Question

1.In a rehabilitation hospital, how is the expense budget developed?

2.How are remaining expenses (other income and expenses, taxes, etc.) integrated into the budget?

Answer 1

Answer 1.

Team work should be utilized in developing an annual

financial budget. The proJection of the financial outlook

for each department can usually be made by department

heads since they are responsible for the daily operation

of their unit. Their involvement normally produces less

variances from the budget. These forecasts, after input

and careful scrutiny by the administration, can provide

important information in developing an overall financial

budget for the hospital.

A budget is a formal written statement of a hospital's

plan for the future. The financial budget is a management

control tool normally covering a one year period. The

essentials of budgeting are to set specific goals for

future operations and to have a periodic comparison of

actual results with the financial goals established. Many

types of budgets can be used, but three which are important

to any hospital are the operating budget, capital budget

and the cash budget.

Statistical Budget

The first step in preparing an operating budget is

to prepare the statistical budget. The objective is to

provide a measure of activity in each department for the

upcoming budget period. Diagnostic departments measure

how many procedures will be provided for the upcoming year,

while nursing estimates the number of patient days anticipated.

Knowledge of the past performance of a facility is useful

in the forecasting. The last frive years is an appropriate

amount of history to keep on file. This enables management

to plan for future operations. Comparisons of past

performance with current operations may indicate favourable

and unfavourable trends. For example, it is very helpful

to review the past history of full time equivalents (FTEs)

for each department in a hospital. This enables management

Expense Budget

This is the second step in preparing an operating

budget. After the statistical budget is prepared, each

department can then prepare their expense budget. The

expense budget is the amount of money each department

expects to payout. These expenses include salaries,

supplies, and other various expenses. These are the

dollars the departments must stay within.

*Salaries

It is a good idea to give each department manager

a worksheet with each of their employees listed with their

anniversary date, present hourly pay, and number of hours

scheduled to work. The department manager can then make

corrections as necessary. They can also look at a pay

scale and decide what increases the employee will get at

their anniversary date. This is also a good time to budget

for vacancies and make all corrections.

*Supplies

Input from the department heads are necessary if there

will be price increases from the vendors and what percentage

the prices will increase. If expenses go up, the revenue

budget should increase proportionately.

Revenue Budget

The revenue budget is a £forecast o£ the income a

hospital expects to receive £or the budget period. "The

not-£or pro£it nature o£ the health care industry demands

that revenue be related to budgeted expenses.

The preparation o£ the revenue budget entails the

proJection o£ patient service revenues, other operating

revenues 8nd non-operating revenues. "Total patient

service revenues are calculated by multiplying the expected

service volume in each revenue center by the charge per

unit of service. You will need to decide what percentage o£ price increase will

be needed to produce the "bottom line" you desire. It is

a good idea to print what the results would be at each

percentage to get a true picture. The percentage level

decided upon needs to be enforced on all charges. For

example, i£ X-Ray's total ancillary charges £or every

procedure o££ered equals 5550,000 and you decide on a 10~

charge increase, then the 5500,000 will have to increase

to 5550,000. You can either increase each procedure by 10~

or increase some and decrease others. Just be sure the

bottom line is increased by 10~. This is important that

6

Other operating revenue proJections should be considered.

Examples are, dietary sales from lunches sold to employees

and silver sales from old x-ray films.