Ch. 12 Managing Costs and Budgets

After a major flu vaccination campaign, an agency bills a private insurance company for allowable costs for administration of each vaccination according to the schedule established by the insurance company for reimbursement. This is an example of which major payment method? a. Cost-based reimbursement b. Charges c. Contractual allowance d. Prospective reimbursement

ANS: A Because the agency is submitting costs after the campaign is completed and in accordance with an established schedule of allowable costs, a retrospective, cost-based reimbursement payment method is being utilized. If a desire for profit was indicated, then the answer would be "charges."

Physicians in a small urban hospital are reluctant to discharge older adult patients because many of the patients lack private insurance and the resources to travel distances for follow-up care. The hospital administration pressures the physicians to discharge patients sooner and to be more consistent with the number of hospitalization days specified within the DRGs. Which of the following would most likely prompt the action of administrators? a. The hospital is incurring a deficit related to a gap between the PPS and the DRGs and costs of care. b. Local home care services are expressing concern about the increased acuity of patients being discharged into their care. c. The resource-based relative scale for physicians does not account for the increased length of stay. d. Acute care patients are being denied entry to the hospital because of the increased stay of patients.

ANS: A Length of stay (LOS) is the most important predictor of healthcare costs and extra days are a cost to the organization in terms of both the extra days and decreased patient volume. The situation, as outlined, does not indicate that there is a bed shortage and therefore, there is no evidence that other patients are being denied access to services or that additional patient volume is not being captured. The hospital would be concerned about the impact on its income because of the additional, uncompensated care costs incurred for patients who exceed the usual length of stay explicitly calculated under PPS and the DRGs.

A staff nurse regularly works two 12-hour shifts each week and one 8-hour shift every other week. How many FTEs is this position? a. 0.6 b. 0.7 c. 0.8 d. 1

ANS: B Assuming that a full-time RN works 2080 hours/year (40 hours ´ 52 weeks), the nurse works (24 hours ´ 52 weeks + 8 hours ´ 26 weeks)/2080, which is 0.7 FTE.

In a nurse managers' meeting, the chief nursing officer encourages the managers to brainstorm ways to reduce costs. Nurse managers have the greatest impact on reducing costs by managing: a. Supplies. b. Staffing. c. Fixed costs. d. Medication costs.

ANS: B Because staffing constitutes the largest portion of any healthcare budget, managing the mix and numbers of staff required for patient care to meet identified outcomes will have the largest impact on budgets.

The chief nursing office continues to seek ways to improve healthcare services to clients and to save the hospital money. However, with the federal guidelines of paying agencies based on capitation, the chief nursing office faces a challenge. Capitation provides incentives for healthcare providers to control costs by: a. Providing fewer services to fewer clients. b. Using fewer services per client. c. Using high-technology treatments. d. Requiring second opinions.

ANS: B In a capitated environment, a single fee is paid for all services provided. To be financially viable under this reimbursement model, organizations would be interested in decreasing the volume of services used and increasing the volume of patients. High-technology treatments and second opinions may increase the number of services used.

The chief nursing office of a Magnet™ hospital has conducted a study of ways to improve healthcare services. Healthcare services that add value for clients: a. Accomplish healthcare goals. b. Minimize costs. c. Decrease the number of services used. d. Use high-technology treatments.

ANS: B Models of reimbursement affect which services and approaches (e.g., decreasing the number of services used) might be financially viable and add value for clients. It is critical to determine and advertise the value of nursing care. Services that add value are of high quality, affect health outcomes positively, and minimize costs.

After reviewing her monthly budget report, the nurse manager sees that she has a negative variance, which prompts her to change the staffing schedule. A negative or unfavorable variance in a monthly expense report may result from: a. Overestimation of inflation. b. Higher than expected client acuity. c. Net revenue exceeding net expenses. d. Not replacing staff who called in sick.

ANS: B Variance reflects the difference between what was projected and the actual performance in a budget. When the variance is negative or unfavorable, the amount spent is more than what was budgeted (expenses exceed revenue); this may be a result of higher acuity. To help managers interpret and use variance information better, some institutions use flexible budgets that automatically account for census variances.

During the budgeting process, nurse managers are typically responsible for which of the following? (Select all that apply.) a. Determining inflationary rates for the upcoming year b. Developing unit operation objectives c. Justifying capital equipment requests d. Predicting cash flow e. Negotiating budget with other managers and administration

ANS: B, C, E Although involvement in budget processes will vary from institution to institution, these are typical responsibilities for nurse managers during the budget process.

In preparing her budget, a nurse manager determines that she needs to budget for four FTE RN positions in the upcoming year. Based on a 40-hour week, this means that the nurse manager has determined that the budget will provide for _____ hours. a. 12,480 productive b. 10,820 productive c. 8,230 paid d. 10,800 patient care

ANS: C From the information given, it is not possible to determine how many nonproductive hours (vacation, holiday, sick time, education) the nurse manager has accounted for in her budget calculations and therefore whether the total number of hours (40 hours ´ 52 weeks ´ 4 staff = 8230 paid hours) is productive (paid time that is worked) or nonproductive hours. 12,480 accurately reflects the total number of hours of work paid per year.

A nurse manager approves two staff nurses to attend a national conference. When reviewing the budget, the nurse manager looks at which line item? a. Cash budget b. Capital budget c. Operating budget d. Supply and expense budget

ANS: C The operating budget includes a personnel budget, which takes into account productive and nonproductive paid work hours. Education hours are covered under nonproductive paid work hours in the operating budget.

A nurse manager is planning to request three new infusion pumps at a cost of approximately $1500 each. This item would typically be included in which budget? a. Operating b. Strategic c. Unit of service d. Capital

ANS: D Items that have a useful life of longer than a year, which is likely with the pumps, and that have a cost that usually exceeds $300 to $1000 (specific amount is set by the organization) are considered capital items. Operating budget items include what is used on a day-to-day basis, such as staffing.

The primary reason for calculating productive hours paid instead of simply calculating work paid per year is that productive hours enable the manager to: a. Anticipate total costs for patient care. b. Know how much time staff will likely be unavailable because of illness. c. Determine when orientation needs to occur for new staff. d. Determine the number of hours available for patient care.

ANS: D Total hours are critical for determining the total number of hours that need to be paid for the year. Productive hours are needed to determine what hours are actually available for patient care. The number of FTEs required is determined by dividing the total patient care hours required by the number of productive hours.

Which of the following are considered variable costs? (Select all that apply.) a. Salaries for the minimum number of staff b. Utilities and rent c. Managed care d. Supplies e. Medication and treatment supplies

ANS: D, E The total fixed costs in a unit are those costs that do not change as the volume of patients changes. In other words, with either a high or a low patient census, expenses related to rent, utilities, loan payments, administrative salaries, and salaries of the minimum number of staff to keep a unit open must be paid. Variable costs are costs that vary in direct proportion to patient volume or acuity. Examples include nursing personnel, supplies, and medications.