Nursing Economics Exam 2
travel nurse
- Agency nurse filling a position for weeks or months.
total cash outflows
- All sources of cash outflows, including personnel, nonpersonnel, and capital expenses, added together and reported in the cash flow budget.
adjustment authority
- Allowing a manager to revise the budget over the remaining fiscal year to adjust for the excessive unfavorable variance.
FTE coverage factor
- An adjustment for inpatient staff FTEs to include 24-hour and 7-day per week staffing needs.
performance target
- An indicator that specifies whether a performance standard is reached in actual practice. profit and loss (P&L) statement - Another name for the income statement.
solvent
- An individual or business that is able to pay its bills and meet its liabilities.
group purchasing organization (GPO)
- An organization that negotiates prices with vendors on behalf of member hospitals so that purchasing contracts are more favorable for medical supplies and capital equipment.
what-if scenario
- Analyzing the possible impact of changes in revenues, expenses, or other outcomes, often by using spreadsheet software.
average daily census (ADC)
- Average number of patients in a nursing unit calculated as the patient days divided by the number of days in a time period.
uncollectibles
- Bills not paid in full, or not paid at all.
capacity
- The extent to which a healthcare setting can meet consumer demand
Discharge financial
- The release of a patient to home or another facility, which also includes deaths.
ending cash balance
- Total cash inflows less total cash outflows, reported in the cash flow budget.
Types of Forecasting
Benchmarks and budget targets Retrospective forecasting Prospective forecasting
Budget Variance
Difference between budget target and actual performance Focus on a specific line item within the budget and also overall variance, such costs for nursing wages and overall variance in expenses
Types of Budget Variance
Favorable budget variance Desirable difference between budgeted and actual amounts Actual expenses ≤ budgeted values Actual revenue ≥ budgeted values
Strategic Plan: Step #4
Goals and Objectives GOALS should be in SMART format goal: broad statement about what the organization intends to accomplish in the future, ex: establish a cardiovacular program of excellence withing the next 3 years objective: tasks that must be accomplished to achieve a goal. ex: hire 3 cardiovascular CNSs by the end of the next fiscal year
Strategic Plan: Step#2: Mission, Vision, and Values
Mission is about purpose - why are we here. Vision tells you who you want to be or what you want to accomplish. Values are the ethics/beliefs the organization believes. (EX: working hard, being honest)
Functions of budgets
Reporting - what did you spend? what did you make? Managing - what can I do if I'm spending too much? Planning - in the future, what might be coming in and what might I be spending?
Prospective: Zero-Based Budgeting (ZBB)
Requires all expenses to be justified for each new budget Means that all budgets start from zero and must justify each cost/expense Requires a culture of cost management throughout the organization Can be complex, time consuming, and burdensome for yearly budget planning May be useful for selected programs and/or budget line items
Planning Special Purpose Budgets
Think through all the resources required to implement the project over 1-3 fiscal years Equipment Supplies Personnel Overhead Start-up costs Identify resources that are already available such as existing personnel and in-kind contributions or other community support Create a budget for the resources that are needed and are not covered by existing resources Include any revenue estimates that are appropriate for the project
Financial
· Expenses · Revenues · Profit/Loss
Budgets
tools nurses can use to assess and improve the financial health of organizations, such as hospitals and outpatient clinics
Indicators
metrics or measures of specific business characteristics or conditions
SMART objectives
- Program or organizational objectives that are specific, measurable, achievable, relevant, and have a time frame for achievement.
full-time equivalent (FTE)
- A standard measure for hourly employment, indicating a full-time employee working eight hours a day, five days a week, for 52 weeks a year, for a total of 2,080 hours per year.
SWOT matrix
- A tool that helps in identifying and analyzing the strengths,weaknesses, opportunities, and threats related to a decision, project, or capital expenditure.
priority matrix
- A tool, usually in the form of a grid, that helps identify the level of priority of a project or capital expenditure.
year-to-date (YTD)
- A total of financial performance measures from the beginning of the budget year to the current time period.
trend line
- A visual representation of a trend.
financial threshold
- A specified dollar amount for setting limits, for example, a policy that any expenditure on equipment over $1,000 must be included in the capital budget.
licensed beds
- A specified number of inpatient beds approved by regulatory agencies that represent fixed capacity but may or may not be staffed and equipped for patient care
net revenue
- Gross revenue less any deductions or discounts.
accounts receivable (A/R)
-Cash payments a business expects to collect, also referred to as collections or receivables.
Prospective: What-if Scenarios
Analyzes the possible impact of a change in revenue or expenses Often uses computer spreadsheets to make "what if" calculations (for example, Excel can perform "what-if" analysis) Calculating various "what-if" estimates allows review of potential alternative outcomes
Investigating Variance
Identify the source of the variance Drill down to obtain budget variance information in more detail Determine if the source is controllable Uncontrollable = not under the control of the organization and could not be anticipated Controllable = under the control of the organization and its personnel Focus on controllable sources of variance
General Process
Intensive internal and external environmental analysis Presentation of mission, vision, and values Identification of assumptions and priorities Development of goals and objectives
Considerations and Assumptions
Lag Time (almost always a delay in reports you see) Delay in reporting actual budget figures Lag is generally based on time needed to collect and tabulate information. EXAM!!!! Ex; feb. 1 I get a report. There is a one month lag. This means I am getting a report in December. Critical to document the timeframe for each report Year to Date (YTD) Assists managers in seeing the expenses and revenue that have been incurred for the current fiscal year Shows current time frame and then YTD information KNOW FOR EXAM! January through December (fiscal year) - one month lag. Get a budget report July 1. The last month that will be in that report is May. What is the YTD? January to May.
Capacity
The extent to which a healthcare setting can meet consumer demand ex: number of beds. · Structural capacity · Staffing capacity
Retrospective Forecasting
Uses past performance as a guide for budget projections Assumes the best available predictor of future performance is past performance Generally, these forecasts are quantitative, relying on numeric data May be supplemented with qualitative data such as political climate, individual experience, CDC projections, etc.
Managing
With this report, the responsible manager identifies areas of concern and then manages these areas to improve financial performance (looking ahead).
Reporting
A budget report is used to view information about the current financial performance of a department, unit, or organization
shared risk -
ACO incentive in which a negotiated portion of the savings is returned to the providers as an incentive, also called gainsharing or shared savings.
Retrospective: Incremental Budgeting
Advantages Simple to understand and implement Budget decisions can be centralized and controlled by administrators Disadvantages Tendency to increase or decrease budget year-to-year without always knowing the true need May not reflect unique circumstances in departments/units
Retrospective: Annual Spend Down
Known as the "use it or lose it" method Managers are expected to spend their entire budget by the end of the fiscal year Anything not spent will be cut from next year's budget Example: Nurse manager budgeted $50,000 for professional education of staff and spent $40,000. Next year's budget will be $40,000 for professional education.
Non personnel Budget
Second largest portion of most hospital's budgets are often medical supplies 31% of hospital's overall expense per patient case Areas of concern: New technologies and supplies Shrinkage Waste Lack of documentation
Planning
The information from past and current budgets (as well as other factors) are used to plan future budgets.
Performance
· Staffing indicators · Productivity indicators · Patient flow indicators
Vision
- A brief description of where an organization wants to be or what the organization plans to accomplish.
mission statement
- A brief statement that communicates the overall purpose of an organization.
values
- A brief statement that incorporates the ethics and beliefs reflected in the organization and the individuals who work in the organization.
goals
- A broad statement regarding what the organization or program intends to accomplish.
evidence-informed case rate (ECR)
- A budget based on an episode of care, often used in ACOs to develop bundled payments for all providers involved in the episode of care.
service line budget
- A budget focusing on a clinical specialty or on selected groups of patients with same or very similar diagnoses, also called a product line budget.
product line budget
- A budget focusing on a clinical specialty or on selected groups of patients with same or very similar diagnoses, also called a service line budget.
capital budget
- A budget for long-term investments with a useful life of more than a year, and that are often high cost.
special purpose budget
- A budget prepared for any purpose that has not been otherwise budgeted, such as a business plan or grant proposal.
master budget
- A budget report that combines the organization's strategic plan and all of the organization's budgets and budget proposals into one document.
cash flow budget
- A budget that estimates the flow of money in and out of the business.
statistics budget
- A budget that presents an estimate or forecast of the UOS or volume over a specified time period.
incremental budgeting
- A budgeting approach in which the current year's budget is used as the base for the next year's budget.
zero-based budgeting (ZBB)
- A budgeting approach that requires a detailed analysis of every line item as it is added to the budget, thus improving budget accuracy and reducing waste
annual spend down
- A budgeting approach that requires that unspent budget funds are cut from the next year's budget so managers have incentives to spend the entire budget each year.
total cash on hand
- A cash flow budget's beginning cash balance plus the total cash inflows.
job position
- A defined occupation within the employing organization, often the staffing model for outpatient and community-based nurses' work settings
lag time
- A delay in reporting actual financial figures related to the time required for collecting and tabulating the data. line item - The specific types of items in each row (line) of the budget.
favorable budget variance
- A desirable difference between budgeted and actual amounts, for example, when actual expenses are less than budgeted.
hours per unit of service (HPUOS)
- A measure of direct care hours for settings that do not provide inpatient care, such as settings that perform procedures.
annualizing
- A method of budget adjustment by calculating an average monthly budget value based on changes in actual performance, and multiplying the value by 12 to estimate the budget for a year.
trend
- A performance pattern, such as a budget expense item increasing month after month.
strategic planning
- A process for determining the organization's long-term goals.
strategic plan
- A report that presents a plan for organizational financial management and performance for several fiscal years into the future.
objectives
- A specified task that must be accomplished over the long term or short term to achieve a goal, ideally developed as a SMART (specific, measurable, achievable, relevant, and time bound) objective.
microsystem
- A specified work unit, such as an inpatient nursing unit or an emergency department.
budget cycle
- An organization's schedule for budget preparation, negotiation, approval, and implementation.
total cash inflows
- An organization's service and nonservice revenue added together and reported in the cash flow budget.
unfavorable budget variance
- An undesirable difference between budgeted and actual amounts, for example, when actual expenses are greater than budgeted.
lagged value
- Budget or other financial figure that reflects prior financial activities for specified periods of time.
step fixed
- Budgets or budget items that remain fixed until changes in volume require a change in capacity.
flexible
- Capacity, costs, FTEs, or other values that change with changes in volume, also referred to as variable.
Collections
- Cash payments a business expects to collect, also referred to as accounts receivable or receivables.
receivables
- Cash payments a business expects to collect, also referred to as collections or accounts receivable
Wage
- Employee compensation based on the number of hours worked.
salary
- Employee compensation that does not change regardless of the number of hours worked over the year.
depreciation
- Estimating and allocating the cost of a capital asset over its useful life.
non operating expenses
- Expenses for goods or services not related to the organization's primary purpose in providing health care services.
nonoperating revenue
- Expenses for goods or services not related to the organization's primary purpose in providing health care services.
permanent staffing
- FTEs that do not change based on volume, also referred to as indirect staffing or fixed FTEs.
operating leverage
- Financial risk related to volume and reimbursement, particularly in settings with high fixed costs compared with variable costs.
midlevel providers (MLPs)
- Health professional who enables the expansion of primary care services, including nurse practitioners, nurse midwives, and physician assistants.
performance
- How efficiently a setting's capacity operates in managing production or utilization.
investigation
- Identifying the source or sources of a budget variance, and determining whether the variance can be controlled.
influence
- Impact from the input a person provides in a situation.
staffed beds
- Inpatient beds staffed and equipped for patient care, also known as available beds
available beds
- Inpatient beds staffed and equipped for patient care, also known as staffed beds.
acuity
- Level of patient illness or case complexity.
line item flexibility
- Management authority to transfer funds in one line item to another line item.
supply chain management
- Managing the policies and procedures for ordering and purchasing products used in patient care.
bed turnaround time
- Measure of the time from discharge until an inpatient bed is ready for an admission.
occupancy rate
- Measures how closely the utilization of a 24-hour nursing unit approaches its full capacity, calculated by dividing the census by the number of staffed beds, reported as a percent.
staffing indicators
- Measures of the workload and labor needed for providing health care services
metrics
- Measures that signify a specific condition or a specified level or value, also called indicators.
Indicators
- Measures that signify a specific condition or a specified level or value, also called metrics.
start-up costs
- One-time expenses for items such as equipment that enable a project to be implemented.
Monitoring
- Ongoing critical review of the budget focused on identifying performance problems that require investigation.
cash outflows from operating activities
- Operating expenses as reported in a cash flow budget.
non personnel expenses
- Operating expenses such as medical supplies and equipment maintenance that are not labor costs.
personnel expenses
- Operating expenses that represent labor costs such as employee salaries, wages, and overtime.
nonproductive hours
- Paid hours such as sick leave, holidays, and vacations that do not represent productive hours.
observation
- Patients who require close monitoring but who usually occupy an inpatient bed for less than 48 hours.
budget justification
- Presenting a rationale or a business case for an unusual or excessive budget variance, often with a plan for improved performance.
productive nursing hours per patient day (PNHPPD)
- Productive hours of inpatient staff nurses providing patient care, also referred to as direct care hours or nursing hours per patient day (NHPPD).
nursing hours per patient day (NHPPD)
- Productive hours of inpatient staff nurses providing patient care, also referred to as direct care hours or productive nursing hours per patient day (PNHPPD).
in-kind contributions
- Resources that will be contributed by the organization applying for grant funding.
cash inflows
- Revenues, cash received by the business, also called cash flows from operating activities and reported in the cash flow budget.
cash flows from operating activities
- Revenues, cash received by the business, also called cash inflows and reported in the cash flow budget.
self-referral
- Selection of a provider by a patient.
payer mix
- Sources of reimbursement, usually insurance plans, that contribute to a health setting's revenue.
balance the budget
- Strategies to adjust actual expenditures to budgeted expenditures.
per diem nurse
- Temporary nurse staffing from outside firms, also known as agency nurse.
agency nurse
- Temporary nurse staffing from outside firms, also known as per diem nurse.
starting cash balance
- The amount of cash on hand at the beginning of the cash flow budget time period.
hours per patient day (HPPD)
- The amount of time an inpatient requires of direct nursing care per day.
fiscal year
- The annual reporting period that may follow the calendar or other designated 12-month period, such as July 1 to June 30.
structural capacity
- The capability for providing services allowed by the facility's layout.
patient days
- The count of 24-hour days that patients occupy an inpatient setting, calculated by summing the daily census over a specified time period.
Contractual allowance
- The difference between the amount the insurer pays compared with the charges, also referred to as contractual adjustments.
contractual adjustments
- The difference between the amount the insurer pays compared with the charges, also referred to as contractual allowance.
variance
- The difference between the budgeted target and actual performance.
patient flow
- The efficient and timely transfer of patients to the appropriate level of care.
net increase or decrease in cash
- The ending cash balance plus the beginning cash balance, reported in the cash flow budget.
utilization
- The extent of consumer demand for services in a health care setting, measured by indicators such as patient days, patient visits, or procedures, also called volume or UOS.
Utilization
- The extent of consumer demand for services in a health care setting, measured by indicators such as patient days, patient visits, or procedures, also called volume or UOS. Patient acuity - how sick are they · Patient volume
units of service (UOS)
- The extent of consumer demand for services in a health care setting, measured by indicators such as patient days, patient visits, or procedures, also called volume or utilization.
gross revenue
- The full charges for a good or service.
staffed bed days
- The maximum capacity of inpatient beds calculated as the number of beds times the number of days in the time period, also called potential patient days.
potential patient days
- The maximum capacity of inpatient beds calculated as the number of beds times the number of days in the time period, also called staffed bed days.
nurse to patient (N/P) ratio
- The maximum number of patients assigned per nurse per shift.
staffing capacity
- The maximum number of patients that health care providers can manage at any point in time.
census
- The number of inpatients on a nursing unit at any point in time, often measured at midnight.
bed turns
- The number of times an inpatient bed is used for an admission or observation calculated by dividing admissions and observations by the number of staffed beds.
skill mix
- The proportion of RNs compared with other nursing staff such as licensed practical nurses (LPNs) or nurse assistants.
nonproductive percent
- The proportion of all paid hours that are nonproductive hours
percent variance
- The proportional difference between budgeted and actual values, calculated as the variance divided by the budgeted value.
productive hours - The time that employees are paid to carry out their work assignments.
- The time that employees are paid to carry out their work assignments.
shrinkage
- Unauthorized removal of supplies from a work setting, for example, hoarding or theft.
outliers
- Unusually costly and frequently long-term cases, usually in acute care settings.
prospective forecasting
- Using current information to predict future events.
qualitative
- Using or relying on nonnumerical data.
quantitative
- Using or relying on numerical data.
retrospective forecasting
- Using past performance as a guide for predicting future performance.
seasonal
- When values rise or fall in a repeating pattern, such as more respiratory disease occurring in the winter, also known as cyclical.
cyclical
- When values rise or fall in a repeating pattern, such as more respiratory disease occurring in the winter, also known as seasonal.
overtime
- Work hours exceeding 8 hours per day (without prior agreement to work 10-hour or 12-hour shifts at regular pay) or more than 40 hours per week.
absenteeism
- excessive use of sick leave
Operating Budgets
- the money used day to day to keep the organization running (rent, mortgage, etc.) Most common type of budget nurses will see Used in the day-to-day management of healthcare organizations Identifies: Expenses = costs incurred during the care of patients Costs or money going out of your organization. You have to pay for stuff. Revenue = income from reimbursement and other sources Money coming in - like deposits. Net P&L = revenue - expenses Income minus our spending. You want a positive number. You want more money coming in than you're spending. Even in a not for profit, you need to make profit. Establishes targets for expenses and revenue Targets are compared to actual performance to identify areas of concern Goal is to look at what's actually happening and what we planned and where the difference is, is where we have a concern. Examples: Financial aid - revenue Job - revenue Tuition - expense Books - expense Laptops - expense
Prospective: Step-Fixed Budgeting
-- VERY MUCH BASED ON VOLUME! Current capacity allows for a maximum amount of volume Once that maximum is reached, significant expenses are needed to increase capacity Example: Most MSOE classrooms can handle 25 students If the number of students per class, on average, increases to more than 25 students, significant investments must be made to change classrooms to increase capacity
accountability
-Extent of responsibility for managing a situation.
admissions
-Patients transferring from home or another facility to an inpatient facility, used as a measure of inpatient utilization.
control
-Putting management strategies in place to address and prevent unfavorable budget variances.
Strategic Plan: Step #1: Environmental Analysis
A SWOT analysis is one of the tools that can be used for an environmental analysis Identifies four factors: Strengths, which are internal factors that are positive and beneficial Ex; if look at a hospital and they have a really strong group of RNs and have good morale - internal folks that are positive and beneficial. Weaknesses, which are internal factors that are negative or harmful Ex; employee engagement survey 1 (sucks) to 7(I love it). Internal factors. Opportunities, which are external factors that are positive and beneficial Ex; colleges in this area for nurses and clinicians, this is external but helpful to us as we can catch these people right out of school. External yet beneficial. Threats, which are external factors that are negative or harmful Ex; health care reform can be a threat - if you feel your reimbursements are going to go down.
Forecasting Methods The Basics
A key activity in preparing budgets is estimating the budget values for the next fiscal year Forecasts can help in the creation of these estimates The budget is NOT the forecast (these are two different things) A budget is a detailed financial outcome of what the organization thinks will happen over a period of time (usually a fiscal year) financially. A forecast is a high-level projection of what will happen for key revenue items and overall expenses
Retrospective: Variance Analysis
Advantages Incorporates current variance review in next year's budget planning (avoid incurring the same variance again) Relies on ongoing activity that is already occurring Disadvantages Variance from current year may not apply to next year Does not attempt to account for new potential variances (something not already seen in current year)
Retrospective: Annual Spend Down
Advantages Simple to understand and implement Rewards managers who meet annual budget targets without going over or under budget Disadvantages May cause managers to spend unnecessary money to "protect" it in next year's budget May penalize managers that find innovative ways to reduce expenses without reducing quality Retrospective: Variance Analysis Identifies the sources of uncontrollable variance that may require adjustment of the next year's budget (these are supplier medication costs, you have to use this - epipens' prices)/Mass casualties coming in like in Las Vegas → uncontrollable variance. For controllable variances, the budget will likely remain the same and the manager will be held responsible for controlling the budget Example: Significant increase in cost for an often-used medical supply for which there is no equivalent at a lower cost.
Product Line Budget
Also known as a service line budget Focuses on a clinical specialty or on selected groups of patients with the same or very similar diagnoses Useful when care can be standardized so that benchmarks can be applied to costs and length of stay (LOS) Useful when a nursing unit or hospital provides a substantial portion of services to a selected patient group Example: Product line budget for total hip replacement without complications
Prospective Forecasting (expert opinion)
Assumes that current information enables the prediction of future events Often related to knowledge of new or changed policies and regulations that will affect financial performance in the future Forecasts may be developed by research departments within an organization to assist with budgeting
Strategic Plan: Step #3: Assumptions and Priorities
Based on environmental analysis, mission, vision, and values Assumptions: Expectations or beliefs about the internal or external environment that influence administrative and financial decisions Example: Preventable readmissions will lead to financial penalties Priorities: Organizational activities or issues that are believed to be of the most importance for profitability and survival (THIS IS AN ACTION) Example: Train additional psychiatrists to handle demand for services
Evidence-informed Case Rate (ECR)
Budget based on an episode of care (inpatient or outpatient) Useful for accountable care organizations (ACOs) to develop bundled payments for providers across the care episode Resembles a product line budget, but includes estimates of shared savings (assumes savings will be the result of coordinating care) Example: CMS bundled payments for comprehensive care for joint replacement (hip and knee replacement)
Capital Budget
Budget for long-term investments that are often high costs Examples: New building construction or significant renovations to existing facilities Purchase of expensive equipment and/or systems (CT scanners, electronic health records (EHRs), etc.) Cost is not the deciding factor; useful life greater than 1 year is the key Only a portion of the expense of a capital asset is used over any 1 year Only a portion of the revenue generated by the capital asset is received over any 1 year
Budget Management The Basics
Budget monitoring and management involves the ongoing critical review of the budget We focus on identifying performance problems that require investigation These problems might be undesired, unexpected, or unusual performances that are identified when monitoring a budget Once identified, we investigate these issues and work on ways to control the budget so that targets are met This often involves steps to balance the budget and then justify the changes
Fiscal Year
Budgets are typically prepared for a 12-month time period Organization will typically define a "fiscal year" Identifies the beginning and ending of the budget time period. BUDGET YEAR = FISCAL YEAR. Usually aligned with the start of a quarter (January, April, July, or October) May be aligned with the calendar year or not Although rare, organizations may have a budget time period that does not align with their fiscal year (not recommended generally)
SWOT Matrix
Can be used at various levels: Entire organization Department Project Specific expenditure (such as costly equipment)
Categories of Indicators
Capacity - number of beds. · Structural capacity · Staffing capacity Utilization · Patient acuity - how sick are they · Patient volume Performance · Staffing indicators · Productivity indicators · Patient flow indicators Financial · Expenses · Revenues · Profit/Loss
Cash Flow Budgets - Outflows
Cash outflows from operating activities are those expenses an organization occurs in providing patient care Personnel expenses like wages and benefits Nonpersonnel expenses like supplies and overhead Cash outflows from nonoperating activities are those expenses an organization occurs not directly related to patient care, such as purchasing new equipment Total case outflow is the total of all cash outflows The ending balance is total cash inflows minus total case outflows
Strategic Planning
Determines the organizational goals for the future Typically covers a timeframe longer than one fiscal year (3-5 years is common) Identifies: Goals, which are overall planned outcomes for the organization (outcomes you want to achieve). Objectives, which are specified activities that need to be completed to achieve a goal (activities you need to achieve to meet that goal). You want to be a nurse → you need to pass this course (that is an objective). Basis for developing many of the budgets in health care, including operating, capital, and cash flow budgets
Planning a Nonpersonnel Budget
Estimate expenses for medical supplies (usually based on volume and average expense per patient encounter or admission) Determine the amount of money needed to cover nonmedical supplies (forms, paper, etc.) Identify capital expenses and overhead
Planning a Personnel Budget
Estimate staffing needs based on statistics budget, likely patient acuity, HPPD, and other factors Determine nonproductive hours Determine number of FTEs Calculate dollar amount for these expenses Estimate expenses related to benefits and overtime
Planning an ECR
Estimate the costs generated by providers involved in the episode of care Hospitals Surgeons Outpatient services May be helpful to organize the information in "chronological" order similar to product line budgets
Depreciation
Estimates and allocates the costs of a capital asset over its useful life A capital asset is typically higher cost equipment like bedside monitors, CT scanners, etc. Allows the cost of purchasing assets to be spread over the years the equipment are in use
Cash Flow Budget
Estimates the flow of money in and out of the business Assists in anticipating if there may be any substantial cash shortfalls or surplus Goal is to ensure the business is solvent, meaning it is able to pay its bills and meet its liabilities May also help estimate any surplus that can be used for investing, purchasing equipment, or expanding operations Typically, reported at an organizational level (not department or unit) Usually prepared on a monthly basis over an entire year
Prospective: rts
Expert Opinion (forecasting) Also known as qualitative foreBudget Plancasting Incorporate expertise and experience in projections of patient volume, revenue, and expenses May include ranges (increase of 1,000-2,000 patients, for example) to handle differences in opinions among expe
Controlling the Budget
For controllable sources of variance, the manager is responsible for applying management and leadership strategies to attempt to control the variance in the future Goal is to clearly understand the controllable source of the variance and directly work to control the source Nurses can play a key role, such as providing input to supply chain management
Planning Product Line Budgets
Gather expense information from all departments that support the selected patient population Clinicians Ancillary departments (radiology, lab, etc.) Hospital services May be helpful to organize the information in "chronological" order If most revenue for this population comes from a small set of payers, include the typical reimbursement for this type of case Estimate the net P&L per case and annually (based on the estimated number of cases for this patient population)
SWOT analysis
Identifies four factors: Strengths, which are internal factors that are positive and beneficial Ex; if look at a hospital and they have a really strong group of RNs and have good morale - internal folks that are positive and beneficial. Weaknesses, which are internal factors that are negative or harmful Ex; employee engagement survey 1 (sucks) to 7(I love it). Internal factors. Opportunities, which are external factors that are positive and beneficial Ex; colleges in this area for nurses and clinicians, this is external but helpful to us as we can catch these people right out of school. External yet beneficial. Threats, which are external factors that are negative or harmful Ex; health care reform can be a threat - if you feel your reimbursements are going to go down.
Budget Investigation
Identifies the source or sources of a budget performance problem Determines whether the problem and its related budget variance can be controlled Focus on unfavorable budget variances May be based on organizational standard May be based on manager discretion
Indicators are Used to:
Identify positive and negative trends Determine what resources will be needed in the future Identify potential opportunities for growth and improvement
Two main roles of nurses in budget reporting, management, and planning
Influence, which is the extent of the impact of the nurse's input exerts on the budget Accountability, which is the extent of responsibility the nurse is given to manage the budget Accountability usually comes before influence Magnet® hospitals provide more empowerment for nurses to work with administration
Overhead
Known as indirect or administrative costs Expenses that cover non-patient care expenses such as housekeeping, security, rent, and utilities May be budgeted per unit or centralized for an entire organization
Personnel Budget
Labor costs are typically the largest portion of a healthcare organization's budget Need to consider the mix of personnel needed to care for patients and perform administrative duties Includes expenses related to wages and benefits, overtime, and use of agency nurses
Planning Cash Flow Budgets
More complicated than preparing operating or capital budgets Nurses are usually not involved in the cash flow budget planning (unless it is a nurse-managed facility) Estimate the amount of revenue to be received over a specified time period Estimate nonoperating revenue Estimate likely cash outflows
Planning a Revenue Budget
Not usually as controllable as expenses Based on planned reimbursement rates from commercial insurance and government payers Ways for nurses to impact the revenue budget: Complete document all services and supplies Actively manage productivity and patient flow Consider other sources of revenue (grants, donors, etc.)
Special Purpose Budgets
Prepared for any purpose that has not been otherwise budgeted Examples: New projects or products developed during the fiscal year New clinical ventures (such as a new clinical program) Substantial changes in an existing program (such as adding a second cardiac rehab gym) Budgets for grants or projects funded by foundations
Statistics Budget
Presents an estimate or forecast of the units of service (UOS) over a specified time period Basis for the estimates in the remainder of the budget May reflect cyclic and/or seasonal nature of healthcare Determined before planning the operating budget See page 152 of the textbook
Steps in Budget Investigation
Recheck the report values and calculations Review unfavorable variances and determine if they meet the organizational threshold for investigation Look for trends in variances Investigate any unexpected or unusual variances
Shared Savings/Risk
Reimbursement is provided by Medicare ACO negotiates with Medicare 50% of any savings goes to Medicare ACO members negotiate division of the remainder of the savings 20% to hospital 15% to surgeon 15% to outpatient physician group Total expenses = $50,000 Medicare reimbursement = $60,000 Total savings = $10,000 Medicare gets $5,000 Hospital gets $2,000 Surgeon gets $1,500 Physician group gets $1,500 So if there is $10,000 savings something like medicare gets 50% of the savings
Budget Cycle
Schedule for budget preparation, negotiation, approval, and implementation Varies by organization Typically begins after strategic planning is complete Directors and managers will submit draft budgets Budgets are reviewed, negotiated, and approved (or denied)
Significant and/or Unusual Variances
Significant number of uncontrollable sources of variance Manager may need to balance the budget Budget control strategy in which the manager adjusts the budget itself to compensate for actual performance Need to follow organizational policies and procedures Approaches Line item flexibility Adjustment authority Budget justification
Reporting Conventions
Similar conventions to nursing indicators: Descriptive title Clear indication of timeframe being reported Data should be from that timeframe Data should be in a readable format - typing in red to make sure people know those are important things to pay attention to or be aware of.
Strategic Plan
Strategic planning results in a strategic plan, which is a report that presents a plan for organizational financial management and performance for several fiscal years Prepared by an organization's executive leadership Input is gathered from department directors, clinicians, managers, and financial officers
Retrospective: Incremental Budgeting
The current year's budget is used as the base of next year's budget Incremental changes are made by adding or reducing existing budget items Some budget line items may also remain the same (no change) Example: Assume inflation and wage increases will result in a 5% increase in all nursing unit operating budgets.
Forecasting Error
The future is unpredictable, so all forecasting methods will include some error Error can be monitored by reviewing actual performance against budget (reviewing budget reports) The longer the timeframe for the budget, the more error is likely Using a mix of forecasting methods can often reduce error
Shared Savings/Risk Budget
Total expenses = $50,000 Hospital = $35,000 Surgeon = $8,000 Physician group = $7,000 Medicare reimbursement = $60,000 Total savings = $10,000 Medicare gets $5,000 Hospital gets $2,000 Surgeon gets $1,500 Physician group gets $1,500
Shared Savings/Risk Actual
Total expenses = $75,000 Hospital = $55,000 (covers remainder of risk) Surgeon = $13,000 (risk is up to 10%) Physician group = $7,000 (risk is up to 10%) Medical reimbursement = $60,000 Total savings = ($15,000) Medicare loses nothing Hospital loses remainder ($13,500) Surgeon loses 10% ($1,500) Physician group loses nothing
Cash Flow Budget - Inflows
Typically begins with starting cash balance, which is the amount of case on hand at the beginning of the cash flow budget month Next, the cash inflows are identified, which are the sources of revenue expected from providing care and other services, as well as any grant or other funding Case flows from operating activities are revenue from patient care services Nonoperating revenue is revenue from funding not related to patient care (such as investments, donations, etc.) The total cash inflow is the sum of all revenue sources from that month The total cash on hand is the total cash inflow plus the starting cash balance
Planning Capital Budgets
Understand the capital budget planning calendar for the organization Be aware of any organizational policies regarding capital assets and budgets (such as minimum cost thresholds or minimum useful life standards) Understand the capital budget review and approval process Identify capital needs based on strategic plan Estimate the costs associated with the capital needs (purchase costs, installation costs, initial maintenance costs, etc.) Create a written justification for the capital need Follow the review and approval process
Unfavorable budget variance (usually focus on these in our budgets - more of a concern).
Undesirable difference between budgeted and actual amounts Focus for budget management Actual expenses > budgeted values Actual revenue < budgeted values
Data Conventions
o Clearly indicate the time period for the indicator (month, quarter, year, etc.) o Make sure to use the data that corresponds to that time period o Use raw data to make calculations to avoid issues with rounding, etc. § Follow what they're saying. o Learn about standards and benchmarks used within your work setting
Benchmarks (average or industry standard)
o Indicators are often compared to benchmarks o Benchmarks are an average or industry standard o Benchmarks vary by settings and indicators o Can be an internal benchmark (such as comparison to prior year) or external benchmark (such as a CMS benchmark for patient satisfaction)
Formatting Conventions
o Round the results for easier interpretation and be consistent in the number of decimal places o Convert indicators to rates or percentages to make the numbers easier to understand o Follow the conventions within your workplace