1. Health Care Financial Issue, Managing Costs & Budgets

2. 1. Compare the U.S. Healthcare system to other industrialized nations. 2. What is reimbursement? 3. Define the term “third party payer” and discuss the different methods of payment. 4. Value that healthcare organizations must make a profit. 5. Discuss the purpose and the relationships between operating, cash, and capital budgets. 6. Describe the steps in the process of a compiling a budget by a nurse manager. (Yoder-Wise, 2007)

3.  Macrolevel -size of the workforce -distribution of services -resources -payment sources

4.  Affects patient care delivery  Types of treatment  Choice of provider  Length of treatment  Has an impact on provider performance  Has an impact on patient outcomes  Affects financial resources, supplies, renovation and expansion.

5. “As nurse leaders, we’re masters at budgeting our lives-including home expenses, time management, and department function-but we fall short regarding financial jargon. As a result, we allow our facility’s finance department to drive the budget process, while we’re the ones with the most insight regarding our units and patient care needs.” Regina Foley CNO, Meridian Health Systems

6.  “The U.S. is the only industrialized nation where healthcare is a privilege rather than a right.” (Yoder-Wise, 2011, p.229)

7.  Healthcare costs rising faster than inflation  GDP = 15.09 Trillion (2011)  Healthcare = 17% Gross Domestic Product (GDP) ◦ more than any other industrialized nation  2008 – Healthcare spending =2.4 trillion  2012 – Healthcare spending 3.1 trillion  Significant disparities exist.  High infant mortality rate.  Injuries related to violence are on the rise.

8.  Relatively low life expectancy.  #1 cause Bankruptcies = medical expenses Health Policy & Reform, 2010

9.  Price ◦ Amount set by providers for services.  Utilization ◦ Amount of services provided. Cost = Price x Utilization rate

10.  Increased physician fees  Increased pharmaceutical costs. (TV ads)  Administrative inefficiency  20% of average hospital budget → Billing!  Consumer attitudes ◦ Increased utilization. ◦ Demanding certain diagnostics or treatments.  Lack of prevention  Aging population  1.5 million families loose their homes in foreclosure due to unaffordable medical costs.  Healthcare insurance linked to employment.

11. 4 sources: ◦ Government: Medicare & Medicaid ◦ Private insurance ◦ HMO and MCO ◦ Self-Pay; deductibles, co- pays ◦ Philanthropy

12.  Established in 1965 – 65 Years + and disabled, on dialysis.  Paid from Social Security taxes.  Fee-for-Service.

13. 4 payment methods: ◦ Charges – actual costs and charges, insurance companies pay, Blur Cross/Blue Shield. ◦ Cost-based (retrospective) – payment determined after services, allowable and contractual. ◦ Flat-rate (prospective) – payment determined before services, CMS, DRGs(based on age, comorbidities) ◦ Capitated payments – Flat rate, HMO

14.  Must be medically necessary supported by diagnosis and documentation  Hospital room and board  Office and inpatient physician visits  Nursing services  Diagnostic, radiological and lab tests  Ambulance  Durable Medical equipment, w/c, commode

15. ◦ Profit -excess money after expenses ◦ Profit = Revenues – Expenses “Profit Prophet”

16.  Government run organization (VA Hospitals)  For profit (FP) (Sunrise, Valley System) ◦ Pay taxes ◦ Profits distributed to investors & managers  Not for Profit (NFP) (St. Rose’s/Dignity) ◦ Do not pay taxes ◦ Reinvest profit back in the organization

17.  “The long term viability of any private healthcare organization is dependent on consistently making a profit.”  Managers ◦ Balance expenses and revenues ◦ Sustainability of organization

18.  Most hospital costs relate to provider salaries.  Covered by “room rate” or per diem charge ◦ Nursing ◦ Therapies ◦ Social workers  Management often views nursing as a “cost” rather than a revenue generator.  Article "Nursing is the Room Rate”

19.  Understanding the business model of healthcare.  Knowing costs & reimbursement practices.  Capturing all charges in a timely fashion.  Using time effectively.  Discussing the cost of care with patients.  Meeting patient rather than provider needs.  Evaluating cost- effectiveness of new technologies.  Predicting and using nursing resources efficiently, supply costs  Using research to evaluate standard nursing practices

20. The basic financial document in most healthcare organizations; a detailed plan for the financial activities of an organization for a certain time frame. Yoder-Wise, 2011  Annual  Proposed income and expenditures  Manager must: ◦ Plan ahead ◦ Establish goals & expectations ◦ Anticipate effects of changes

21. ◦ Day-to-day activities by cost center. ◦ Fixed costs  Do not change with patient volume.  Rent, loan payments, admin staff, minimum nursing staff. ◦ Variable costs  Change with patient volume & acuity.  Nursing staff, supplies and medications.

22.  Capital Expenditure Budget ◦ Major item purchases with > 1 year useful life ◦ EMR Systems. ◦ Depreciated over time ◦ Considered “expense”  Cash Budget ◦ Short term (monthly) ◦ Cash & receipts & payments

23.  Full time equivalents (FTEs) ◦ 40 hr work-week, 2080 hrs per year.  Productive hours ◦ Paid time producing work.  Non-productive hours ◦ Paid time not working. ◦ Holidays, vacation, sick time. ◦ Orientation. ◦ Education.

24.  Case mix ◦ Patient volume & acuity levels.  Payer mix ◦ Reimbursement sources, uninsured.  Unit of service ◦ Measurement of work (productivity). ◦ Patient “bed days”, home visits, treatments.  Variance ◦ Difference between budget projections & reality. (Finkelman, p. 165)

25.  Major Steps: ◦ Gathering information and planning ◦ Developing unit budgets ◦ Developing cash budget ◦ Negotiating and revising ◦ Evaluation

26.  Meet fiscal objectives  Monitor productivity ◦ Outputs:inputs ◦ Nursing man-hours: Patient services  Monitor & explain variances ◦ >5%

27. 1.Fixed: 8-hour / 12-hour shifts 2. Full-time equivalent (FTEs): 2.080 hours/annually, or 36-40/hours/weekly 3. Flex-time: 4 10-hour shifts; 3 12-hour/week; Baylor Plan: shifts for weekends considered full time. 4. Specialization: ICU, NICU Renal Dialysis 5.Alternating/rotating shifts: day the nights 6. Variable: on-call

28. “…all nurses must be financially responsible in their practice and aware of opportunities to minimize costs while providing optimal care to patients and their families.” Jaynelle Stiechler Nursing Professor San Diego State University