| Course | EDN 816 Financial Management in Healthcare Environments |
|---|---|
| Module | Module 1 |
| Paper type | Health care finance orientation paper |
| Length | About 1,228 words, 7 pages |
| Format | APA 7 student paper |
| School | Aspen University |
| Program | Doctor of Education |
| Updated | September 2026 |
Free sample paper for EDN 816 Module 1
Who Pays, Who Decides, Who Receives: Why Health Care Finance Differs From Finance Everywhere Else
Student Name
Doctor of Education Program, Aspen University
EDN 816: Financial Management in Healthcare Environments
Instructor Name
Month Day, Year
Who Pays, Who Decides, Who Receives: Why Health Care Finance Differs From Finance Everywhere Else
Linden Ferry Medical Center, a composite 180-bed nonprofit community hospital, promoted six nurses to unit manager this year. At their first budget meeting one of them asked why the hospital could not simply raise its prices when costs rose, as the grocery store near her home had done. The question is a good one, and the answer explains most of what makes health care finance unusual. This paper, written as an orientation for Linden Ferry's new managers, explains how payment flows in health care, why prices behave as they do, how payer mix determines margin, what obligations nonprofit status carries, and what these differences mean for the patient care decisions managers make every day.
Three Parties Instead of Two
In most markets the person who receives a service chooses it and pays for it. In health care those roles are split. Patients receive care, clinicians largely decide what care is given, and insurers and government programs pay most of the bill. Because the patient rarely sees the full price at the point of care and the clinician rarely sees it at all, the ordinary forces that discipline prices and quantities in other markets work weakly. Much of health care finance consists of arrangements, from fixed payments per admission to prior authorization, that payers have built to replace the discipline that direct payment would supply.
Prices Are Set, Not Chosen
Linden Ferry cannot raise its prices to most of its patients. Medicare pays a fixed amount per inpatient stay based on the patient's diagnosis-related group, adjusted for local wages and other factors, and fixed rates for outpatient services; the hospital does not negotiate them. Medicaid rates are set by the state. Commercial insurers pay rates negotiated in contracts that run for several years. Only the small share of patients who pay entirely on their own face the hospital's own prices, and many of them cannot pay in full. When costs rise mid-contract, the hospital must absorb them until rates can be renegotiated or reset by regulators.
Charges Are Not Payments
New managers are often confused by the hospital's charges, the list prices recorded in its chargemaster. Charges bear little relation to what the hospital collects. A charge for a day on a medical unit may be several times what Medicare pays for that day. The difference between gross charges and expected payment is recorded as a contractual adjustment, and the financial statements report revenue net of those adjustments. Managers should therefore judge their units by net revenue and by cost, never by gross charges.
Payer Mix
Because each payer pays differently, the mix of patients by payer largely determines whether the hospital covers its costs. The table shows Linden Ferry's inpatient payer mix and the ratio of payment to cost for each payer.
| Payer | Share of inpatient days | Payment-to-cost ratio | What it means |
|---|---|---|---|
| Medicare and Medicare Advantage | 44% | 0.88 | Pays about 88 cents for each dollar of cost |
| Medicaid | 17% | 0.79 | Pays about 79 cents per dollar |
| Commercial insurance | 31% | 1.46 | Pays about $1.46 per dollar |
| Uninsured and self-pay | 5% | 0.12 | Mostly charity care and uncollected bills |
| Other government and workers' compensation | 3% | 1.02 | Roughly covers cost |
| All payers, weighted | 100% | 1.01 | Patient care barely covers its cost |
Cross-Subsidy
The table shows a structure common among community hospitals: commercial patients pay well above cost, and the surplus covers losses on public and uninsured patients. The weighted ratio of 1.01 means that patient care as a whole earns about one cent per dollar; Linden Ferry's modest operating margin depends on other operating revenue such as cafeteria, parking and grant income. This cross-subsidy has consequences. A move of a few points of payer mix away from commercial insurance toward Medicare, as the local population ages, would push patient care into loss. Leaders therefore watch payer mix as closely as volume.
Profitability Varies Widely
Hospitals differ greatly in how well they manage these forces. In a study of acute care hospitals using fiscal year 2013 Medicare cost reports, the typical hospital lost $82 on patient care for every adjusted discharge, and only 45% earned a profit on it; hospitals with higher markups, system membership or regional market power were more profitable, while those with more Medicare patients or more uninsured residents in their county were less so (Bai & Anderson, 2016). Linden Ferry's position, an independent hospital with an aging population, places it among the hospitals under pressure.
Care Without Payment
Health care also carries obligations that other industries do not. Federal law requires hospitals with emergency departments that participate in Medicare to screen and stabilize anyone who arrives with an emergency condition, whether or not they can pay. Hospitals therefore provide care they know will not be paid, and they must plan for it. Linden Ferry records this as charity care when patients qualify under its financial assistance policy and as uncollected balances when they do not.
Nonprofit Status and Its Obligations
As a nonprofit, Linden Ferry pays no federal income tax and little property tax, in exchange for benefits to its community. How much charity care nonprofit hospitals actually provide has been questioned. Using 2018 Medicare cost reports for 4,663 hospitals, Bai et al. (2021) found that nonprofit hospitals spent $2.3 on charity care for every $100 of total expenses, less than government hospitals at $4.1 and for-profit hospitals at $3.8. Linden Ferry's own figure, $2.6 per $100 of expenses, is near the nonprofit average. Managers should understand that the hospital's tax benefits come with public expectations about charity care that its board takes seriously.
What This Means for Managers
For a unit manager, these differences change ordinary decisions. Because most payments are fixed per stay or per visit, extra days and extra tests usually add cost without adding revenue; a patient who stays one day longer than necessary costs the hospital money. Because quality programs adjust payment, avoidable readmissions and hospital-acquired conditions carry financial penalties as well as harm, and the evidence shows that hospitals respond: readmissions for the conditions Medicare penalizes fell markedly after the penalties began (Zuckerman et al., 2016). Because price cannot rise to meet cost, controlling cost per case is the manager's main lever. And because the hospital cares for everyone who arrives, managers cannot improve their results by turning away patients who pay poorly.
Patient Care Comes First, and Finance Serves It
None of this means finance should drive clinical decisions. It means managers should understand the financial consequences of those decisions so they can protect the resources that patient care depends on. A manager who reduces avoidable delays in discharge improves both the patient's experience and the hospital's margin. A manager who understands payer mix can explain to staff why a hospital with full beds still struggles.
Conclusion
The new manager's question about raising prices has a clear answer: Linden Ferry cannot, because payers set or negotiate most of its prices, and the few patients who face its own prices are often least able to pay. Health care finance differs because payment is separated from choice, prices are administered or negotiated, charges are not payments, payer mix determines margin, and hospitals carry obligations to care for everyone. Managers who understand these differences can make patient care decisions that are both good for patients and sustainable for the hospital.
References
Bai, G., & Anderson, G. F. (2016). A more detailed understanding of factors associated with hospital profitability. Health Affairs, 35(5), 889-897. https://doi.org/10.1377/hlthaff.2015.1193
Bai, G., Zare, H., Eisenberg, M. D., Polsky, D., & Anderson, G. F. (2021). Analysis suggests government and nonprofit hospitals' charity care is not aligned with their favorable tax treatment. Health Affairs, 40(4), 629-636. https://doi.org/10.1377/hlthaff.2020.01627
Zuckerman, R. B., Sheingold, S. H., Orav, E. J., Ruhter, J., & Epstein, A. M. (2016). Readmissions, observation, and the Hospital Readmissions Reduction Program. New England Journal of Medicine, 374(16), 1543-1551. https://doi.org/10.1056/NEJMsa1513024
What the EDN 816 Module 1 instructions ask for
The unique aspects of finance in health care organizations are the starting point of Aspen's EDN 816 description, and since the opening module's actual prompt is reserved for the course site, this example explains those aspects to an audience of new managers. Expect to be asked what makes health care finance different, why it matters and how it shapes decisions about patient care. Go beyond listing features such as insurance and regulation; explain the mechanism by which each one changes a hospital's choices. Use real payment structures, such as fixed payments per stay and negotiated contracts, and show their effect with numbers. Bring in evidence on hospital finances rather than general claims. Address the obligations that come with nonprofit status and emergency care. Close with what a leader should do differently once these differences are understood.
How this EDN 816 Module 1 example is built
The paper opens with a new manager asking why the hospital could not raise prices as a grocery store does. It explains the three-party structure of payment, then how Medicare, Medicaid and commercial contracts fix most prices, and why gross charges are not revenue. A four-column payer mix table shows Medicare at 44% of inpatient days with a payment-to-cost ratio of 0.88, Medicaid at 0.79, commercial insurance at 1.46 and uninsured patients at 0.12. Sections follow on cross-subsidy, a national study that put the typical patient-care loss at $82 per adjusted discharge, care owed under emergency law regardless of payment, and nonprofit charity care, where the hospital's $2.6 per $100 of expenses sits beside national averages. The paper ends with what these differences mean for managers.
Where the marks sit in the EDN 816 Module 1 rubric
An orientation paper of this kind earns its marks through accurate explanation, clear use of numbers, evidence and practical implications. The payment structures are described correctly, and the payer mix table turns the idea of cross-subsidy into arithmetic a reader can check. Three APA sources support it, all from peer-reviewed journals: two Health Affairs studies, one on the factors behind hospital profitability and one comparing charity care by ownership type, and a study of readmission trends under Medicare's penalty program published in the New England Journal of Medicine. Setting the hospital's own charity care figure beside national averages shows how to use research to judge an organization. Connecting each feature of health care finance to a decision a unit manager makes is the move instructors most want to see in a doctoral leadership course.
EDN 816 Module 1 help from the desk
Students often write this module as a list of ways health care is complicated, with no explanation of why each feature matters for decisions. Pick four or five features and trace each to a consequence. Numbers make the case: build even a simple payer mix table with payment-to-cost ratios, using your organization's figures if you can get them or a composite if you cannot. Avoid repeating the claim that hospitals overcharge or undercharge without evidence. Explain the difference between charges and payments early, since much confusion follows from it. Ask a finance colleague what your unit's payer mix looks like. If the payment systems feel tangled, a tutor can help you sketch how money flows from each payer to the hospital before you write.
Write yours, or have the desk draft it
This paper is an original model document written by our desk, not a submitted student paper and not an official Aspen University document. Read it for the moves, then write your own to the instructions in your classroom. If you want one built to your exact prompt and rubric, the first custom sample is free and arrives in 24 to 48 hours.
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- EDN 816 Module 7: Government Payment and Oversight
- EDN 816 Module 8: Financial Case for a Staffing Decision
- EDN 820 Module 5: Choosing an Improvement Method
- EDN 818 Module 1: Authentic Leadership Self-Assessment
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EDN 816 Module 1 questions, answered
What does EDN 816 Module 1 usually ask for?
Aspen's EDN 816 asks students to discern the unique aspects of finance in health care organizations, so a paper explaining how health care finance differs from finance elsewhere is a typical first assignment. Follow your classroom prompt.
Why can't hospitals just raise prices when costs rise?
Medicare and Medicaid set most payment rates, commercial rates are fixed in multiyear contracts, and the few patients who pay list prices are often least able to pay them.
What is a payment-to-cost ratio?
The amount a payer pays divided by the hospital's cost of caring for its patients; a ratio below 1.0 means the payer covers less than the cost of care.
Where can I find a free EDN 816 Module 1 sample paper?
Read the full paper above: an orientation for new nurse managers on why health care finance differs, with a payer mix table showing payment-to-cost ratios by payer.
What is cross-subsidy in hospital finance?
Payers that pay above cost, usually commercial insurers, generate surpluses that cover losses on payers that pay below cost, such as Medicaid and uninsured patients.