A Health Care Organization Budget
A Health Care Organization Budget
A budget basically is a plan that is formalized and quantified, which represents the management’s expectations or intentions (Finkler & McHugh, 2008). It is a process/system that consist the particular elements that clearly indicate how money is spent in an organization, for the short term, as well as the long term.
Because budgeting is a is a collective process, every one of these departments will be required to prepare their operational plans, which should be in conformity with our corporate goals, that every department is made aware of. These departments will prepare overhead costs, projections of services to give out, operating costs and other capital requirements. As the Chief Financial Officer (CFO) of a multi-complex health care organization, it lies squarely with me, based on the plans given to me by the departments, to allocate the funds for budgeting, among these departments (rehabilitation facilities, ambulatory care centers and outpatient surgical centers). Assuming I have $10M to budget for in the upcoming financial year, this is how my budget would look like
I’ll allocate the lion’s share of the finances to the ambulatory services department, probably 40% of the total amount, which is $4 Million in expenditure. We have to ensure that we are competitive in an ever changing marketplace by reducing the health care delivery cost, with a hope to engage more physicians. Moreover, the dynamics involved are so many, as recent trends have shown that the need for these services have skyrocketed in the recent past. Estimates actually show that 60% to 70% of all the surgical procedures done in America are done on outpatient basis; therefore this must be the busiest department. In the whole amount, the physicians’ salaries, the medication cost and other operational costs will have to share the spoils in that order.
The main objective for this department is to mainly make sure that we provide effective, skillful and a comprehensive well-coordinated care for ambulatory patients, that is patient centered. This unit is supposed to collaborate with other physicians to provide well-coordinated outpatient care. With the amount given, $4 Million will be enough to achieve these budgetary goals.
Estimated sales in terms of services rendered, as well as the expenses will be included in my budget for this department. The beginning balance (cash) and cash collections throughout the projected operational period, which include donor funding for the hospital and the bills paid by the patients are what will be included as the in the income budget. Operational cash disbursements, in terms of wages for the department’s staff, miscellaneous expenses, and other operational costs for the department qualify as expense budget components (Ackoff, 1969). Cash excess and deficiency will indicate to us whether our organizational funds are sufficient enough to meet the operating expenses, and pursue projects.
The rehabilitation facilities of any hospital are very important, because of the cases they handle in the hospitals. These are facilities that are devoted to the inpatient treatment of patients that have various complex medical conditions such as musculo-skeletal, neurological, orthopedic and other conditions that require special care and attention by health specialists. The budgetary allocation for this department will as well be relatively high, at around 35% of the total amount, which means that $3.5M will directly go to this department.
The department has a lot of operational costs, because the patients spend at least a day in the facilities, as opposed to ambulatory care, where the patients are treated and are released to go home without having to spend a night in the facilities. Apart from these costs, most of these medical conditions are very complicated, and require high level of specialization and high tech facilities to treat. Diseases like cancer will need experts in that field, who more often are expensive to hire and pay, and the high tech machines involved in the treatment of such diseases as cancer are even more expensive to maintain. However, much of these costs are initial costs, thus a lesser allocation than the ambulatory services, the hospital being already established. Of the $3.5 M, much of these amount, say $1.5M will be used in wages, considering that the doctors who serve here are very senior doctors, whose remuneration must be catchy, so as to retain them in the facility, having in mind their scarcity and demand. $700,000M will be used in the maintaining of the facility’s equipment, which should be a priority because when we think about these machines, it is people’s lives that are at stake. $1M will be for the medication purchases, as well as other materials such as bandages that will be used in the treatment of the chronic illnesses. The rest of the $300,000 will be used to the operational costs for the facility, which include taking care of the patients while they are admitted, and so on.
The goal of the department with that kind of money is to make sure that the doctors who have specialized in some of these diseases are retained. This is the main aim of the budgetary allocation, and the amounts allocated will be important in making sure that this is achieved. It justifies the huge amounts of allocation for wages, since the reputation of the hospital is needed for the profitability of the organization. Saving lives is another major goal, justifiable by the amount of cash allocated in the budget.
The aspects of the income budget that I will consider is mainly the bill that will be paid by the patients or their respective health insurers. Others night include donations from well wishers, but as unlikely as they are, we won’t put any emphasis on this. On expenses budget, as the financial officer I will have in mind specifically the wages and maintenance of the equipment as my main expenses budget.
The final department for this budget is the outpatient surgery centers. Also known as the same-day surgery is the kind of surgery that doesn’t require the patient to stay overnight. The main aim of this department in the hospital is to keep hospital costs down, majorly, and saving the patients the time that was to be wasted in the hospital.
This department’s needs are more or less the same as the ambulatory services needs, albeit in a very low scale, relatively. It I relatively low because these services are the least rendered in the hospital, compared to the other two services. This is because it is an outpatient service that only focuses on surgeries that are minor. Therefore budgeting the remaining 25% for this department will be fair enough, actually ore than required. This translates to $2.5M, which is an amount that will spearhead the operations of the account to another level. Of the total budgetary allocation, around $900,000 will be used for wages, mainly because the doctors here are junior, doctors from the other two departments will give a hand in case, since this department requires general medical knowledge. $700,000M will be allocated to the purchases/maintenance of surgical equipments, as well as the medication that will be used in this department. The surplus will be used to improve the department, so as to have the capacity to handle more patients, and ease the burden of rehabilitation facilities. The upgrading of this department will most certainly require a lot of money, because of the expectation thereof.
The budgetary goal for this service is to help cut the cost of inpatient rehabilitation facilities, by offering alternative outpatient care for the patients that would otherwise be admitted in the hospital, while at the same time providing excellent quality care, for the facility’s reputation. Some of the components of the income budget remain the same, which are bills that are paid by the patients as well as their respective insurers. However, a new twist to this is that there will be a surplus, since the budgetary allocation surpasses the needs of the department. When considering the needs the department has, and the amounts allocated, one cannot fail to see the disparity, therefore a surplus must be returned or accounted for, in case there has been other expenditure that is not listed.
The regular monitoring of all expenditure is essential, once the expenditure allocation is being implemented. This is not just for the verification of the expenditure against the target allocations, but it is also important in identifying the changing patterns or circumstances, and if these changes need any corrective action (OECD, 2010). I will have to ensure that there are procedures in place to monitor the progress of the three departments against the budget and the goals, at frequent intervals. This monitoring will generally help the departments focus on remaining within the confines of the budget, and avoid unnecessary expenditure that is not planned for. In addition, appropriate reporting and authorization mechanisms should be in place. This is part of the budgeting process, where once the budget from the different departments is harmonized, then the execution of the budget begins, with close monitoring. This is the same reason why accountability initiatives must be put in place, since it relates to the earlier phases of the budgeting process, from the planning stage to where the budget is being executed, to auditing and post budget review. This stage requires the department executing the budget to involve other stakeholders in the health care organization. This will help in transparency of the expenditure, and no cash will be lost through ghost activities, since other stakeholders will be there to validate any spending. As policy, these functions are a requirement for the whole process to be effectively implemented, because of the oversight role it plays, when it comes to spending within the departments.
Performance measurement can be defined as the process of measuring the levels of achievements and activities through a wide range of indicators. Corporates can utilize performance measurement in the various stages of public budgeting, for a number of reasons. In the preparation of a budget, the management can use performance indicators in budget instructions to demonstrate desirable performance levels (Kemp, 2003). Performance measures can help individual departments with their budget requests and estimates. Additionally, performance measurements in executive budgets mostly demonstrate the expected service achievements and are often used as in legislative negotiation. The assumption that works with performance measurement is that presenting the information on performance alongside the budget amounts will somehow improve the budget decision-making, for example prioritizing who/the department to allocate funds based on the results project. Performance measures always the goals, missions and objectives of a budget, and to explain why cash is spent as well as provide an alternative way to allocate the resources to achieve specific desired results (Miller, 2001). However, performance measurement does not always give positive results. This is because one of the biggest mistakes in considering performance in budgeting is to make over simplified assumptions that are based on results that are unrefined and then applying a system of rewards/punishments based on these assumptions.
The Affordable Care Act Centers for Medicaid and Medicare Services has impacted a lot on the profitability of hospitals, because of the changes in the rates of Americans who seek medication. It helps hospitals with avoiding unnecessary re-admissions, as well as increased re-admissions in the hospitals. With the losses, the hospital will have to cut down on the costs of operation, e.g. by cutting down on the wage bill through lay-offs. If the programs are not profitable, then the next budget will see the expansion of the facility to take care of more patients.
Accountability and transparency a guide for state ownership. (2010). Paris: OECD.
Ackoff, R. (1969). A concept of corporate planning,. New York: Wiley-Interscience
Finkler, S., & McHugh, M. (2008). Budgeting concepts for nurse managers (4th ed.). St. Louis,
Kemp, S. (2003). Budgeting for managers. New York: McGraw-Hill.
Miller, G. (2001). Performance-based budgeting. Boulder, CO: Westview Press.
Click following link to download this document
A Health Care Organization Budget.docx