Budget and Finance Concepts for the CNL

1. Budget and Finance Concepts for the CNL Susan J. Penner, RN, MN, MPA, DrPH, CNL

2. Susan J. Penner, RN, MN, MPA, DrPH, CNL • Author, Introduction to Health Care Economics & Financial Management: Fundamental Concepts with Practical Applications, Lippincott Williams & Wilkins, 2004 • I teach financial management courses, CNL program, USF School of Nursing • Developer (with my students) of the CNL Health Care Economics and Finance 101 Wiki

3. Topics • Importance of budget and finance concepts for CNLs • Budgets • Making a business case • Quality, costs and the CNL • Financial statements

4. Importance of Budget & Finance Concepts ↔ • Nurses & nursing care → Financial outcomes • Financial decisions → Nurses & nursing outcomes

5. International Perspective Accessed 2010 from http://thesystemmd.com

6. Budgets • Operating budget: day-to-day operations • Capital budget: large dollar amount and long-term investments • Cash flow budget: cash income and expenditures • Note: all budgets are reported over specified time periods CNLs are most likely to encounter the operating budget in the nursing microsystem

7. Operating Budget Overview • Budget of volume, revenues and expenses for the nursing microsystem • Nursing unit manager reviews and controls the operating budget • Revenues: by source, including Medicare, Medicaid, private insurance and self-pay • Volume: utilization that impacts on revenues and expenses • Patient days • Patient visits (ambulatory care) • Procedures (operating room) • Expenses: staff and supplies

8. Operating Expenses:Budget Variance • Variance: the difference between the budgeted amount and the actual performance • If actual performance costs more than budgeted, the unit is over budget • The nurse manager must monitor and control the budget • Example: if supplies are budgeted for a month at $1,000 and $1,500 is actually spent, then the variance is $500 which is over budget

9. Two Microsystem Budget Concerns • Staffing expenses, especially overtime and agency nurses • Patient length of stay (LOS) • ALOS = patient days ÷ discharges over a specified time period • 2008 average costs per hospital day = $2,000 for non-Medicare, $1,500 for Medicare • Medicare Prospective Payment (DRG) limits on reimbursement LOS is one of the greatest areas for hospital savings by improving the quality of nursing care

10. Capital Budget • Capital equipment or capital improvement • Defined as items or projects lasting over one year • Typically there’s a dollar threshold, for example, items costing more than $1,000 might be required to be put in the capital budget • Typically on a different schedule and a different process than operating budgets • Often must fit with the institution’s overall strategic plan, such as construction of a new building

11. Cash Flow Budget • Money going in and out of the institution over a specified time period • Surplus cash is invested to earn interest • The institution draws on its savings or borrows if there are cash shortfalls • Nurse managers rarely review the cash flow budget • However, institutions are legally required to pay salaries and wages, and must pay vendors and other creditors • Institutions can go bankrupt if they have prolonged and insufficient cash flow

12. Business case: a convincing rationale for funding or other resources to address needs or respond to business opportunities Quality improvement strategies to meet Joint Commission or Medicare standards may require additional staffing or equipment, such as hiring sitters to reduce falls Redecorating a unit to make it more homelike might increase patient referrals and improve outcomes Making a Business Case www.hcpro.com

13. Ways to Make a Business Case Business plan: document the need or opportunity, resources needed, budget, and any additional financial analysis Grant proposal: request funding from a government source or private foundation outside of your institution

14. Support Your Business Case: Financial Analysis • Cost-benefit analysis (CBA): show savings or benefits from funds invested • The outcome must be in dollars or converted to dollars • Cost-effectiveness analysis (CEA): compare the costs and benefits of two or more alternatives • The outcome doesn’t have to be a dollar amount

15. CBA Example • Your program provides prenatal care to diabetic women • $1 million budget per year • $2 million savings are generated per year in reduced hospitalization costs $2 million - $1 million = $1 million benefits • For every $1 spent on the program, hospital costs are reduced by $2 $2 million ÷ $1 million = $2

16. CEA Example • It’s essential to provide high quality prenatal care to diabetic women • Program A costs $1 million and serves 100 women ($10,000 per client) • Program B costs $1.5 million and serves 100 women ($15,000 per client) • Program C costs $1 million and serves 50 women ($20,000 per client) • Which would you choose? • Program A. Why?

17. Quality, Costs and the CNL • CNLs work with the nursing microsystem to help improve quality and control costs • Reduce complications • Reduce patient length of stay • Reduce preventable readmissions and emergency room visits • Improve regulatory compliance • Improve discharge teaching and planning • Improve patient satisfaction and outcomes

18. Medicare Outliers Example • Medicare outliers: patient cases eligible for additional reimbursement related to extremely high costs of care, unusually long length of stay, and frequently presenting multiple serious health care concerns • Medicare outlier reimbursement is complex, and often hospitals are expected to cost-shift, or offset losses on some cases with gains in other cases • The hospital won’t receive outlier reimbursement for every high-cost case

19. Financial Statements and Financial Health • Income statement: review the “bottom line” • Profit or loss? • Recent median profit margins for US hospitals approach 0% • Balance sheet: current assets should be at least twice the amount as current liabilities • Statement of cash flows: positive cash flow • Reducing costs helps improve all these indicators and the institution’s financial health

20. CNL Health Care Economics and Finance 101 Wiki • Resources for CNLs and CNL students • CNL exam review • Ongoing information and support • Developed by CNLs from the USF School of Nursing • http://cnlhealthcareeconomicsfinance101.wiki.usfca.edu/

21. If You Didn’t Like This Presentation... • Let me know! • It’s a wiki • I can make changes • You can join and make contributions • I “peer review” to be sure information is accurate