Health Economics and Financial Management: What a Medical Manager Needs to Know

  • John Ramsay FergusonEmail author


Economics has been defined as the study of scarcity and health economics is a unique subset of this major discipline simply put as the study of the economic functioning of a health care system within a given society’s overall financial and social fabric. The challenges in analysing and understanding the complexities of health economics relate to its inherent components, including the ephemeral nature of defining health, the marked imbalances in knowledge between provider and consumer and the intrinsic mores and societal values held by the respective communities. Health economics is integral to and heavily influenced by the respective society involved and what value it places on “health” within its overall economic environment. This sets the political environment that exerts overall governance and strategic direction for health service delivery. It should be noted that at an international level, many countries are not regarded as having a health system; such is seen as the product of a developed and well-established society.

Within Australia, it has really been the last 20 years that has seen the rise of health economics as an integral aspect of the health system leading to growing accountability and governance required to effectively manage and provide safe and high quality affordable care. There are many reasons behind this but the reality is we cannot maintain the growth sought at so many levels with the available finances and resources; hence we must improve and transform how we deliver care to continue to enhance patient outcomes.

At a much more pragmatic level, financial management refers to the way in which the services provided are costed and funded. Key aspects entail effectiveness, efficiency and productivity with good financial management in a health setting meaning high quality appropriate health care is delivered within available resources in a timely, safe and sustainable manner. Within the public setting, there is also a heavy industrial overlay and an inherent training requirement that must be understood and acknowledged.

This chapter focuses on the overall context and the financial elements involved primarily in a hospital setting; specifically within a public hospital setting in Victoria. Governments at both state and federal levels have been progressively moving to an activity-based funding (ABF) formula in order to more clearly define what is being provided and to strategically target health service development to meet defined needs in an economic and sustainable manner. Understanding the principles of ABF and the key cost drivers are core competencies for a medical manager and being able to appreciate the nuances of clinical activity and infrastructure that affect both clinical and financial outcomes is pivotal.

A paradigm shift is inevitable and medical managers must not only help shape this, they must lead through the thorough understanding of the clinical priorities aligned with the financial and resource imperatives.


Activity-based funding Casemix Craft Group Agreements Diagnosis-Related Groups—DRG Right of private practice Victorian Ambulatory Classification System Health economics Financial management in health care 


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Further Reading

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Copyright information

© Springer Nature Singapore Pte Ltd. 2019

Authors and Affiliations

  1. 1.Fellow Royal Australasian College of Medical AdministratorsMelbourneAustralia

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