There are several different types of health care budgets, but all share one common feature: the need to allocate resources based on volume. A flexible budget system calculates expenses automatically based on volume, according to a senior principal at Mitretek Systems, a non-profit consulting firm. But most hospitals aren’t using this system. What is the best way to set up a budget in health care? Here are some ideas.
The strategic decision-making process can be ineffective if operational budgeting fails to understand customer expectations and needs. Lack of data on the cost-effectiveness of products and services can result in a poor product/service mix and an unsuccessful pricing strategy. Poor customer service can negatively impact the bottom line and result in negative word-of-mouth. A lack of research and development spending will negatively impact the company’s ability to develop new products and services and will depress its overall performance.
The process of planning a budget for a healthcare establishment requires careful analysis of numerous factors. For example, a purchase of an MRI machine or a new billing software system will impact the way the finances are allocated. Similarly, environmental forces must be considered to avoid revenue loss. To help healthcare organizations develop a budget for the next year, this paper analyzes recent changes and offers a sample 2017 operational budget with measurements of success.
Unlike traditional budgeting, rolling forecasting helps healthcare leaders update their financial projections periodically. Unlike annual planning, rolling forecasting guides informed course corrections based on new data. Moreover, rolling forecasts influence current expenditures, which influences strategic decisions. This process gives healthcare leaders visibility and agility to adapt their strategy as needed. It can be used to help address future threats, such as COVID-19, or to plan for unexpected situations.
For example, Scripps Health was able to monitor the impact of a 35% or 37% decrease in patient volume on revenue. Rolling forecasts enabled finance leaders to adjust staffing, supply levels, and patient acuity. These results aided in making staffing adjustments and opening new departments. Moreover, the cost data helped in securing federal funds for a pandemic response. Rolling forecasting is an effective tool for healthcare organizations to understand the impact of changes in patient volumes.
Flexible global budget
A flexible global budget in health care would measure the premium payments that exceed the benchmark premium. While these costs are not usually insured, supplementary benefits like cosmetic care and amenities might be. These additional benefits should be included in the global budget system. However, the potential for problems is increased when the provider provides both covered and uncovered services. In addition, there is the potential that a global budget system would be implemented in areas where the services are not primarily required.
For instance, Ronan Hospital in western Maryland has cut its readmission rate by 26 percent from 2011 to 2018. Emergency department visits have dropped by 20 percent. The hospital’s chief financial officer, Kim Repac, recently returned from the printer with new data. Overall, readmissions are down 30 percent. Chronic illnesses and conditions that lead to frequent hospitalizations have been reduced by 20 percent. However, chronic illnesses continue to cause high health care costs.
A well-established emergency fund for health care can cover unexpected costs. Pregnancy complications, for example, can cause serious health risks for the mother and her fetus, and the unexpected bill can quickly add up. You may also experience extreme allergic reactions that require emergency treatment. An emergency fund for health care can cover these unexpected costs and prevent you from incurring debt. Whether your emergency is a simple cold or an incredibly costly heart attack, a health care emergency fund can help you avoid going into debt.
The emergency fund is administered by the US Department of Health and Human Services, which has received $100 billion in funding as part of the CARES Act. This emergency fund is used to provide funding to qualified healthcare providers for expenses, lost revenues, and other emergency situations. Under the CARES Act, HHS will distribute the funds to eligible providers, including those billing Medicare. The first $30 billion from the fund is already being distributed, so many providers will receive large cash injections soon.