Managing Cost and Budgets Flashcards
WHAT ESCALATES HEALTHCARE COSTS?
- Cost are a function of price and utilization rates
- Price inflation
- Administrative inefficiency
- Multi-payer systems
The rate that healthcare providers set for the services they deliver,
such as the hospital rate or
physician fee
price
The quantity or volume of services provided, such as diagnostic tests
provided or the number of
patient visits
utilization
The rise in healthcare costs has
outpaced general inflation. Examples of factors that stimulate price inflation:
- Insurance premiums
- Medical technology
- Drug costs
- Health plan administration
- Waste
factors increasing cost
- Unnecessary care
- Consumer attitudes
- Healthcare financing
- Pharmaceutical usage
- Increase cost of drugs
- Population demographics
how healthcare is financed
1.Government
2.Private insurance companies
3.Individuals
4.Others
government managing costs
- Medicaid
- Medicare
- Military members
- Veterans
- Native Americans
- Federal prisoners
what is medicare**
the most extensive federal program, pays for care provided
to people 65 and older and some disabled individuals.
the medicare coverage is separated into:
- Part A: An insurance plan for the hospital, hospice, home health,
and skilled nursing care paid for through Social Security taxes. - Part B: An optional insurance that covers physician services,
medical equipment, and diagnostic tests. It is funded through
federal taxes and monthly premiums paid by the recipients. - Part C: It allows private health insurance companies to provide
Medicare benefits, known as Medicare Advantage Plans. - Part D: Offers outpatient drug prescriptions.
what is medicaid**
Medicaid pays for services provided to persons who are medically indigent, blind, or disable and children with disabilities.
* A state-level program
* Majority paid by federal government
The second major source of financing for the healthcare system.
private health insurance
buying private health insurance
- It can be purchased, but the rates are higher and provide minimal
coverage. - Most Americans have private health insurance, which is provided
by employers through group policies. - It is problematic, contributing to the rolls of uninsured and
underinsured Americans. - Many uninsured workers are employed in part-time, seasonal, or
service positions in small businesses that cannot afford group
insurance.
out of pocket costs
It is the costs paid by individuals directly for health services.
* It includes deductibles, copayments, and coinsurance.
* Individuals pay out-of-pocket when they do not have health
insurance, or when insurance does not cover the service.
Insurance often covers limited preventive care and typically
does not cover:
Cosmetic surgeries
Alternative healthcare therapies
Items such as eyeglasses and nonprescription medication
major methods of healthcare reimbursement
1.Cost-based reimbursement
2.Prospective payment system (PPS)
3.Diagnosis-related groups (DRGs)
4.Value-based purchasing
5.Hospital value-based purchasing
program (HVBPP)
COST-BASED SYSTEM
* It consists of the cost of providing a service plus a markup for profit or excess income
Third-party payers limit what they will pay by establishing usual and customary charges by surveying all providers in a specific area. These rise over time as providers continue to raise prices
cost based systems
In cost-based reimbursement, all allowable costs are calculated and used as the basis for payment.
Each payer determines allowable costs for each procedure, visit, or service.
Charges and cost-based reimbursement are retrospective payment methods.
Payment is determined after services are delivered
When the reimbursed costs are less than the full charge for the service, a
contractual allowance (or discount) exists
PROSPECTIVE PAYMENT SYSTEM (PPS)
It is a method in which the third-party payer decides what and
how much will be paid for a service or episode of care. If the
costs of care are:
* Higher than the payment, the provider absorbs the loss
* Less than the payment, the provider makes a profit
Medicare implemented a PPS for hospital care that uses
diagnosis-related groups (DRGs) as the basis for payment.
DIAGNOSIS-RELATED GROUPS (DRGS)
The DRG system is a classification system implemented by
Medicare that groups patients based on the average number of
hospitalization days for specific medical diagnoses, considering
factors such as the patient’s age, complications, and other
illnesses.
* Payment includes the expected costs for diagnostic tests,
various therapies, surgery, and length of stay (LOS).
* The cost of nursing services is not explicitly calculated.
* It does not adequately reflect the variability of patient
intensity or acuity within the DRG.
Implementation of a PPS with DRGs resulted in:
- Increased patient acuity
- Decreased LOS in hospitals
- Greater demand for home care
- Increased need for hospital and community-based nurses
Pay -FOR-PERFORMANCE SYSTEM
Introduced in the early 2000s, it used a system that reimbursed hospitals
and providers.
* It is based on performance and quality outcomes.
* Also referred to as value-based purchasing, it offers rewards and
incentives to high-performing organizations.
* The incentives are based on how well a hospital performs on each
measure or as compared with its performance at baseline.
* The overall score includes the clinical process of care measures and
patient experience of care measures.
* It evolved into the Hospital Value-Based Purchasing Program (HVBPP)
established by the ACA, in October 2012.
THE CHANGING HEALTHCARE ECONOMIC ENVIRONMENT
- Major public concern
- Need to reduce costs
- Improve outcomes
- Improve wellness
HEALTHCARE DELIVERY REFORM STRATEGIES**
- Managed Care
- Organized Delivery Systems (ODSs)
- Competition based systems
managed care
Managed care, also known as managed cost, brings together the delivery
and financing functions into one entity to control costs, utilization, and
quality.
* A significant goal of managed care is to decrease unnecessary services, thereby reducing costs.
* Managed care also works to ensure timely and appropriate care.
* Health maintenance organizations (HMOs) are a type of managed care system in which the primary physician serves as a gatekeeper who determines what services the patient uses.
* Other types of managed care plans give the patient more options than traditional HMOs for selecting providers and services:
Preferred provider organizations (PPOs)- Patients have access to a large network of providers and hospitals, but at a higher price.
Point-of-service (POS) plans
ORGANIZED DELIVERY SYSTEMS
Organized delivery systems comprise networks of healthcare
organizations, providers, and payers.
* Aim to develop and market collectively a comprehensive healthcare
package that will meet the largest numbers of consumers.
* Hospitals, physicians, and payers share the financial risks of the
enterprise.
Risk sharing is expected to provide incentives to eliminate
unnecessary services, use resources more effectively, and
improve service quality.
COMPETITION BASED SYSTEMS
Cost and quality outcomes are two factors driving increasing
competition among healthcare providers.
* Decision making regarding price and utilization of
services is shifting from physicians and hospitals to
payers demanding significant discounts or lower fees.
* As the system evolves, providers who cannot compete
based on price, patient outcomes, and service quality will
find it difficult to survive.
THE HEALTHCARE ECONOMIC ENVIRONMENT AND NURSING PRACTICE
- Practice within a context of organizational
viability and quality of care. - “Financial Thinking”
- Nursing services considered value added
for patients - Use cost-conscious nursing practices
understanding what is required to remain financially sound
- Knowing Costs and Reimbursement Practices
- Capturing All Charges in a Timely Fashion
- Using Time Efficiently
- Discussing the Cost of Care with Patients
- Evaluating Cost-Effectiveness of New
Technologies - Predicting and Using Nursing Resources
Efficiently - Using Research to Evaluate Standard Nursing
Practices
cost of nursing care
- Nursing is the biggest expense in a hospital’s budget
- In hospitals, the cost of nursing care usually is not calculated or
billed separately to patients – it is part of a general per diem (per
use) charge - All patients get the same charge – assumes that all get the
same amount of nursing care - Nursing is viewed not as revenue producing but as an expense
- Customer (patients) do not see direct charges of nursing
services received and have no way to understand the monetary
value of the nursing care they receive
types of budgets
Operating budget
Capital expenditure budget
Cash budget
a budget
A detailed financial plan for carrying out the activities an organization wants to accomplish
for a certain period.
An organizational budget is a formal plan stated in terms of dollars and includes proposed income and expenditures.
operating budget
The operating budget is the financial plan for the organization’s
day-to-day activities.
* It includes the expected revenues and expenses generated
from daily operations, given a specified volume of patients.
The operating budget expense consists of a personnel budget
and a supply and expense budget for each cost center, which is
typically a clinical unit or division for which costs can be
identified and managed.
OPERATING BUDGET-PERSONNEL
- Largest part of the operating budget for most nursing units.
- Requires establishing the volume of work predicted for the
budget period. - Patient acuity mix is another factor needed to calculate the
workload.
Nurse managers should inform administrators about factors that
affect the forecast’s accuracy, such as:
- Changes in physician practice patterns
- New treatment modalities
- Inpatient versus outpatient treatment practices
- Changes in technology or equipment
operating budget-personnel
Staff members are classified by their FTE status
* FTE= Full Time Equivalent
FTE status is calculated based on the hours worked as a percent
of a full-time (40-hour) person:
1.0 FTE = 40 hours per week
0.9 FTE = 36 hours per week (36/40=0.9)
0.8 FTE = 32 hours per week (32/40=0.8)
0.6 FTE = 24 hours per week (24/40=0.6)
0.5 FTE = 20 hours per week (20/40=0.5)
FTEs consider all paid time (productive and nonproductive hours)
- Productive hours: paid time that is worked.
- Nonproductive hours: paid time that is not worked, such as vacation, holiday, orientation,
and sick time.
OPERATING BUDGET-
SUPPLY AND EXPENSE
- Often called the other-than-personnel services (OTPS) expense budget.
- Includes various items used in daily unit activities, such as medical and office supplies, minor equipment, books, and journals.
- Also provides orientation, training, and travel.
- Different methods are used to calculate the supply and expense budget,but the previous year’s expenses are commonly used as a baseline.
This baseline is adjusted for projected patient volume and specific circumstances known to affect expenses, such as predictable personnel turnover, which increases orientation and training expenses.
A percentage factor is also added to adjust for inflation.
OPERATING BUDGET-REVENUE
- It projects the income that the organization will receive for
providing patient care. - The anticipated revenues are calculated according to the price per patient day.
- Data about the volume and types of patients and
reimbursement sources (i.e., the case mix and payer mix) are
necessary to project revenues in any healthcare organization. - Nurses have not historically been directly involved with
developing the revenue budget, but this is changing. In most
hospitals, the revenue budget is established by the financial
office and given to nurse managers.
Capital Expenditure Budget
It reflects expenses related to purchasing major capital items, such as equipment and the physical plant.
* These must have a useful life of more than one year and must exceed the organization’s cost level.
* Minimum cost level requirement for capital items is usually $300 to $1000 and anything below this is considered operating cost. (Some organizations have a much higher level)
* These are kept separate from the operating budget because it would inflate the costs of providing patient care during the year of purchase.
* A portion of the cost of capital items are allocated to the operating budget each year as an expense because capital items depreciate.
* Organizations usually set aside a fixed amount of money for capital expenditures each year.
Complete, well-documented justifications for capital expenditures should be
developed using the principle of any business case and should include:
Projected amount of use
Services duplicated or replaced
Safety considerations
Need for space, personnel, or building renovation
Effect on operational revenues and expenses
Contribution to the strategic plan
cash budget
- Cash budget is the operating plan for monthly
cash receipts and disbursements. - Cash is the lifeblood of any organization, so the
cash budget is as important as the operating and
capital budgets. Organizations can be making a
profit and still run out of cash.
the budgeting process
1.Gathering information and planning
Environmental assessment (Community needs)
Mission, goals, and objectives
Program priorities
Financial objectives
Assumptions (employee raises, inflation, volume projections)
2.Developing unit and departmental budgets
Operating budgets
Capital budgets
3.Developing cash budgets
4.Negotiating and revising
5.Evaluating
Analysis of variance
Critical performance reports
tips for managing cost and budgets
*Know the significant changes in the organization and how they might affect the
organization’s budget.
* Analyze the supplies you use in providing care and what is commonly missing as one way
to make recommendations about supply needs.
* Evaluate what your patients would find most helpful during the time you care for them.
* Decide which of your actions create costs for the patient or the organization.
* Be aware of how changes in patient acuity and patient census affect staffing
requirements and the unit budget.
* Know how charges are generated and how the documentation systems relate to billing.
* Be knowledgeable about the anticipated discharge day and discharge plan, and include the
patient and the family in the plan upon admission.
* Examine the upsides and downsides of the cost–care polarity thoughtfully.
