Question

In the topic of organizational accounting, why is the budget important in medical clinics or hospitals?

Answer 1

Finance teams look to re-engineer inefficient and ineffective budgeting and planning methodologies and tools, they realize that one approach can’t be right for every hospital or healthcare provider.

An optimal process is often a function of an organization’s culture or even the competitiveness of their market. We’ve compiled a list of five common approaches we’ve seen followed across a variety of successful healthcare provider organizations.

Planning across multiple time horizons has becoming increasingly important because of industry reform. Aligning plans, models and budgets is imperative.

• Rolling Forecasts –Actual and monthly projections for 18 months provide a trended view of performance, typically represented at an entity level. The model helps assess current realities that will influence longer -range (multi-year) projections, as well as detailed operational plans

• Multi-Year Plans–This process is increasingly being used to understand not only the impact external market business drivers will have on bottom-line results, but also internal initiatives.The notion of baseline assumptions (current outlook 3 -5 years) combined with independently modeled initiatives (projecting the impact of targeted growth strategies or cost containment efforts) can be combined to evaluate different ‘scenarios’.

• Detailed Budgets– Effectively,budgeting gives each manager visibility into how baseline projections and new initiatives are impacting his/her financial plan.Refinements are made collaboratively with each department resulting in a plan that promotes ownership of resulting numbers.

All of these plans must be kept in sync using the same assumptions to provide a holistic outlook in the short and long term to support informed decisions.The obvious challenge faced when organizations are leveraging stand-alone spreadsheet models – or if they are using ‘bottoms -up’ approaches –is the models aren’t easily adjusted to reflect impacts to varying volume & rate assumptions.Establishing the proper statistical relationships to adjust hospital drivers to “flex” volume, workload, revenue and departmental plans is essential to efficient planning in healthcare.Assumptions related to global volumes, reimbursement rates, inflation factors, labor rates and efficiency targets should all cascade down to “flex” revenue and expense plans.

When evolving to a driver-based model, the following are key design considerations related to data flow and ‘points of control’ in the model:

• Identify with each department that represents their workload intensity(Acuity Adjusted Patient Days, Weight RVUs)
• Establish the relationship each Department Workload stat has to Global Drivers (Acute Admissions)
• Calculation methods should be intuitive;manager’s clearly see impact of volume and

          rate changes on variable dollars/hours.

• In Nursing floors, accommodate ‘step functions’ so changes in volume adjust daily census and flex hours using staffing grids.