Question

1. Review the attached budget report that includes current actuals, current budget, the annualized results based on this year’s YTD, and the prior year’s actuals to use for trending purposes. Build next year’s budget based on the following assumptions and explain why you set the budget category amounts where you set them, use the checklist for building a budget in chapter 15 for help:
   1. The volumes, units of service (UOS), will increase by 5%, both Inpatient days and Outpatient procedures
   2. The ratio of revenue per UOS will decrease by 1%
   3. The ratio of labor to the UOS, productivity target, will stay the same
   4. The labor costs will increase by 2%
   5. The supply costs will increase by 2%

General Hospital Budget Report-June 2016					General Hospital Budget YTD				General Hospiutal Budget Annualized 2016				General Hospital Budget 2015
	Current Month				Year To Date Data-2016				Annualized Data-2016				2015 Data
Category	Actual	Budget	Variance	% Variance	Actual	Budget	Variance	% Variance	Actual	Budget	Variance	% Variance	Actual	Budget	Variance	% Variance
Revenue
Inpatient Volume-Days	4,000	3,500	500	14.3%	24,000	21,000	3,000	14.3%	48,000	42,000	6,000	14.3%	43,200	39,900	3,300	8.3%
Inpatinet Revenue	$2,400,000	$2,100,000	$300,000	14.3%	$14,400,000	$12,600,000	$1,800,000	14.3%	$28,800,000	$25,200,000	$3,600,000	14.3%	$25,920,000	$23,940,000	$1,980,000	8.3%
Outpatient Volume-Procedures	1,100	1,000	100	10.0%	6,600	6,000	600	10.0%	13,200	12,000	1,200	10.0%	11,880	11,400	480	4.2%
Outpatient Revenue	$286,000	$250,000	$36,000	14.4%	$1,716,000	$1,500,000	$216,000	14.4%	$3,432,000	$3,000,000	$432,000	14.4%	$3,088,800	$2,850,000	$238,800	8.4%
Total Revenue	$2,686,000	$2,350,000	$336,000	14.3%	$16,116,000	$14,100,000	$2,016,000	14.3%	$32,232,000	$28,200,000	$4,032,000	14.3%	$29,008,800	$26,790,000	$2,218,800	8.3%
Operating Expenses
Inpatient Labor	$1,500,000	$1,225,000	$275,000	22.4%	$9,000,000	$7,350,000	$1,650,000	22.4%	$18,000,000	$14,700,000	$3,300,000	22.4%	$16,200,000	$13,965,000	$2,235,000	16.0%
Inpatient Supplies	$500,000	$525,000	-$25,000	-4.8%	$3,000,000	$3,150,000	-$150,000	-4.8%	$6,000,000	$6,300,000	-$300,000	-4.8%	$5,400,000	$5,985,000	-$585,000	-9.8%
Total Inpatient Expenses	$2,000,000	$1,750,000	$250,000	14.3%	$12,000,000	$10,500,000	$1,500,000	14.3%	$24,000,000	$21,000,000	$3,000,000	14.3%	$21,600,000	$19,950,000	$1,650,000	8.3%
Outpatient Labor	$137,500	$150,000	-$12,500	-8.3%	$825,000	$900,000	-$75,000	-8.3%	$1,650,000	$1,800,000	-$150,000	-8.3%	$1,485,000	$1,710,000	-$225,000	-13.2%
Outpatient Supplies	$55,000	$50,000	$5,000	10.0%	$330,000	$300,000	$30,000	10.0%	$660,000	$600,000	$60,000	10.0%	$594,000	$570,000	$24,000	4.2%
Total Outpatient Exepenses	$192,500	$200,000	-$7,500	-3.8%	$1,155,000	$1,200,000	-$45,000	-3.8%	$2,310,000	$2,400,000	-$90,000	-3.8%	$2,079,000	$2,280,000	-$201,000	-8.8%
Total Operating Expenses	$2,192,500	$1,950,000	$242,500	12.4%	$13,155,000	$11,700,000	$1,455,000	12.4%	$26,310,000	$23,400,000	$2,910,000	12.4%	$23,679,000	$22,230,000	$1,449,000	6.5%
Net Revenue	$493,500	$400,000	$93,500	23.4%	$2,961,000	$2,400,000	$561,000	23.4%	$5,922,000	$4,800,000	$1,122,000	23.4%	$5,329,800	$4,560,000	$769,800	16.9%

Answer 1

For budgeting, we should be using previous year's actuals and add an estimated growth to them. In this case, we can see that while the actual figures in all line items have grown by 11.11%, the budget only expected a growth of 5.26% from 2015 to 2016. However, the question explicitly instructs us to use the estimated growth rate in volumes and costs. hence, we should be using these estimates rather than YoY growth rate trend. We then calculated the per patient or per unit of service costs and multiply the no of patients or units of service to arrive at the revenue and costs for the full year 2017. In case of labour and supplies, the budget is consistently different from the actuals for 2015 and 2016. Hence, we should be considering the actual expense per patient or unit of service as the base in budgeting for next year.

	General Hospital Budget Annualized 2016				General Hospital Budget 2015					Annual growth			Full year Projection
	Annualized Data-2016				2015 Data					2015 - 16			2017
Category	Actual	Budget	Variance	% Variance	Actual	Budget	Variance	% Variance		Actual	Budget
Revenue
Inpatient Volume-Days	48,000	42,000	6,000	14.30%	43,200	39,900	3,300	8.30%		11.11%	5.26%		50,400	5% growth estimates in question
Inpatient Revenue	$28,800,000	$25,200,000	$3,600,000	14.30%	$25,920,000	$23,940,000	$1,980,000	8.30%		11.11%	5.26%		$29,937,600	= Estimated Volume * average revenue
Revenue/ inpatient	$600	$600	$600		$600	$600	$600						$594	Average revenue/ inpatient over 2015-16 period *(1-1%) estimate
Outpatient Volume-Procedures	13,200	12,000	1,200	10.00%	11,880	11,400	480	4.20%		11.11%	5.26%		13,860	5% growth estimates in question
Outpatient Revenue	$3,432,000	$3,000,000	$432,000	14.40%	$3,088,800	$2,850,000	$238,800	8.40%		11.11%	5.26%		$3,567,564	= Estimated Volume * average revenue
Revenue/ outpatient	$260	$250	$360		$260	$250	$498						$257	Average revenue/ outpatient over 2015-16 period *(1-1%) estimate
Total Revenue	$32,232,000	$28,200,000	$4,032,000	14.30%	$29,008,800	$26,790,000	$2,218,800	8.30%		11.11%	5.26%		$33,505,164	= inpatient revenue + outpatient revenue
Operating Expenses
Inpatient Labor	$18,000,000	$14,700,000	$3,300,000	22.40%	$16,200,000	$13,965,000	$2,235,000	16.00%		11.11%	5.26%		$19,278,000	2% increase in cost as estimates in question * volume of service
Labour/ inpatient	$375	$350	$550		$375	$350	$677						$375	Average cost / inpatient over 2015-16 period
Inpatient Supplies	$6,000,000	$6,300,000	($300,000)	-4.80%	$5,400,000	$5,985,000	($585,000)	-9.80%		11.11%	5.26%		$6,426,000	2% increase in cost as estimates in question * volume of service
Supplies/ inpatient	$125	$150	($50)		$125	$150	($177)						$125	Average cost / inpatient over 2015-16 period
Total Inpatient Expenses	$24,000,000	$21,000,000	$3,000,000	14.30%	$21,600,000	$19,950,000	$1,650,000	8.30%		11.11%	5.26%		$25,704,000	=labour + supplies
total expense/ inpatient	$500	$500	$500		$500	$500	$500						$500	Average cost / inpatient over 2015-16 period
Outpatient Labor	$1,650,000	$1,800,000	($150,000)	-8.30%	$1,485,000	$1,710,000	($225,000)	-13.20%		11.11%	5.26%		$1,767,150	2% increase in cost as estimates in question * volume of service
Labour/ outpatient	$125	$150	($125)		$125	$150	($469)						$125	Average cost / inpatient over 2015-16 period
Outpatient Supplies	$660,000	$600,000	$60,000	10.00%	$594,000	$570,000	$24,000	4.20%		11.11%	5.26%		$706,860	2% increase in cost as estimates in question * volume of service
Supplies/ outpatient	$50	$50	$50		$50	$50	$50						$50	Average cost / inpatient over 2015-16 period
Total Outpatient Expenses	$2,310,000	$2,400,000	($90,000)	-3.80%	$2,079,000	$2,280,000	($201,000)	-8.80%		11.11%	5.26%		$2,474,010	=labour + supplies
total expense/ outpatient	$175	$200	($75)		$175	$200	($419)			0.00%	0.00%		$175	Average cost / inpatient over 2015-16 period
Total Operating Expenses	$26,310,000	$23,400,000	$2,910,000	12.40%	$23,679,000	$22,230,000	$1,449,000	6.50%		11.11%	5.26%		$28,178,010	= inpatient cost + outpatient cost
Net Revenue	$5,922,000	$4,800,000	$1,122,000	23.40%	$5,329,800	$4,560,000	$769,800	16.90%		11.11%	5.26%		$5,327,154	= total revenue - total cost