Original Publish Date: April 5, 2016
Albert Einstein once said, "Everything that can be counted does not necessarily count; everything that counts cannot necessarily be counted." Does this statement hold true regarding healthcare reimbursement today?
Everything we count, such as financial data, does not necessarily "count" in the larger sense. Everything that does in fact count, such as the quality care that nurses provide, cannot necessarily be counted. How do you place a price tag on compassionate care?
The reality is that healthcare costs are rising and reimbursement to our healthcare delivery systems continues to decline. Whether one likes it or not, healthcare is a business and nurses must become more fiscally savvy.
Three major forces have driven the healthcare delivery system in the USA: access to care, quality and cost. At one point in time, there were approximately 47 million Americans that had no healthcare insurance. This created one type of access problem. With the Patient Protection and Affordable Care Act of 2010, already over 11 million more Americans have secured health insurance coverage through state insurance exchanges. It is estimated that a total of 33 million Americans will seek such coverage. There are now financial penalties if one does not get insurance. This is really shifting the United States entrepreneurial model of insurance coverage to one of a mandated insurance model. Having more individuals covered with insurance in the USA will create another type of access problem - with the shift from an intervention-based delivery system to one that's prevention-oriented and where more individuals are insured - more individuals should access primary care services. This is actually a good problem to have. The access problem that will be created will be secondary to a lack of primary care providers. This edition of the book takes a much deeper dive into the mandates of the Patient Protection and Affordable Care Act of 2010.
There is currently a shortage of physicians in primary care. The access problem created will be the lack of primary care services and providers to accommodate this increase. This is a prime time for nursing to seize the healthcare of the nation through the provision of excellent primary care services. Who is better prepared than nurses in our nation to really address wellness and health promotion?
The United States healthcare delivery system has been traditionally an entrepreneurial type of system with many types of insurance products on the market -- such as a variety of managed care companies, health maintenance organizations, preferred provider organizations, independent professional associations, Medicare and Medicaid, self-funded health plans, self-pay and philanthropic contributions. Most states also have some form of charity care funding for indigent patients, and some states still have publicly funded hospitals for those without insurance coverage.
Today, healthcare reimbursement is being ratcheted down to providers and hospitals. It's critical for nurses to understand that there is a finite dollar amount received to fund healthcare and to provide for health services. The landscape of healthcare has been fundamentally changed from years past. Many hospitals have closed their doors secondary to financial woes. Many hospitals have merged with larger health systems. Some futurists predict that there will be no more than 100 to 200 large regional health systems. Others have more drastic predictions such as no more than 9 to 10 large health systems throughout the country. These changes are what really drive nurses to become more astute in the world of finance and financial management.
Budgeting for Nurse Managers
Nurse managers must be familiar with the budgeting process. Two budgets that nurses manage on a daily basis are the operating budget and the capital budget. The budget process is ongoing and dynamic, and it provides feedback. When managers begin to prepare a budget, they collect data, plan activities and services, implement the plan and evaluate the outcomes.
In developing the operating budget, you must determine what services are offered or are going to be offered if a new service is planned, the payer mix, the patient mix which relates to acuity, the case mix index, the staff mix and the standards of care that drive the nursing hours of care per patient day.
The nurse manager also needs to determine what the patient outcomes are and whether there are plans to change the services or resources utilized. This information is obtained from prior statistical budget reports as well as the organization’s goals and objectives, the organization’s strategic plan, and industry trends in both care and reimbursement. The budget plan is then developed and the forecast is provided for what resources will be needed to deliver the anticipated services.
The budget process is usually a joint effort between the nurse manager and the organization's finance department. Following development of the budget, with final tweaking by the finance team and the administration in the organization, the budget is submitted for approval. The operating budget is a formal quantitative expression of management's plans, intentions and actions. After implementation of the budget, outcomes must be monitored frequently so variances can be identified and corrected for the next budget cycle. If there is a negative variance, you must determine the source. There are 3 major factors that create variances: volume (an increased number of patients), efficiency (not staffing to budgeted care hours), and cost (going over budgeted costs by utilizing over-time, premium pay or agency staff).
The operating budget includes all full-time equivalent personnel and all expenses and revenue for day-in and day-out operations. It's the most critical budget an organization develops, implements and monitors. A nurse manager must take timely action when costs exceed revenues. Nurse managers must have access to timely, understandable reports.
The capital budget includes major movable equipment and fixed assets. An example of a fixed asset would be renovation of the nursing administration suite. The actual cost to renovate the suite may be $100,000, but once it's completed, it's fixed for a defined time period.
The capital budget that nurses and nurse managers are generally responsible for is the major movable equipment budget. Each organization defines the minimal amount that must be budgeted in the capital budget. The dollar amount when one begins budgeting capital items can vary by organization. This range can be from $500 to $5,000 or more.
Another consideration when budgeting major movable equipment is the expected life of the equipment and its depreciation value. Consider a nurse manager who wants to budget for a new portable cardiac monitor. This piece of equipment costs $10,000 and its estimated life is five years. Its depreciation value would be $2,000 per year, and it will need to be replaced within five years.
The purpose of the capital budget is always to have state-of-the-art equipment by replacing what's lived or surpassed its expected life. It's also recommended that a contingency line be built into the capital budget - that is, a dollar amount that's calculated into the budget but not assigned to any set item. This is an emergency budget line so that if a piece of equipment becomes nonoperational, it can be replaced with funds that have been approved in the contingency line. One looks much better in front of a Board when a new item is being requested if there is a contingency line existent in the budget.
Other new items in this edition of the book include a chapter on QSEN (Quality Safety Education for Nurses). It is a well-known fact that poor quality increases cost, whereas quality-driven hospitals have lower costs. A new chapter on other types of organizations, such as a nurse’s specialty organization, are described. Although budgets in a specialty organization can be similar to a hospital’s budget, there are different factors that build a budget in such an organization.
To sum it up - It's every nurse manager's job to assure fiscal accountability for their respective unit or department. Every nurse should manage their respective unit or units as if it were their own business, regardless of whether they are managing in a not-for-profit health system or a for-profit health system. If it were their own business, they would want the business to turn a profit so that the business would survive. This is true in the healthcare delivery systems that nurses manage. It's also every nurse's job to make certain they are using resources wisely, as we're all responsible for the budget. Being fiscally savvy and managing our budgets well will assure long-term survival of our organizations.
Finkler SA, Kovner CT, Jones CB. Financial Management for Nurse Managers & Executives. 4th Ed. St. Louis, Mo.: Saunders; 2013.
Rundio A. The Nurse Manager's Guide to Budgeting & Finance. 2nd Edition. .Indianapolis: Sigma Theta Tau International Publications; 2016.
The Patient Protection & Affordable Patient Care Act of 2010. http://dpc.senate.gov/healthreformbill/healthbill04.pdf
Al Rundio is associate dean for post-licensure nursing programs and continuing nursing education and clinical professor of nursing at Drexel University in Philadelphia. He is former vice president of nursing at Shore Medical Center in Somers Point, N.J., and author of The Nurse Manager's Guide to Budgeting and Finance 1st and 2nd Editions. (Sigma Theta Tau International Publications, 2012, 2016).