Presentation on theme: "Managing Fiscal Resources A Budget & Productivity Case Study"— Presentation transcript:
1Managing Fiscal Resources A Budget & Productivity Case Study Exploring the Process of Healthcare Financial ManagementMarch 30, 2012
2IntroductionFiscal responsibility and accountability are essential to the well-being of the hospital. When considering budget management functions, be sure to consider the following areas:PLANNING – Fiscal responsibilities include predicting resource needs – both human and material resources – and developing plans to meet those needs.ORGANIZING – Collate and reviewing fiscal reports in a timely manner making adjustments in supply and personnel usage as necessary to manage within budgetLEADING – Fiscal responsibilities include keeping staff informed about the unit’s budget and involving them as appropriate in making adjustments in supply and personnel usage to manage within budgetEVALUATING – Fiscal responsibilities relate to cost control or the actual, economic use of all resources
3Budget Considerations Objectives:Define Key Budget TermsCalculate Hours of CareDescribe the flexing of the budgetInterpret potential variance scenarios and their impact on the budget
4FTE DefinitionFTE – Full Time Equivalent. One FTE equals 40 hours in one week time frame and 2080 hours in one year. ONLY paid hours are used in FTE calculations (includes vacation, holiday, and sick leave)EXAMPLE: on a given unit, 22 positions may be filled, but they may only account for 20 FTEs. This is due to some staff working less than 40 hours per week. Often times nurses are budgeted as .9.6 – 12 hour shifts in a two week period = 72 hours/80 hours = .9 FTEFTEs are calculated by taking the number of hours paid in a given time period divided by the number of hours equal to 1.0 FTE for that time period.EXAMPLE: 880 hours paid in a two-week (80 hr) time period reflects 11.0 FTEs
5What equals one FTE? Time Period Total Hours Per Week 40 Hours 4 Week Cycle160 Hours6 Week Cycle240 HoursQuarter (13 weeks)520 HoursYear2080 Hours
6Productive and Non-Productive Time The total time paid to staff consists of productive and non-productive time.Productive (worked) time includes straight time, overtime, and any other paid time worked (e.g. conference attendance).Non-Productive time includes vacation, holiday, sick time, and other non-worked paid time (bereavement, etc.).Generally, a staffing pattern is built upon an 86%/14% non-productive mix.
7Determine the number of FTEs used during each scheduled period described below: ____ FTE 640 hours in one week____ FTE 4240 hours in a 4 week month____ FTE 5160 hours in a 5 week month____ FTE 16,328 hours in a quarter____ FTE 39,936 hours in a year
8Determine the number of FTEs used during each scheduled period described below 16 FTE 640 hours in one week(640 hours/40 hours in a week)26.5 FTE 4240 hours in a 4 week month(4240 hours/160 hours in 4 weeks)25.8 FTE 5160 hours in a 5 week month(5160 hours/200 hours in 5 weeks)31.4 FTE 16,328 hours in a quarter(16,328 hours/520 hours per quarter)19.2 FTE 39,936 hours in a year(39,936 hours/2080 hours per year)
9Your staff was paid 2,560 hours during the past month (4 weeks) as follows: 2148 Regular48 Overtime56 Holiday Premium (worked holiday)84 Holiday (off holiday)176 Vacation48 SickCalculate the number of FTE’s. _____Calculate the % of Productive time. _____
10Your staff was paid 2,560 hours during the past month (4 weeks) as follows: 2148 Regular48 Overtime56 Holiday Premium (worked holiday)84 Holiday (off holiday)176 Vacation48 SickCalculate the number of FTE’s(2560 hrs/160 hrs in a 4 week period)Calculate the % of Productive time. 88%(2252 productive hours/2560 paid hours)
11Average Daily Census (ADC) The census report describes on a daily basis the number of patients who were occupying a bed as of midnight. One patient occupying one bed equals one dayThe ADC reflects the average number of patients per day.ADC = # of Pt. Days in a given time period# of days in a given time periodEXAMPLE: if a census report for a 4 week (28 days) time period shows the number of patient days is 450, then the ADC would equal450 Patient Days = ADC28 Days
12Occupancy = ADC in time period Occupancy is the ratio of the ADC compared to the number of beds available:Occupancy = ADC in time period# of available beds in time periodEXAMPLE: If you have a 20 bed unit and your ADC is 15, your occupancy rate is 75%
13Determine the ADC & Occupancy of the following units using the daily census information listed below Unit DescriptionAvailable Beds12345678910111213141516171819202122232425262728293031Total Patient DaysA35323334941B424C372D841E97UnitADCOccupancy
14Determine the ADC & Occupancy of the following units using the daily census information listed below Unit DescriptionAvail. Beds12345678910111213141516171819202122232425262728293031Total Patient DaysA35323334941B424C372D841E97UnitADCOccupancy(941/30) = 31.4941/(35x30) = 90%(424/30) = 14.1424/(16x30) = 88%(372/30) = 12.4372/(13x30) = 95%(841/30) = 28.0841/(32x30) = 88%(97/30) = 3.297/(6x30) = 53%
15Determine the ALOS for the following units: Average Length of Stay (ALOS) Length of stay equals the number of days a patient is hospitalized from admission through discharge ALOS = # of pt. days in a given time period # of discharges in same time period Considerations It is important to be cognizant of length of stay. Every effort should be made to strive for the lowest length of stay possible. ALOS is often used as a comparison between hospitals for like DRGs/Cases.Determine the ALOS for the following units:25 bed unit with 662 patient days and 92 discharges in a month18 bed unit with 1285 patient days and 102 discharges in a quarter21 bed unit with 6900 patient days and 1408 discharges in a quarter
16Determine the ALOS for the following units: 25 bed unit with 662 patient days and 92 discharges in a month662 days/92 discharges = 7.218 bed unit with 1285 patient days and 102 discharges in a quarter1285 days/102 discharges = 12.621 bed unit with 6900 patient days and 1408 discharges in a quarter6900 days/1408 discharges = 4.9
17Hours of Care Hours of care reflect the amount of nursing resources used by a particular unit during a specified time frame as compared to the census data for that same time frame. Paid hours of care reflect all hours paid (productive & non-productive) during the time period; whereas, productive hours of care reflect only the productive hours which were paid during the time period. The formula used for the calculation of paid hours of care is:Total Hours Paid in Time Frame OR Total Hours Paid in Time Frame(ADC)(# Days in Time Frame) Total Census During Time FrameTo determine productive hours of care, use the following calculationTotal Productive Hours Paid in Time Frame OR Total Productive Hours Paid in Time Frame(ADC)(# Days in Time Frame) Total Census During Time FrameEXAMPLE: During a 4 week time period, 3,200 hours were paid and the average daily census was 15. The paid hours of care would equal The calculation to determine this answer is:3200 Hours(15 pts per day) (28 days)
183,630 hours were worked in a 4 week time period and the ADC was 16. 2 3,630 hours were worked in a 4 week time period and the ADC was Determine the productive hours of care. ________ 108,162 hours were paid over one year on a unit which had 4,292 patient days during the same time period. Determine the paid hours of care. ________
193,630 hours were worked in a 4 week time period and the ADC was 16. 2 3,630 hours were worked in a 4 week time period and the ADC was Determine the productive hours of care = 3630 hours worked in 4 weeks/(16.2 patients per day)(28 days) 108,162 hours were paid over one year on a unit which had 4,292 patient days during the same time period. Determine the paid hours of care = 108,162 hours paid in one year/4,292 patient days
20Volume Adjustments/Flexing Budgets As volume fluctuates from actual budgeted volumes, the flex budget (or variable cost budget) should be used to accurately account for necessary change. In using a flex budget methodology, a hospital must analyze all costs to determine if and how much each cost changes with different levels of volume. Costs are then broken into fixed and variable costs. Fixed costs on a unit may be the nurse manager, charge nurses on each shift, unit clerks, etc. For the normal range of patients on a unit, personnel costs will always exist. On the other hand, nurses and nursing extender roles may vary based on the number of patients on a given unit. The same theory holds true for all other costs on the unit. Based on such an analysis a percentage of variable costs is determined and used to flex budgeted expense budgets up or down based on changes in patient volume. The budget is based on predicted volumes. An expense budget is based on the budgeted volume. The expense budget may be flexed in order to correspond to actual volume. When a unit has more volume than was budgeted, more dollars may be added to the budget to offset the cost of the additional volume. Likewise, when volume is less than budgeted, money may be subtracted from the budget. The amount of money by which your budget would be flexed is dependent upon the % of variable costs which are applicable to your unit.
21= adjusted FTEs would be 22.9 Flex ExerciseLast month, your actual census was 603 compared to a budgeted census of You were budgeted for 23.6 FTE’sIf your unit was determined to have 50% variable costs, then you would use the following calculation to determine your volume adjusted FTEs:23.6+[( )](23.6)(50)642= adjusted FTEs would be 22.9In other words the following calculation should be used to determine your volume adjusted or flexed budget based on your percent of variable costs:Budgeted FTE Amount + [(Actual Census – Budgeted Census) ](Budgeted FTE Amount)(% Variability)Budgeted Census
22In FY ‘11, your unit’s actual census was 6,937 compared to a budgeted census of 6,798. You were budgeted for $100,025 personnel dollars. If your unit was determined to have 20% variable costs, determine the volume adjusted personnel dollars.If your unit was determined to have 80% variable costs, determine the volume adjusted personnel dollars.
23In FY ‘11, your unit’s actual census was 6,937 compared to a budgeted census of 6,798. You were budgeted for $100,025 personnel dollars. If your unit was determined to have 20% variable costs, determine the volume adjusted personnel dollars.$100,025+(6, )($100,025)(.20)=$100, =$100,434If your unit was determined to have 80% variable costs, determine the volume adjusted personnel dollars.$100,025+(6, )($100,025)(.80)=$100, =$101,661
24VARIANCEA variance is the difference between the budgeted figure (or flexed budget figure) and the actual figure. A variance may refer to patient days (volume), dollars (price), or FTEs (volume). A variance may be considered favorable or unfavorable.Example: If your unit was budgeted for 500 patient days for one month and the actual patient days were 525, then your unit experienced a favorable patient day variance of 25. However, if your unit was budgeted for 20 FTEs and the actual FTEs paid were 21.5 then your unit experienced an unfavorable FTE variance of 1.5.
25Variance Classifications A volume variance occurs when actual volume is more or less than the budgeted volume. Volume may be expressed in terms of patient days or FTEs. The calculation to determine volume variance is:(Budgeted Volume – Actual Unit Volume)(Budgeted Rate) = Volume VarianceA Unit Cost Variance exists when the average unit cost of an item differs from the amount that was budgeted. The calculation to determine unit cost variance is:(Budgeted Unit Price – Actual Unit Cost)(Actual Volume) = Unit Cost VarianceA Labor Rate Variance is a type of unit cost variance which is specific to dollar per hour costs of personnel. The calculation to determine a labor rate variance is:(Budgeted Rate – Actual Rate)(Volume Adjusted Budgeted Hours) = Labor Rate VarianceA Quantity Variance is a type of Volume Variance, which occurs when the amount of a resource used differs from the amount expected to be used for the given workload. The calculation used to determine quantity variance is:(Budgeted Use – Actual Use)(Budgeted Unit Cost) = Quantity VarianceAn Efficiency Variance is a type of volume variance which is specific to personnel use. The calculation to determine an efficiency variance is:(Volume Adjusted Budgeted Hours – Actual Hours)(Budgeted Rate) = Efficiency Variance
26Variance Example Formulas: Total Variance = Unit Cost Variance + Volume VarianceUnit Cost Variance = (Budgeted Rate – Actual Rate) (Actual Volume)Volume Variance = (Budgeted Volume – Actual Volume) (Budgeted Rate)Budgeted Rate = Budget Allocation/Budgeted VolumesActual Rate = Actual Expense/Actual VolumeAssume your monthly patient days were: RN Salaries:Budget: 450 Actual: 540 Variance:90 Unflexed Budget: $47,474 Actual: $49, Variance: ($2,123)Determine how much of the salary variance is due to unit cost and how much due to volumes.Budget Rate = 47,474/450 = 105.5Actual Rate = 49,597/540 = 91.85Unit Cost Variance = (105.5 – 91.85) (540) = 7,371Volume Variance = (450 – 540) (105.5) = (9,495)Total Variance = 7,371 + (9,495) = (2,124)Interpretation: Actual Rate is less than budgeted rate by $ If the unit worked at the budgeted rate, salaries would have been over by $7,371, but since productivity was up with the increased volumes, there was a cost avoidance. The unfavorable variance is due to increased volume. Total costs would have been $9,495 higher than the budgeted just because of the increased patient days (volume variance). However, the Actual Labor Rate was less than the Budgeted Rate (Unit Cost Variance) so $7,371 of the negative variance was regained, leaving a $2,124 total negative variance.
27Last month your actual patient days were 630 and you were budgeted at 600 patient days. After reviewing the “Statement of Direct Income and Expense” report, you see that the non=chargeable medical surgical supplies were over budget by $1,609. (actual supply = $9,727, budgeted supply = $8,118.)Justify the variance. What conclusions can you make?
28Last month your actual patient days were 630 and you were budgeted at 600 patient days. After reviewing the “Statement of Direct Income and Expense” report, you see that the non=chargeable medical surgical supplies were over budget by $1,609. (actual supply = $9,727, budgeted supply = $8,118.) Justify the variance. What conclusions can you make?Budget Rate = 8,118/600 = 13.53Actual Rate = $9,727/630 = $15.44Unit Cost Variance = ($13.53 – $15.44) (630) = (1,203.30)Volume Variance = (600 – 630) (13.53) = (405.9)Total Variance = (1,203.3) + (405.9) = (1,609.2)75% ($1,203.30) of the unfavorable variance is related to the increase in the cost of the supplies not explained by the increased patient days. The remaining 25% ($405.90) is due to the increased usage of supplies due solely to increased patient days.
29There may be internal and/or external causes of variance There may be internal and/or external causes of variance. Internal causes of variance include changes in technology being used, changes in the efficiency of nurses, or changes in policy. External causes include price changes, census changes, or type of staff available.At what point should a variance be investigated? When is a variance too favorable/unfavorable?Variance – Application to PracticeIf six months into the year there was an unfavorable supply variance of $10,000 for dietary, you would need to analyze the reason for this variance – is it a price variance or a volume variance? Some steps that could be taken to offset the variance would be to: re-educate staff about communicating diet changes in a timely manner, put a lock on the nutrition pantry, readjust the nutrition standard for your unit (perhaps even choosing lower cost alternatives), decrease use of banquet services for meetings.In order to control variances, you have to be timely in identifying the variance, timely in determining the cause and timely in putting plans in place to correct/offset the unfavorable variance.For example, if there was an unfavorable salary variance of $25,000 six months into the fiscal year then steps would need to be taken to a) determine the cause of variance (rate v. volume) and b) make plans to offset the variance, such as holding a portion of a position open for the remainder of the year or decreasing the use of agency personnel, float pool, and overtime.Volume adjustments of budgets are done on a functional unit level. Unit and departmental performance are measured against volume budgets since the rate of variability for flexing budgets may be altered each year and the current reporting system does not afford a mechanism to build the calculations on hospital reports.
30Staffing Patterns/FTE Requirements It is sometimes necessary for a nurse manager to be able to calculate daily staffing patterns and/or FTE requirements. The process for doing this involves several different pieces of information.In determining the FTE requirements for a unit, it is first necessary to decide how many of the hours of care should be provided by RN’s and Tech’s, in other words what the staffing mix should be.Elements Needed to Build a Daily Staffing Pattern:(Average Daily Census)(Average Direct Hours of Care) = Hours Required to staff a unit for 24 hoursABOVE EQUATION/Hours in a Normal Work Day = Target Number of Staff to be Prescheduled DailyShift% of Workload by ShiftDaily FTE's7A - P45%5.13P - 11P35%4.011P - 7A20%2.2Total100%11.3
31Clinical Associate Shifts Daily Staffing Pattern A 20-bed pediatric unit has an ADC of 15. The budgeted RN hours per patient day are 5.6 and Clinical Associate hours per patient day are 2.37.15ADCx5.6Avg. dir HPPD2.3784RN hours required to staff35.6Clin. Assoc. hours required to staffthe unit 24-hours daily⁄8Hours in a normal work day10.5Target Number of RNs to4.5Target number of Clin Associatesbe prescheduled dailyto be prescheduled dailyRN Shifts% of Workload by ShiftDaily FTEsClinical Associate Shifts% of Worklad by Shift7A - 3P45%(10.5)(45%) = 4.7(4.5)(45%) = 2.03P - 11P35%(10.5)(35%) = 3.7(4.5)(35%) = 1.611P - 7A20%(10.5)(20%) = 2.1(4.5)(20%) = .9Total100%10.54.5
32Elements needed to Determine Total FTE Requirement FTE RequirementsElements needed to Determine Total FTE Requirement14.70ADCx6.30Productive (direct) RN Hours of Care1.60Productive (direct) Clin Assoc Hours of Care92.60Hours reqiured to staff the unit 24 hours daily23.527.00days per week648.20Hours required to staff the unit164.6424 hours daily, 7 days per week⁄40.00Hrs/wk for 1 FTE16.20FTE (direct care productive time)4.12100.00percent total staff88.00percent productive staff18.40FTE (direct care productive4.68+ non-productive time)Total RN FTE's NeededTotal Clinical Associate FTE's NeededRN FTEClin Assoc FTE2.60Coordinator FTE (Fixed)1.00Nurse Manager (Fixed)
33Question: Daily Staffing Pattern Complete the missing data elements in the following problem: A 24 bed surgical unit has an ADC of 20. The direct hours of RN care are 6.2 and the Clinical Associate hours of care are 2.4Question: Daily Staffing PatternRNClinical AssociateAverage Daily CensusXAverage Direct HPPDRN hours required to staff the unit 24 hours dailyClin Assoc hours required to staff the unit 24 hours daily⁄Hours in a normal work dayTarget number of RN's to be prescheduled dailyTarget number of Clinical Associates to be prescheduled dailyRN Shift% of Workload by ShiftDaily FTEs7A - 3P45%3P-11P35%11P-7A20%
34Answer: Daily Staffing Pattern Complete the missing data elements in the following problem: A 24 bed surgical unit has an ADC of 20. The direct hours of RN care are 6.2 and the Clinical Associate hours of care are 2.4RNClinical Associate20.00Average Daily CensusX6.20Average Direct HPPD2.40124.00RN hours required to staff the unit 24 hours daily48.00Clin Assoc hours required to staff the unit 24 hours daily⁄8.00Hours in a normal work day15.50Target number of RN's to be prescheduled daily6.00Target number of Clinical Associates to be prescheduled dailyRN Shift% of Workload by ShiftDaily FTEs7A - 3P45%15.5 x 45% = 7.06 x 45% = 2.73P-11P35%15.5 x 35% = 5.46 x 35% = 2.111P-7A20%15.5 x 20% = 3.16 x 20% = 1.2Total100%
35Question: FTE Requirements Problem: (FTE Requirement)You will be the new nurse manager of a 20 bed medical unit. The anticipated ADC is hours (80 RN, 16 Clinical Associates) are required to staff the unit 24 hours per dayDetermine the direct productive Hours of CareDetermine the total (productive & Non-productive Direct FTEs needed if non productive time is set at 12%Determine the total number of FTE’s needed if the unit has the following personnel with fixed costs1.0 Nurse Manager.5 Clinical Nurse Specialist2.4 Clerical Associates
36Answer: FTE Requirements Problem: (FTE Requirement)You will be the new nurse manager of a 20 bed medical unit. The anticipated ADC is hours (80 RN, 16 Clinical Associates) are required to staff the unit 24 hours per dayDetermine the direct productive Hours of Care1. RN 5.0; calculation is 80 hours per day/16 ADC2. Clin Assoc 1.0; calculation is 16 hours per day/ 16 ADC
37Answer: FTE Requirements Problem: (FTE Requirement)You will be the new nurse manager of a 20 bed medical unit. The anticipated ADC is hours (80 RN, 16 Clinical Associates) are required to staff the unit 24 hours per dayDetermine the total (productive & Non-productive Direct FTEs needed if non productive time is set at 12%RN = 15.9; calculation is (16 ADC)(5.0 Hours of care)(7 days)/40 hours per week for 1 FTE) = 14productive hours of care x 100/88 = 15.9Clin Assoc = 3.1; Calculation is 16 ADC)(1.0 Hour of care)(7 days)/40 hours per week for 1 FTE) = 2..8 productive hours of care x 100/88 = 3.2
38Answer: FTE Requirements Problem: (FTE Requirement)You will be the new nurse manager of a 20 bed medical unit. The anticipated ADC is hours (80 RN, 16 Clinical Associates) are required to staff the unit 24 hours per dayC. Determine the total number of FTE’s needed if the unit has the following personnel with fixed costs1.0 Nurse Manager.5 Clinical Nurse Specialist2.4 Clerical Associates= 23 Total FTEs
39Workloads: Examples of Workloads: Emergency Departments = Number of VisitsNursing Units = Patient DaysProcedural Areas = RVUsAn expense budget is set based on budgeted workloads. The flexed budget is contingent upon actual workloads. Based on actual volumes, the variable expense budgets are flexed up or down.A unit’s variable budget will increase & decrease appropriately to reflect the percentage of volume fluctuation.
40Hours per Workload Unit (HPWU) Each variable budget is based on the standard for each area: Hours per workload unit (HPWU) for FTEs and Cost per Workload Unit (CPWU) for salary and non-salary expense. Bost HPWU and CPWU are fixed for a cost center.HPWU reflects the amount of resources used by a particular cost center during a specified time frame for one workload. If a unit’s HPWU statistic is 14.9, that means it takes 14.9 hours in a 24-hour time period to take care of one patient on the unit. These hours include all staff (RN’s, techs. Management, unit clerks, etc.) and all non-productive time of staff (sick, FMLA, vacation, etc.)CPWU is the salary expense spent on providing care to one patient in a 24 hour period.The flexed budget is then calculated based on HPWU/CPWU and volume:FTE = (HPWU x Annual Workload)/2080CPWU = Budgeted Salary Dollars/Workloads
41Productivity Metrics to Monitor Total Workload – Patient Days for 26 pay periods (364 days)Average Pay period Workloads – Annual Workloads/26Total FTE’s – annual budgeted total FTEsTotal Cost – Annual budgeted salaryAverage FTEs and Salary – FTEs and salary for a pay periodVariable Productive HPWU/CPWUTotal Productive HPWU/CPWUVariable Paid HPWU/CPWUTotal Paid HPWU/CPWULook for trends & variances in these statistics over varied time frames (pay periods, quarters, annually) to make efficient decisions for the unit.
42Please Refer to your Budget Case Study Handout Creating a budget…Please Refer to your Budget Case Study HandoutCopies of this presentation are available on the Maryland HFMA chapter homepagehfmamd.org