1. Managing Fiscal Resources A Budget & Productivity Case Study
Exploring the Process of Healthcare Financial Management
March 30, 2012

2. Introduction
Fiscal 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 budget
LEADING – 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 budget
EVALUATING – Fiscal responsibilities relate to cost control or the actual, economic use of all resources

3. Budget Considerations
Objectives:
Define Key Budget Terms
Calculate Hours of Care
Describe the flexing of the budget
Interpret potential variance scenarios and their impact on the budget

4. FTE Definition
FTE – 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 FTE
FTEs 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

5. What equals one FTE? Time Period Total Hours Per Week 40 Hours
4 Week Cycle
160 Hours
6 Week Cycle
240 Hours
Quarter (13 weeks)
520 Hours
Year
2080 Hours

6. Productive 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.

7. Determine 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

8. Determine 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)

9. Your staff was paid 2,560 hours during the past month (4 weeks) as follows:
2148 Regular
48 Overtime
56 Holiday Premium (worked holiday)
84 Holiday (off holiday)
176 Vacation
48 Sick
Calculate the number of FTE’s. _____
Calculate the % of Productive time. _____

10. Your staff was paid 2,560 hours during the past month (4 weeks) as follows:
2148 Regular
48 Overtime
56 Holiday Premium (worked holiday)
84 Holiday (off holiday)
176 Vacation
48 Sick
Calculate 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)

11. Average 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 day
The ADC reflects the average number of patients per day.
ADC = # of Pt. Days in a given time period
# of days in a given time period
EXAMPLE: if a census report for a 4 week (28 days) time period shows the number of patient days is 450, then the ADC would equal
450 Patient Days = ADC
28 Days

12. Occupancy = 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 period
EXAMPLE: If you have a 20 bed unit and your ADC is 15, your occupancy rate is 75%

13. Determine the ADC & Occupancy of the following units using the daily census information listed below
Unit Description
Available Beds 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31
Total Patient Days A 35 32 33 34
941 B
424 C
372 D
841 E 97
Unit
ADC
Occupancy

14. Determine the ADC & Occupancy of the following units using the daily census information listed below
Unit Description
Avail. Beds 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31
Total Patient Days A 35 32 33 34
941 B
424 C
372 D
841 E 97
Unit
ADC
Occupancy
(941/30) = 31.4
941/(35x30) = 90%
(424/30) = 14.1
424/(16x30) = 88%
(372/30) = 12.4
372/(13x30) = 95%
(841/30) = 28.0
841/(32x30) = 88%
(97/30) = 3.2
97/(6x30) = 53%

15. Determine 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 month
18 bed unit with 1285 patient days and 102 discharges in a quarter
21 bed unit with 6900 patient days and 1408 discharges in a quarter

16. Determine the ALOS for the following units:
25 bed unit with 662 patient days and 92 discharges in a month
662 days/92 discharges = 7.2
18 bed unit with 1285 patient days and 102 discharges in a quarter
1285 days/102 discharges = 12.6
21 bed unit with 6900 patient days and 1408 discharges in a quarter
6900 days/1408 discharges = 4.9

17. Hours 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 Frame
To determine productive hours of care, use the following calculation
Total Productive Hours Paid in Time Frame OR Total Productive Hours Paid in Time Frame
(ADC)(# Days in Time Frame) Total Census During Time Frame
EXAMPLE: 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)

18. 3,630 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. ________

19. 3,630 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

20. Volume 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 Exercise
Last month, your actual census was 603 compared to a budgeted census of You were budgeted for 23.6 FTE’s
If 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 22.9
In 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

22. In 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.

23. In 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, =
$100,434
If your unit was determined to have 80% variable costs, determine the volume adjusted personnel dollars.
$100,025+(6, )($100,025)(.80)=
$100, =
$101,661

24. VARIANCE
A 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.

25. Variance 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 Variance
A 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 Variance
A 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 Variance
A 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 Variance
An 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

26. Variance Example Formulas:
Total Variance = Unit Cost Variance + Volume Variance
Unit Cost Variance = (Budgeted Rate – Actual Rate) (Actual Volume)
Volume Variance = (Budgeted Volume – Actual Volume) (Budgeted Rate)
Budgeted Rate = Budget Allocation/Budgeted Volumes
Actual Rate = Actual Expense/Actual Volume
Assume 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 = 105.5
Actual Rate = 49,597/540 = 91.85
Unit Cost Variance = (105.5 – 91.85) (540) = 7,371
Volume 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.

27. Last 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?

28. Last 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 = 13.53
Actual Rate = $9,727/630 = $15.44
Unit 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.

29. There 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 Practice
If 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.

30. Staffing 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 hours
ABOVE EQUATION/Hours in a Normal Work Day = Target Number of Staff to be Prescheduled Daily
Shift
% of Workload by Shift
Daily FTE's
7A - P
45%
5.1
3P - 11P
35%
4.0
11P - 7A
20%
2.2
Total
100%
11.3

31. Clinical 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. 15
ADC x
5.6
Avg. dir HPPD
2.37 84
RN hours required to staff
35.6
Clin. Assoc. hours required to staff
the unit 24-hours daily ⁄ 8
Hours in a normal work day
10.5
Target Number of RNs to
4.5
Target number of Clin Associates
be prescheduled daily
to be prescheduled daily
RN Shifts
% of Workload by Shift
Daily FTEs
Clinical Associate Shifts
% of Worklad by Shift
7A - 3P
45%
(10.5)(45%) = 4.7
(4.5)(45%) = 2.0
3P - 11P
35%
(10.5)(35%) = 3.7
(4.5)(35%) = 1.6
11P - 7A
20%
(10.5)(20%) = 2.1
(4.5)(20%) = .9
Total
100%
10.5
4.5

32. Elements needed to Determine Total FTE Requirement
FTE Requirements
Elements needed to Determine Total FTE Requirement
14.70
ADC x
6.30
Productive (direct) RN Hours of Care
1.60
Productive (direct) Clin Assoc Hours of Care
92.60
Hours reqiured to staff the unit 24 hours daily
23.52
7.00
days per week
648.20
Hours required to staff the unit
164.64
24 hours daily, 7 days per week ⁄
40.00
Hrs/wk for 1 FTE
16.20
FTE (direct care productive time)
4.12
100.00
percent total staff
88.00
percent productive staff
18.40
FTE (direct care productive
4.68
+ non-productive time)
Total RN FTE's Needed
Total Clinical Associate FTE's Needed
RN FTE
Clin Assoc FTE
2.60
Coordinator FTE (Fixed)
1.00
Nurse Manager (Fixed)

33. Question: 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 2.4
Question: Daily Staffing Pattern RN
Clinical Associate
Average Daily Census X
Average Direct HPPD
RN hours required to staff the unit 24 hours daily
Clin Assoc hours required to staff the unit 24 hours daily ⁄
Hours in a normal work day
Target number of RN's to be prescheduled daily
Target number of Clinical Associates to be prescheduled daily
RN Shift
% of Workload by Shift
Daily FTEs
7A - 3P
45%
3P-11P
35%
11P-7A
20%

34. Answer: 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 2.4 RN
Clinical Associate
20.00
Average Daily Census X
6.20
Average Direct HPPD
2.40
124.00
RN hours required to staff the unit 24 hours daily
48.00
Clin Assoc hours required to staff the unit 24 hours daily ⁄
8.00
Hours in a normal work day
15.50
Target number of RN's to be prescheduled daily
6.00
Target number of Clinical Associates to be prescheduled daily
RN Shift
% of Workload by Shift
Daily FTEs
7A - 3P
45%
15.5 x 45% = 7.0
6 x 45% = 2.7
3P-11P
35%
15.5 x 35% = 5.4
6 x 35% = 2.1
11P-7A
20%
15.5 x 20% = 3.1
6 x 20% = 1.2
Total
100%

35. Question: 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 day
Determine the direct productive Hours of Care
Determine 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 costs
1.0 Nurse Manager
.5 Clinical Nurse Specialist
2.4 Clerical Associates

36. Answer: 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 day
Determine the direct productive Hours of Care
1. RN 5.0; calculation is 80 hours per day/16 ADC
2. Clin Assoc 1.0; calculation is 16 hours per day/ 16 ADC

37. Answer: 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 day
Determine 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 = 15.9
Clin 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

38. Answer: 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 day
C. Determine the total number of FTE’s needed if the unit has the following personnel with fixed costs
1.0 Nurse Manager
.5 Clinical Nurse Specialist
2.4 Clerical Associates
= 23 Total FTEs

39. Workloads: Examples of Workloads:
Emergency Departments = Number of Visits
Nursing Units = Patient Days
Procedural Areas = RVUs
An 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.

40. Hours 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)/2080
CPWU = Budgeted Salary Dollars/Workloads

41. Productivity Metrics to Monitor
Total Workload – Patient Days for 26 pay periods (364 days)
Average Pay period Workloads – Annual Workloads/26
Total FTE’s – annual budgeted total FTEs
Total Cost – Annual budgeted salary
Average FTEs and Salary – FTEs and salary for a pay period
Variable Productive HPWU/CPWU
Total Productive HPWU/CPWU
Variable Paid HPWU/CPWU
Total Paid HPWU/CPWU
Look for trends & variances in these statistics over varied time frames (pay periods, quarters, annually) to make efficient decisions for the unit.

42. Please Refer to your Budget Case Study Handout
Creating a budget…
Please Refer to your Budget Case Study Handout
Copies of this presentation are available on the Maryland HFMA chapter homepage
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