Rick Muller is an affiliate professor at Regis University's Rueckert-Hartman College of Health Professions in Denver, Colo., where he teaches accounting, finance, and economics for the master's of science in nursing program.
The author has disclosed that he has no financial relationships related to this article.
Want to understand the dynamics and choices made in healthcare? Follow the money. Money flows to areas that generate revenue, usually to service lines with powerful political supporters. Budget dollars are always scarce for areas with little revenue potential. Understanding this fundamental fact helps identify the priorities behind many organizational decisions. Are you a revenue department, or an expense unit or service? Because organizations require revenue to ensure short- and long-term viability, any organization without financial resources can't accomplish its mission, serve its constituency, provide jobs, or remain in existence.
The healthcare equation is simple. Organizations, especially not-for-profits, desire significant net revenue to ensure the viability of their mission. Net revenue is what remains after subtracting outlays, outstanding debt, and other operational expenses. More revenue than expenses means budgets are healthier, viability is more likely, necessary upgrades occur, equipment purchases continue, and jobs remain safe.
There are two parts to the financial equation. Financial stewardship requires finding a balance between short-term needs (operational budgets) and long-term viability (funding outstanding debt and expensive capital equipment). Those responsible for balancing this mix are senior executives and boards of trustees. Because financials are the lifeblood of any organization, financial indicators are how management vigilantly assesses the changing short- and long-term dynamics of the organization. It's how executives know where they stand and how operational trend data compare to peer organizations and benchmark indicators. For nurse managers who question why they can't get additional staff, part of the answer is they ask the wrong question. For example, it's not about wanting more staff for an individual unit, but understanding how the request compares with the needs of other unit requests and organizational priorities. The point is to differentiate between short-term, work-related wants and long-term organizational needs.
Many nurses learn about finance on the job after being promoted to a management position; however, that's changing as nursing school curricula attempt to fill the financial knowledge gap within the profession. Nursing schools are now integrating finance into upper division nursing degrees to help train RNs for senior management positions.1–3 Some nursing schools, including Regis University in Denver, Colo., are contemplating adding a finance component to their undergraduate training. This complements the many health systems that provide in-house financial training to new nurse managers.
What are the key financial indicators that nurse managers need to monitor? It varies by organization and management role. For example, besides knowing whether a unit/service generates revenue, unit staff would do well to have a greater awareness of specific supply, medication, equipment, and staffing costs. This helps bridge the gap between budget and service expansion expectations and wants, and longer mission objectives and needs. It also clarifies the disparity between revenue resource allocation and expense or mission departments. Resources flow to revenue departments. These revenue units then subsidize “expense” services—those that can't generate income. In hospitals, the OR, radiology, and lab services usually generate the bulk of the revenue, which subsidizes mission/expense areas, such as social services, education programs, and support groups.
If nurses desire to influence future area, unit, and organizational decisions, they must acquaint themselves with, and speak knowledgably about, finances and key financial indicators. Nurses who embrace finance find themselves better prepared for future leadership positions. The upheavals coming with healthcare reform signal a movement away from the traditional reactionary, self-protective roles that nurses tend to have regarding any discussion about finance. Nurses who are proficient and comfortable discussing finance are better positioned to voice their concerns and proactively share their ideas and insights with key organizational stakeholders. This means that they're in a better position to advocate for patients and the nursing profession.
Nursing students, direct care nurses, nursing educators, and nurse leaders all agree that finance is the next mountain on the career horizon.1–3 To understand how to climb this mountain, understanding the landscape is a must. Knowing what the healthcare world looks like from the summit offers a panoramic view of the dynamics shaping the future. That view requires learning the language of finance and its relationship with strategic decision making.
For those interested in the journey, the first step is to identify a framework of core financial knowledge. (See Table 1.) Organizationally, begin by identifying key finance and business metrics and responsibility targets that can be integrated into nursing leadership responsibilities. There can never be a definitive or comprehensive list because of the differing situational circumstances, market factors, politics, organizational structure, and stakeholders.
However, to perfect your aim, you need to shoot at a financial knowledge target. The outer circle of the financial target is staff member knowledge (micro/task-oriented view). The middle circle is director/mid-level manager knowledge (integration of micro/task orientation into a larger structure and process). The inner circle, the CNO/CNE bull's eye, is executive knowledge (integrating micro/task orientation with internal structure and process and then placing that within the larger global strategy to address environmental and organizational objectives). As with archery, the outer circles of a target are easiest to hit. Consistently hitting a bull's eye is much more difficult, but, if successful, it demonstrates proficiency, which requires practice. The same is true of financial knowledge. The CNO knowledge bull's eye incorporates and builds on the outer circles of staff and director knowledge.
The knowledge of finance is cumulative at each level of leadership. Direct care nurses, directors, and CNOs who increase their proficiency and familiarity with finance are better able to influence future healthcare delivery decisions. Get in on the conversation!