design, the insults were directed toward the physicians due to the impact of their decisions on the competition and financial positions of the hospitals. However, medical facilities have been forced to improve both the efficiency of the organization and the relationship with the physicians due to the changes in government and third-party mechanisms of payment. As a result, these reimbursement shifts together with the increase in the number of medics, including increased specialization in the medical profession and changes in the nature of clinical care, have played a big role in the separation of both the administrative and clinical staff in terms of decision-making and control.

The relationship between hospitals and physicians is very strained mainly due to the fact that the latter have a big influence and control over most of the healthcare expenditures. However, hospital managers are developing an administrative mechanism aiming to improve the actions and goals of both physicians and administrators. It has led to a proportion for an array of different hospital-physician integration strategies. Such strategies include joint ventures, strategic alliances of the hospitals and physicians, as well as involvement of physicians in the hospital governing board. Thus, there has been a lot of focus on management service organizations (MSOs) as well as physician-hospital organizations (PHOs) and models of integrated delivery systems.


Healthcare financing and expenditure are the areas that have raised many concerns in the health industry due to the increased changes in the medical systems. Some of the sources of finance include the government and federally-funded programs. Healthcare expenses have continued to increase due to a number of factors that act as the cost drivers in the medical system. One of the factors is technology. Although modern developments have helped improve the medical system, they have also promoted additional expenses. The reason is that some technologies are difficult to install and maintain. The increased health concerns in society require the installation of medical technologies in the health centers to meet the raising needs for care. The workforce is another factor that is leading to additional expenses. It is mainly due to the decreased number of workers in healthcare, hence resulting in the usage of additional expenses to meet the demand for more workforce in medical facilities. The payment systems are another factor to blame. Technology is also present in payment systems, but this is a challenge since every system requires extra charges, which are even higher if the payment method is outsourced to a third party. Capital planning in the healthcare system requires strategic analysis and decision-making. It is the basis upon which a health center thrives. Lastly, physician integration has become a challenge since physicians largely determine resource utilization in a health center. More research should be carried out on healthcare spending and finance to ensure the establishment of cost-effective and efficient methods in this industry.