4209- Fiscal Planning

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4209- Fiscal Planning DRGs

• Presented by Teri Pierce, MSN, RN
• Nsg 401
• Rev. Fall 10

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(No Transcript)
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Fiscal Planning

1. Not intuitive it is a learned skill that
   improves with practice.
2. An important but often neglected dimension of
   planning.

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Fiscal Planning

• Should reflect the philosophy, goals, and
  objectives of the organization
• Increasingly critical to nursing managers because
  of increased emphasis on finance and the business
  side of health care
• NMs role Understanding fiscal terminology and
  maintaining a cost-effective unit

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Cost Containment

• Refers to effective and efficient delivery of
  services while generating needed revenues for
  continued organizational productivity
• Responsibility of every health care provider
• Viability of most health care organizations today
  depends on wise use of resources

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Cost Effective

• Not the same as being inexpensive
• Defined by the American Heritage Dictionary of
  the English Language (2005) as economical in
  terms of the goods or services received for the
  money spent. (A product is worth the price)
• Cost does not always equate to quality in terms
  of health care

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Responsibility Accounting

• Each of an organizations revenues, expenses,
  assets, and liabilities is someones
  responsibility.
• Person with the most direct control is held
  accountable (unit level nurse manager)

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Budget

• A plan that uses numerical data to predict the
  activities of an organization over a period of
  time
• Desired outcome- maximal use of resources to meet
  organizational short- and long-term needs
• Provides a mechanism for planning and control and
  promotes each units needs and contributions

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Steps in the Budgetary Process
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Forecasting

• Forecasting involves making an educated budget
  estimate using historical data.

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Types of Budgets

• Personnel or workforce
• Operating
• Capital
• Continuous or perpetual
• Fiscal year

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Personnel Budget

• Largest of the budget expenditures
• Reason health care is labor intensive
• Takes a lot of people to run a hospital
• Dont want to be overstaffed or understaffed

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Personnel Budget

• Nonproductive Time
• Cost of benefits
• New employee orientation
• Employee turnover
• Sick time
• Holiday time
• Education time
• Breaks

• Productive/Worked Time
• Worked hours
• Overtime
• Per diem

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Nursing Care Hours Per Patient Day (NCH/PPD)

• Total hours worked by nursing staff in a 24-hour
  period

Divided by
patient census at the end of that 24-hour
period
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FTE Formula(Full Time Equivalent)

• Total hours worked by a nurse (over 7 days)

Divided by
40 hours
FTEs
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Operating Budget

• Involves all managers
• After personnel costs, 2nd most significant
  component of hospital budget
• Reflects expenses that change in response to the
  volume of service
• Examples

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Capital Budget

• Plans for the purchase of buildings or major
  medical equipment
• Includes equipment that has a long life
• Equipment not used in daily operations
• Equipment is more expensive than operating
  supplies
• May have to exceed a certain amount
• Annual or semi-annual
• May also be called capital expenditures
• Examples

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Budgeting Methods

• Incremental budgeting
• Not very cost effective, predicts for next year
• Zero-based budgeting
• Decision package thats how you set your
  priorities for what you want in your budget
• Each year you start over from ground zero, cant
  assume that because it was included last year
  that it will be included this year
• Flexible budgeting
• Varies with volume and labor, calculates what you
  need based on your bottom? Who knows
• New performance budgeting
• Based on outcomes, like home health wants new
  glucometers, keeps track of how these new ones
  work better than the old ones, to justify need
  for new ones

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Critical Pathways

• Also called clinical pathways
• Definition- standardized prediction of patients
  progress for a specific diagnosis or procedure
• Length of stay (LOS)
• Variance analysis - may be justifiable ?

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Other Budgeting Terms

• Direct costs
• Attributed to direct source, like medication. You
  can track exactly where they came from and where
  they went
• Indirect costs
• We cant attribute to a specific source, usually
  more hidden costs, usually spread out over all
  departments, like housekeeping. Everyone in the
  hospital needs housekeeping

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Other Budgeting Terms

• Controllable costs
• Staffing ratios, staffing mix (more LVNs vs less
  RNs), the type of materials you buy
• Uncontrollable costs
• Equipment depreciation, the number and type of
  supplies that pts need (lots of drains go thru
  lots of stuff), overtime in the instance of an
  emergency

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Other Budgeting Terms
Fixed costs things that dont change, the amt
you pay every month is the same Variable costs
varies with volume and staff
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DRGs, Reimbursement, Managed Care
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Types of Health Care Reimbursement

• Fee for Service (FFS)
• Medicare
• Medicaid
• Diagnosis-Related Groups (DRGs) the Prospective
  Payment System (PPS)
• Managed Care

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Fee for Service (FFS)

• Little emphasis on budgeting
• Virtually limitless reimbursement
• Reimbursement
• cost to provide service profit
• More services greater amount billed
• Encourages overtreatment of patients
• Health care costs skyrocketed

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Medicare

• CMMS
• Center for Medicare and Medicaid Services
• Medicare
• Elderly (gt65)
• Catastrophic or chronic illness (no age limit)
• Part A covers hospital or inpatient services,
  pts have to pay deductable
• Part B usually covers labs, flu shots, outpt
  services (physician charges)
• Part C (Medicare Advantage)
• Part D newer, came into existence in 2006,
  Medicare prescription drug coverage

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Medicaid

• Federal and state cooperative health insurance
  plan
• Administered by the states under broad federal
  guidelines (CMMS)
• Primarily for the financially indigent
• Majority of Medicaid recipients are women and
  children

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Prospective Payment System (PPS)

• The creation of Medicare, Medicaid, and fee for
  service (FFS) reimbursement caused health care
  costs to skyrocket
• Government established regulations for justifying
  need for service and quality monitoring
• So the Prospective Payment System was started
• Heres what youre going to get paid, you can
  work within these bounds

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Diagnosis-Related Groups (DRGs)

• 1983- to monitor cost containment
• Medicare Medicaid
• Predetermined pay rates set for inpatient
  hospital stays based upon admitting diagnosis
  (flat fee)
• Rates reflected historical costs for treatment
• Prospective payment, not retrospective as in the
  past with FFS

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Prospective Payment System (PPS)

• Hospitals receive a specified amount for each
  Medicare patients admission- regardless of the
  actual cost of care
• Outliers
• Exceptions
• Extra payment justified
• Length of stay (LOS) declining
• Reimbursement declining

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Managed Care

• Attempts to integrate efficiency of care, access,
  and cost of care
• Primary care physicians (PCPs)- gatekeepers
• Selective contracting
• Copayments- copays
• Use of formularies
• Continuous quality monitoring/improvement
• Utilization review (UR)

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Types of Managed Care Organizations (MCOs)

• HMO
• Certain financial, geographic, professional
  limits
• Different types of HMOs
• PPO
• Financial incentives to consumers if using
  preferred provider
• Medicare Medicaid Managed Care

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Capitation

• A hallmark of managed care
• Fixed payment regardless of services used by the
  patient during that month
• Less cost provider profit
• Cost gt capitated amount loss for provider
• Goals
• Stay healthy, avoid illness
• Eliminate unnecessary use of health care services

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Capitation

• Most difficult part- calculation of the
  capitation amount
• Must be acceptable to the purchaser and must
  cover the expenses
• Number of enrollees too low- provider may not be
  able to cover practice costs
• Ethical dilemma- encourages underutilization of
  services

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Pros and Cons of Managed Care

• Pros
• Decreased costs
• Broader patient benefits
• Shift from inpatient to outpatient settings
• Higher physician productivity
• High enrollee satisfaction levels

• Cons
• Loss of existing physician-patient relationships
• Limited choice of physicians
• Lower continuity of care
• Decreased physician autonomy
• Longer wait times
• Consumer confusion over rules

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Moral Hazard

• Overuse of more medical services than necessary
  just because insurance covers so much of the
  cost.

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Impact of Managed Care

• Reimbursement is not guaranteed by provision of
  service
• Need for self-awareness regarding values in
  provision of care

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Recent Trends

• Participation in managed care plans (by both
  consumers and providers) declining
• Still a major force affecting contemporary health
  care
• Managed care no longer significantly less
  expensive for consumers or insurers
• Providers frustrated- limited reimbursement
  need to justify services
• Will continue to change

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References

• Marquis, B. L., Huston C. J. (2009). Leadership
  roles and management functions in nursing Theory
  and application (6th ed.). Philadelphia Wolters
  Kluwer Health.