NURS FPX 6216 Preparing and Managing an Operating Budget

Preparing and Managing an Operating Budget

Prepare the operating budget

NURS FPX 6216 Preparing and Managing an Operating Budget

In health care facilities, budgeting is a major process as it includes different strategies adopted by health care to increase efficiency and productivity. Nurse managers and leaders coordinate with administrators and nurses to create and follow the operating budget (Penner, 2017). The purpose of the paper is to prepare an operating budget for a 35-bed hospital unit with 20 full-time equivalent (FTE) staff by including major sections, revenue, expenses, and primary sources. 

Operating Budget for FY 2020 – Budgeted Volumes

FY 2020 BudgetFY 2021 Proposed Budget
Patient Days109800110200
Discharges in total1835018200
Adjusted to discharges2590026200
The average patient stay length6.46.52
Average census daily302306
Total visits to emergency department 8040080800
Ambulatory clinic count168000164000
Outpatient Surgery count96009500
Inpatient Surgery count52004850
Inpatient Medicare Case1.8921.921
Inpatient Case count Mix1.6211.682

NURS FPX 6216 Preparing and Managing an Operating Budget

Statement of Revenue and Expenses – Operating Budget for FY 2021

FY 2020 BudgetFY 2021 Proposed Budget
Revenues (in thousands)
Patient Services464,300470,600
Patient Subsidies5420057300
                      Net Patient Services518500527,900
Special State Appropriations4520045200
Fringe Benefits9800099500
Patient services1,450,0001,510,000
Miscellaneous Income3230026500
Total Revenues2,144,0002,209,100

NURS FPX 6216 Preparing and Managing an Operating Budget

Expenses

Contracted MDs 80,000 80,000
Incentive programs                                                      10000                          12000 
Paid time-off                                                                80000                          85000
Salaries and Wages 480,200 502,400
Health insurance                                                         100000                         100000
Food and other expenses                                            600000                          650000
Contracted Residents 19,500 20,300
Supplies and equipment 230,000 245,000
Fringe Benefits 24,300 25,800
Interest Expense 17,200 17,600
Depreciation or Amortization 15000 15000
Facilities Service and lease agreements 17,200 17,200
Credit and Adjustments 6200 6400
Total Expenses 1,070,600 1,126,700
            Final Budget                                                  473,400                      432,400

NURS FPX 6216 Preparing and Managing an Operating Budget

Performance and Quality Improvement Initiatives – Operating Budget for FY 2021

InitiativeDescription of InitiativeSuccess ratePotential net impact per yearAnticipated impact in FY2021
SP – 8Sitter Program80%360,000360,000
ARNF – 2Additional Reimbursement for No Fault80%440000440000
RP – 2Retail Pharmacy100%840000890000
LOS – H4LOSAdjustments for Placements in Nursing Home75%80,000100000
OT – 1Overtime reduction90%1,45,0001,60,000
WC – 1Wound care expense offset100%120000100000
LEP – 1Savings in the contracted language services100%200000200000
ST – 1Training100%260000280000
SC – 2Supply Chain Savings100%510000540000
IP – 1Infection prevention90%220000200000
Total3,151,0003,270,000

NURS FPX 6216 Preparing and Managing an Operating Budget

Capital Budget – Operating Budget for FY 2021

          (In thousands)

Source of funding: 

2018A series bond capital fund reserves balance on 1/2/2021 $ 110.5

Capital purchases FY 2020 $ 21.5

Capital purchases Encumbered FY 2020 $ 4.1

——————

Projected Balance Remaining $ 84.9

Use of Funds:

Capital Projects FY2021

ED or emergency department capital needs $ 9.4

Information and data center set-up $ 16.2

Other projects, which includes Diagnostic Radiology and staff recruitment $ 17.2

Total capital FY2021               $ 42.8

———————————————————————————————————————

NURS FPX 6216 Preparing and Managing an Operating Budget

Remaining Balance $ 42.1

Revenue Assumptions – Operating Budget for FY 2021

The revenue assumptions for FY 2021 are based on the revenues of FY 2020. The first major assumption related to revenue is that number of in-patients will increase compared to the previous year and as a result, it will increase the revenue (Voda et al., 2018). The second assumption is that the quality initiative and improvement programs will benefit in reducing different health care errors (Xesfingi & Vozikis, 2016), hospital falls, infections, pressure ulcers, and other issues. Further, insurance and Medicaid payments will likely to increase. This will further benefit health care to increase revenue and decrease expenses (Lee et al., 2019). Another assumption is that paid time off will not affect the revenue negatively for a significantly long-time. 

NURS FPX 6216 Preparing and Managing an Operating Budget

Expense Assumptions – Operating Budget for FY 2021

  Wages and salaries for the year 2021 will likely increase as a greater number of patients, health complexities, and other issues will increase the need for recruiting more health care staff. This directly increases expenses (Phillips et al., 2017). Further, yearly increment of salaries for health care staff will further increase expenses. The second assumption is that the positive impact of quality improvement programs and equipment purchase in the previous year reduces other expenses (Penner, 2017). However, the need for better quality care, new interventions, training health care staff, increasing cost of resources, and other service costs will increase expenses (Liu et al., 2020).   

How the budget was designed and created

The operating budget was designed by considering the health care organization’s mission, vision, and future plans to achieve specific goals. While designing a budget, aspects such as revenue for the previous and current year, variable costs in health care, which includes direct service costs, direct labor cost, and resources costs, fixed costs such as rent or lease, insurance, utilities, and benefits, non-cash expenses such as amortization and depreciation, non-operating expenses such as taxes, gains and losses, and interest, and capital costs such as funding and investment were considered (Schmidgall & Kim, 2018). All these aspects were evaluated to design a budget and other aspects mentioned below were considered to create an operating budget for one financial year by considering all items of expenses and revenues (Baker et al., 2017). Standardized health care operating budget format was used. Further, the budget preparation included the master budget, sales budget, production or service budget, and direct labor budget (Saylordotorg, 2020). 

NURS FPX 6216 Preparing and Managing an Operating Budget

Process for determining line items and cost center codes

The line items were determined by identifying different budget aspects including non-personal expenditures, capital, revenue estimations, and personnel items. These items were defined and analyzed over a period of one year by considering their asset data and related position (Sage, 2021). Personnel items included earnings, benefits, salaries and wages, employer-paid taxes, and other aspects. First, all the revenue-generating streams were identified. In the operating budget, service-based revenue, patient services, and patient subsidies were considered. After identifying revenue, revenue from previous years were analyzed to trach the costs. Further, present year revenues were calculated by estimation (Oracle, 2021). 

The next step is to repeat the above steps for the expenses, which include salaries, supplies, rent or lease, interest, and utilities, and other line items to calculate total expenses. Further, numbers were assigned to different items within the budget to represent different expenses and revenues (Oracle, 2021). 

NURS FPX 6216 Preparing and Managing an Operating Budget

When it comes to cost center codes, the process involved in determining the cost center codes is based on the company’s preferences. Firstly, codes were assigned to a different department, their subdivisions, and processes (Piersiala, 2017). For example, WC-1 is assigned to the wound care management subdivision in an ICU unit. The codes can be determined by including the first initials of the subdivision and then adding the number of the department at the end of it to identify the cost center codes. Further, appropriate nominal accounts were created for each unit (Sage, 2021). For example, a nominal account is created for infection prevention quality initiatives and then nominal codes were assigned to them where different transactions were recorded. These codes were used to represent the nominal account in the operating budget (Piersiala, 2017). 

Funding for labor, staffing requirements, and calculated workload

Funding for labor and equipment costs is essential as it helps in identifying the need for increased workforce and other resources and equipment needed. Another major aspect is staffing requirement and workload calculation as it identifies the need to manage the workload of health care professionals (Xesfingi & Vozikis, 2016). In the budget, 502,400 thousand dollars were assigned to labor costs. The estimation included the assumption that the number of patients will increase and as a result, nurse to patient ratio should also increase (Piersiala, 2017). The labor cost includes the cost for 20 full-time equivalents (FTE) staff and additional FTEs. From the budget volume, it is clear that hospital days will increase from 109800 to 110200. Further, increase in ED visits, ambulance clinic visits, in-patient count, and other hospital services, the workload will increase to a considerable amount (Voda et al., 2018). As a result, additional funding is allocated. 

NURS FPX 6216 Preparing and Managing an Operating Budget

Equipment needs and equipment cost, ongoing expenses

  Equipment needs can vary and it depends on equipment procured in the previous year. From the budget of 2020, it is clear that the health care facility invested 230,000 thousand dollars for equipment. Further, in FY 2021, 245,000 thousand dollars for equipment, 17,200 thousand dollars for facilities, and $42.8 million for information center, radiology unit, and ED capital costs were included to strengthen the services provided by the health care facility. On top of that, different ongoing expenses such as wages and benefits, utilities, liability insurance, food cost of 600000 dollars, and contracted housing were included in the budget to address any organizational and individual needs. Ongoing expenses help in determining overall expenses (McBain et al., 2016).  

Performance and quality improvement initiatives

Every health care should plan to include performance and quality improvement initiatives to provide the best quality care, increase nurse and patient satisfaction, adopt evidence-based practice changes, and improve overall services offered (Greenhalgh et al., 2017). In the budget, quality improvement initiatives such as wound care, infection prevention, and other interventions were included. Around $200000 were assigned to infection prevention to increase patient safety and outcome. It is essential in reducing health care costs and unnecessary expenses (Munar et al., 2019). 

NURS FPX 6216 Preparing and Managing an Operating Budget

Conflicting data or information 

The budget did not include increasing health care costs, costs incurred due to unknown causes, hospital errors, and losses, and the effects of changing federal policies were not included in the budget. Further, conflicting evidence for the data center for telemedicine is not considered as some studies show that telemedicine did not considerably reduce health care service cost (Michaud et al., 2018). The evidence was not considered as majority of evidence support that better IT and data centers help in better organizational outcome (Raphael et al., 2019).  

Primary sources of budget information

The budget prepared was based on primary sources, which included operating budgets of acute health care settings, current evidence related to increasing health care cost, financial year reports from health care organizations, quality initiative reports and cost associated with them, and financial budgeting models and templates for healthcare services. 

NURS FPX 6216 Preparing and Managing an Operating Budget

Reliability and relevance of data

Most of the data is based on financial reports by other organizations. However, the budget data was appropriated to the selected organization with 20 FTE staff. Further, evidence-based calculations were carried out to assign a budget for different aspects such as QI initiatives, equipment cost, wages and salaries, contracts, credits, expenses, and revenues (Baker et al., 2017). As a result, the data is reliable and relevant. 

Plan for ongoing budget management

  A combination of output and input approach and activity-based approach will be used to plan and manage the ongoing budget. The approaches will be used by integrating the organizational mission, goals, and objectives (McBain et al., 2016). The organization has a mission to provide high-performance health care services to everyone by considering quality care, cost-effective care, and ease of access. Also, the organization has objectives and goals to adopt evidence-based quality improvement approaches to reduce health care costs and increase quality care. Further, the management plan will address non-productive time and expenses, limiting staff overtime, managing supplies, and costs, and integrating management approaches to evaluate outcomes (Danzon et al., 2018).                                   

NURS FPX 6216 Preparing and Managing an Operating Budget

Limiting staff overtime

The health care setting has the policy to increase the quality of care and reduce health care errors by reducing nurse turnover rate and increasing nurse to patient ratio. As a result, management plan such as treating overtime as an exception, providing resources and equipment at a time to reduce increased manual work, implementing online project boards for meetings, identifying and tracking overtime patterns, training employees to practice effectively (Lockhart, 2020), integrating interprofessional collaboration, flexible schedules, capping overtime, implementing overtime policy, and recruiting more specialist nurses (Lu & Lu, 2017). The output/input approach help in planning the overtime for unit-level activities and identifying the relationship between accomplishment and effort to manage over time (Kerzner, 2017). The activity-based approach helps in identifying funding gaps by calculating the expected cost for activities to achieve objectives (Kerzner, 2017). 

NURS FPX 6216 Preparing and Managing an Operating Budget

Managing non-productive time and expenses

Expenses related to paid time for certification, training, and other non-productive time can be complex. As a result, expenses related to non-productive time should be managed. The first strategy is to promote self and lifelong learning in nurses to increase competency, knowledge, and skill levels. The second strategy is to recruit specialist nurses and establish interprofessional collaboration so that specialist nurses and health care staff can educate others (Heath et al., 2021). Further, just in time (JIT) strategy should be employed where services are provided when required without excess. For example, preventing unnecessary ED visits (Peebles et al., 2020). Further, value-based service helps in limiting idle time and increasing throughput (Daras et al., 2021). A paid-time-off list is added to the budget proposed to manage the expenses within the budget limit. 

Managing ongoing expenses related to supplies and equipment

Five major strategies were included in the budget to address and manage the expenses related to supplies and equipment. The strategies are additional reimbursement for no-fault, adjustments for placements in the nursing home, savings in the contracted language services, supply chain savings, and ED or emergency department capital needs. Supply chain management, joint ordering, and re-using supplies help in reducing unwanted and unnecessary procurement of equipment, which reduces expenses (Mokhtari, 2018). Further, inventory management shared resources, and risk analysis aid in limiting and managing ongoing expenses (Ahmadi et al., 2018). 

NURS FPX 6216 Preparing and Managing an Operating Budget

References

Ahmadi, E., Masel, D., Metcalf, A., & Schuller, K. (2018). Inventory management of surgical supplies and sterile instruments in hospitals: a literature review. Health Systems8(2), 134-151. https://doi.org/10.1080/20476965.2018.1496875

Baker, J., Baker, R., & Dworkin, N. (2017). Health care finance (2nd ed.).

Danzon, P., Drummond, M., Towse, A., & Pauly, M. (2018). Objectives, budgets, thresholds, and opportunity costs—a health economics approach: an ISPOR special task force report [4]. Value In Health21(2), 140-145. https://doi.org/10.1016/j.jval.2017.12.008

NURS FPX 6216 Preparing and Managing an Operating Budget

Daras, L., Vadnais, A., Pogue, Y., DiBello, M., Karwaski, C., & Ingber, M. et al. (2021). Nearly one in five skilled nursing facilities awarded positive incentives under value-based purchasing. Health Affairs40(1), 146-155. https://doi.org/10.1377/hlthaff.2019.01244

Greenhalgh, J., Dalkin, S., Gibbons, E., Wright, J., Valderas, J., Meads, D., & Black, N. (2017). How do aggregated patient-reported outcome measures data stimulate health care improvement? A realist synthesis. Journal Of Health Services Research & Policy23(1), 57-65. https://doi.org/10.1177/1355819617740925

Heath, R., Astle, A., Sanders, K., & Jack, K. (2021). Raising the profile of care home nursing through collaborative working. Nurse Education In Practice, 103054. https://doi.org/10.1016/j.nepr.2021.103054

Kerzner, H. (2017). Project management: a systems approach to planning, scheduling, and controlling (2nd ed.).

Lee, Y., Mozaffarian, D., Sy, S., Huang, Y., Liu, J., & Wilde, P. et al. (2019). Cost-effectiveness of financial incentives for improving diet and health through Medicare and Medicaid: A microsimulation study. PLOS Medicine16(3), e1002761. https://doi.org/10.1371/journal.pmed.1002761

Liu, C., Hebert, P., Douglas, J., Neely, E., Sulc, C., & Reddy, A. et al. (2020). Outcomes of primary care delivery by nurse practitioners: Utilization, cost, and quality of care. Health Services Research55(2), 178-189. https://doi.org/10.1111/1475-6773.13246

NURS FPX 6216 Preparing and Managing an Operating Budget

Lockhart, L. (2020). Strategies to reduce nursing turnover. Nursing Made Incredibly Easy!18(2), 56-56. https://doi.org/10.1097/01.nme.0000653196.16629.2e

Lu, S., & Lu, L. (2017). Do mandatory overtime laws improve quality? staffing decisions and operational flexibility of nursing homes. Management Science63(11), 3566-3585. https://doi.org/10.1287/mnsc.2016.2523

McBain, R., Jerome, G., Warsh, J., Browning, M., Mistry, B., & Faure, P. et al. (2016). Rethinking the cost of healthcare in low-resource settings: the value of time-driven activity-based costing. BMJ Global Health1(3), e000134. https://doi.org/10.1136/bmjgh-2016-000134

Michaud, T., Zhou, J., McCarthy, M., Siahpush, M., & Su, D. (2018). Costs of home-based telemedicine programs: a systematic review. International Journal Of Technology Assessment In Health Care34(4), 410-418. https://doi.org/10.1017/s0266462318000454

NURS FPX 6216 Preparing and Managing an Operating Budget

Mokhtari, H. (2018). Joint ordering and reuse policy for reusable items inventory management. Sustainable Production And Consumption15, 163-172. https://doi.org/10.1016/j.spc.2018.07.002

Munar, W., Snilstveit, B., Aranda, L., Biswas, N., Baffour, T., & Stevenson, J. (2019). Evidence gap map of performance measurement and management in primary healthcare systems in low-income and middle-income countries. BMJ Global Health4(Suppl 8), e001451. https://doi.org/10.1136/bmjgh-2019-001451

Oracle. (2021). Understanding line item activities. Docs.oracle.com. Retrieved 3 May 2021, from https://docs.oracle.com/cd/E41507_01/epm91pbr3/eng/epm/pbpd/concept_UnderstandingLineItemActivities-d17c88.html#:~:text=Line%20item%20budgets%20include%20personnel,related%20position%20and%20asset%20data.

Peebles, R., Nicholson, I., Schlieff, J., Peat, A., & Brewster, D. (2020). Nurses’ just-in-time training for clinical deterioration: Development, implementation and evaluation. Nurse Education Today84, 104265. https://doi.org/10.1016/j.nedt.2019.104265

NURS FPX 6216 Preparing and Managing an Operating Budget

Penner, S. (2017). Economics and financial management for nurses and nurse leaders. Springer Publishing Company, LLC.

Phillips, T., Evans, J., Tooley, S., & Shirey, M. (2017). Nurse manager succession planning: A cost-benefit analysis. Journal Of Nursing Management26(2), 238-243. https://doi.org/10.1111/jonm.12512

Piersiala, L. (2017). Cost accounting for management of health services in a hospital. acta universitatis Lodziensis. Folia Oeconomica3(329). https://doi.org/10.18778/0208-6018.329.14

Raphael, B., Schumann, C., Garrity-Gentille, S., McClelland, J., Rosa, C., & Tascione, C. et al. (2019). Virtual telemedicine visits in pediatric home parenteral nutrition patients: a quality improvement initiative. Telemedicine And E-Health25(1), 60-65. https://doi.org/10.1089/tmj.2017.0298

Sage. (2021). Using cost centre codes and department accounting. Sage-docs-help-rebrand.s3-website-us-east-1.amazonaws.com. Retrieved 3 May 2021, from http://sage-docs-help-rebrand.s3-website-us-east-1.amazonaws.com/Sage200-HTML5-White/Content/NL/CostCentresandDepartments.htm.

NURS FPX 6216 Preparing and Managing an Operating Budget

Saylordotorg. (2020). How are operating budgets created?. Saylordotorg.github.io. Retrieved 3 May 2021, from https://saylordotorg.github.io/text_managerial-accounting/s13-how-are-operating-budgets-crea.html.

Schmidgall, R., & Kim, M. (2018). Operating budget processes and practices of clubs: a repeated cross-sectional study over four decades. Journal Of Quality Assurance In Hospitality & Tourism19(4), 476-494. https://doi.org/10.1080/1528008x.2018.1438958

Voda, A., Bostan, I., & Tiganas, C. (2018). Impact of macroeconomic and healthcare provision factors on patient satisfaction. Current Science115(1), 43. https://doi.org/10.18520/cs/v115/i1/43-48

Xesfingi, S., & Vozikis, A. (2016). Patient satisfaction with the healthcare system: Assessing the impact of socio-economic and healthcare provision factors. BMC Health Services Research16(1). https://doi.org/10.1186/s12913-016-1327-4