Finance: When Quality is Strong and People are Well, the Money Follows

Finance can feel like another language in healthcare—full of acronyms, price weights, and packs that land late in the month like a mild threat.

Funding rules, local quirks, and reporting lines vary widely across services and states. The leadership move is not to “become finance”. It is to partner well with it.

If you take one action after reading, let it be this: book 30 minutes with your finance lead and ask them to translate your local environment—what drives your budget, what drives your activity, what gets you in trouble, and what levers you genuinely control. Even if you have never do it before!

Now, the practical bit.

Most operational leaders think finance sits in its own bucket. In reality, it’s usually the downstream result of three upstream conditions:

• Quality and safety
• Workforce stability
• Flow and reliability

When those three are strong, variation drops. When variation drops, the costs that quietly erode budgets tend to ease.

For example - you have an unstable nursing workforce, vacancies, sickness and slow recruitment - what's the option to maintain safe care - Agency staff - think about how this impacts on the budget.

Another - scans and bloods done in the ED, patient moves to ward, scans and bloods ordered again. How does this impact on the patient and the budget

I'm sure you can think of many examples like this.

The finance flywheel (the part we don’t say out loud enough)

If safety and quality are good, and your workforce is engaged and supported, you typically see:

• fewer incidents and complaints
• less rework (duplicate tests, repeated reviews, “fixing what shouldn’t have broken”)
• fewer cancellations and less churn in theatre and clinics
• more predictable length of stay and discharge timing
• less reliance on overtime and agency to keep the place standing
• fewer people leaving because they’re tired of holding risk

This is why the phrase “money follows” is true in practice: good systems cost less to run. Not because we cut corners—because we remove friction, harm, and waste.

So instead of asking only “Why are we over budget?”, a better operational question is:

Where is variation increasing—and what is it doing to our people and our patients?

Funding models, translated (ABF, Block funding, NEP, NWAU)

If you didn’t grow up in health funding, these terms can feel alien. Here is the plain-English version.

ABF (Activity Based Funding)

Your funding is linked to what you do—your activity, every bed day, every occasion of service in out patient, every presentation —then adjusted for complexity.

In simplified terms, more activity (and/or higher complexity) tends to attract more funding, within the rules and local constraints of your organisation.

Large services tend to be funded through ABF, those service whose funding will then be used to fund the staff and resources need for said service.

Block funding

A set amount to deliver a service. Often used where activity is variable, hard to price neatly, or the service must exist regardless of throughput. Services like small country hospitals can be Block funded. Those with low activity but need a critical mass of staff and resources to ensure the communities they serve have the best service.

NWAU (National Weighted Activity Unit)

Think of NWAU as a “common currency” for hospital activity. A simple clinical episode like an out patient appointment will attract fewer NWAUs; a complex case is more. It’s a way of comparing units of work across services.

Mostly services attract fractions of the NWAU, these fractions being set by the Independent Health and Aged Care Pricing Authority (IHACPA).

To find out more about IHACPA and how it sets the classifications and fractions visit their website: IHACPA​

NEP (National Efficient Price)

This is the dollar value per NWAU and is set nationally each year. In very simplified terms, ABF funding roughly follows number of NWAU multiplied by the National Efficient Price, plus adjustments.

Some states may also have a state efficient price which may be slightly less that the NEP.

Why should operational leaders care?

Because if activity rises but complexity does not - this shows up as lower acuity in your service and potentially less funding for the next financial year. This is also true if your activity stays the same and acuity drops because remember its all connected to the NWAU fractionation your activity attracts multiplied by the NEP.

It is important that your services are recompensed for the work that actually happens as this is what funds your services, now and into the future.

Most organisations are funded on the previous years activity and acuity(complexity) so if this is not correct this will impact future funding

This is then connected to good clinical documentation and good coding - which I will leave for another newsletter.

It is also important to point out that not all services will provide the funding for the work that happens and so will be subsidised by services that are more ‘profitable’ - this is when financial leadership becomes complex - do we do things to price or do we do the right thing?

This what leadership is all about - working in a complex environment trying to do the right thing?

Connecting finance to service planning: demand, capacity, constraints

Service planning is where operational leaders loo ahead, could be next year for the new budget year or even further - the point is to ensure we have services available and sustainable for the future need of the population.

To do this you need to look back to predict the future.

So instead of starting with “the budget”, start with three questions:

1) What is the future demand or our service?

Not just number of presentations—who is coming, how complex they are, what pathways they need, and what seasonality looks like. even what is the population growth if looking further than a year.

Demand isn’t “busy”. Demand is patterned.

2) What capacity can we reliably deliver?

Beds and rooms matter, but capacity is also:

• workforce availability and skill mix
• theatre sessions and clinic templates
• diagnostics turnaround
• pharmacy and allied health coverage
• discharge processes and community interfaces
• decision-making speed (a hidden constraint)
• ​

3) Where is the binding constraint?

The system usually has one dominant bottleneck. Name it precisely:

• weekend discharge capacity
• delayed senior decision-making
• access to step-down/subacute
• clinic templates mismatched to demand
• staffing instability in one key role group
• diagnostic delays creating downstream bed block
• ​

When you can name the constraint, you can plan. When you can plan, you can fund intelligently (or build a credible case for change).

Pick the constraints you can impact and influence.

Key drivers of financial pressure!

When managing a multimillion dollar budget you do not need to be managing the dollars and cents - you will have heard. The trick is to look at the areas that cause you the biggest inefficiencies and develop strategies to impact those inefficiencies.

Examples could include:

1. Agency/Locum spend- typically a huge drain on resources; stratagies could include over establishment of permanent staff to enable leave cover, enabling a good pipeline of trained staff to support the future, enable higher scopes of practice or employing alternive workforces.
2. Drugs can also be a huge drain on the budget if they are not on your organisations formulary. Regular utilisation of a drug that is not on the formulary should be submitted to be added so they can be budgeted for.
3. Imaging and Pathology services - its is easier with electronic medical record systems to reduce duplication of tests but it does still happen, and sometimes its not good for patients either - too much radiation if over scanned. Strategies like ‘Choosing Wisely’ are great ways to support in this and other areas to reduce duplication.

What are your pressure points? when you talk to your finance lead ask them what is driving the overspends of your area.

One small shift this week

Partner with your finance lead and understand your financials and activity, then discuss it with your team. Teach them:

• What you’re funded to deliver (in plain English).
• What demand is doing.
• Where pressure is showing up (people, flow, quality).
• The decision you need to make—or escalate—this month together as a team.

Health finance and the responsible use of the systems dollar is everyone's business and is actually a by - product or good quality care and a satisfied and happy workforce.

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I would love to hear your feedback on this and any of the other articles, feel free to connect and DM me for further discussion

Until Next Time! Jo Glover Leadership Coach & Operational Expert in Health Empowering Health Leaders to Believe, Lead & Achieve 📧 jo@jo-glover.com​ 🌐 jo-glover.com​ 🔗 LinkedIn​ Previous editions can be found here​

Bollen Road, Mount Barker, SA 5251
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