HOSPITAL BUDGETS POST HEALTH REFORM






(CODE BLUE) The changing of hospital budgets; 


By Melvin J. Howard

  
§        BUDGETS IN HOSPITALS

Hospitals plan their budgets not only based on the projected volume but also on the projected reimbursement for the services rendered. The hospitals’ ability to pay for the operating and capital expenses depend on how well they forecast the volume and factors; therefore, translating the volume into staffing, supplies and other operating expenses. The staffing standards used will have a major impact on the budgets. The tendency of most departments is to be at the same level or above, but not below the budgets in a majority of the cases. The continuously eroding operating and contributing margins of the hospitals can be impacted significantly if the budgets are impractical to begin with.

§        COMPONENTS OF HOSPITAL BUDGETS

The hospital-operating budget is usually a rollup of the individual entities/departments’ budgets. Most hospital departments’ operating budgets have the following components: labor, supplies, and other. Labor comprises of 60 to 70% of a department’s operating budgets and supplies 15 to 25%. Labor is further divided into payroll and non-payroll which is also known as contract, registry, agency, or outsourcing. This covers managerial, professional, technical, and support staff. Supplies include both patient consumed e.g. medical/surgical and department consumed items such as office supplies. Maintenance contracts to cover the equipment, and travel for education are some examples of the other expenses component of the budget.

§        PAST AND PRESENT BUDGETING METHODS & THEIR INADEQUACIES

As labor is a significant and an important component of the total department-operating budget, I will limit this discussion to labor budgets only. At one time, future labor budgets were prepared as a percent of the past budgets rather than reviewing all the factors that impacted the budget. In years after that, the departmental budgets were prepared based on the percent change to the hospital-projected volume. Subsequently, the departmental volume projections were developed based on their ratio to the hospital volumes and the percent change was applied to the labor budgets. In the past quarter century, more hospitals used labor standards to convert the projected departmental volume to the staffing in FTEs and then convert the FTEs to the labor dollar expense. Sophisticated approaches used % of skill mix assumptions to the FTE projections based on labor standards to identify the staffing budgets by professional, technical, and support categories. A small percent of hospitals developed contingency budgets for optimistic and pessimistic scenarios.

All these budgets used deterministic models with no consideration for the probabilistic nature of the projections; whether they are workload volumes, FTEs, skill mix or labor $ making it limited in its reliability. The ‘cost plus’ reimbursement methods prior to mid 1970’s did encourage such unrealistic budget preparation and management practices as the hospitals got paid not for sticking to budgets but based on the actual expenses incurred. Spiraling healthcare costs warranted changes from the cost plus reimbursement method to prospective payment and continually decreasing reimbursement there after.

§        NEW METHODS

There are many variables involved in the departmental labor budget preparation including but not limited to:

·         Workload volume
·         Workload volume mix
·         Non-linearity of the labor standards
·         Staffing levels
·         Staffing skill mix
·         Staffing mix by full time & part time
·         Staff scheduling practices & impact of labor laws
·         Confounding effects of staffing skills on each other
·         Seasonality of workload
·         Availability of staffing
·         Use of overtime
·         Use of supplemental staff i.e. contract labor
·         Fringe benefits i.e. vacation, sick, and holidays

Most of these variables involved follow a probabilistic distribution although some of them are determined by policy such as the amount of earned paid time off (PTO) covering the vacation, sick, and holidays. Even in the case of PTO, the actual usage is a probabilistic distribution depending on the needs and mix of staff in a given department. Preparing the labor budgets with due consideration to the probabilistic nature will help improve the predictability and hence the reliability of the budgets. Accurate planning for the expenses will minimize surprises, especially the unpleasant type that could hurt the financial health of the hospital.

§        HOSPITAL EMERGENCY DEPARTMENT

EDs are referred as Level I, II or III trauma centers based on their capabilities, equipment, resources, and expertise available to the patients arriving for treatment. A patient coming to the hospital Emergency Department is categorized as an outpatient who could become an inpatient upon admission. The workload volume indicator is an ED visit. Every time a patient visits the ED, it is considered as an ED visit whether they come by themselves, brought by a family member, transported by an ambulance, or other mode such as helicopter. Such ED visit may be further classified as Emergent, Urgent, and Non-Urgent depending on the medical needs of the patient. They can also have other classifications based on the interaction with the patient i.e. brief visit, complex visit etc. and is used in addition to or in lieu of patient classification system. Patient classification is used either to assign staff and / or to charge the patient based on amount of staff time, tests, treatments and supplies used.

The arriving patient is either first registered or triaged depending on the medical necessity, and then put in an ED bed, nurse assesses the patient and documents the observations; the ED physician assesses the patient and orders the appropriate labs and/or medications. The diagnostic staff either comes to administer the test, e.g., EKG or X-Ray, procures a specimen e.g., Lab. or transports the patient for CT exam. Upon reviewing the results, the ED physician makes a decision, i.e., whether to discharge the patient, transfer to another hospital or admit the patient. The ED physician consults with other physicians if the patient is transferred or admitted. The labor involved are: Reception, & Registration, Triage nurse, Registered and Licensed Practical Nurse, Unit Secretary, Security Guard, Patient & Materials Transporter, Physician Assistant, and ED physician. Depending on the organizational structure of the hospital and department, some or all of these skills could be part of the ED budget. Certain staff may be working full time while others work only part time. Some may work overtime while others do not. Supplemental staff may come from the hospital’s internal float pool, contract help, or called from the on-call roster. Each one of these staff members has different wage and salary structure based on their skill and experience. Unlike some other departments of the hospital that may be open five or six days during the week with day and evening shifts, ED is open 7x24 year round. The demand for the ED services can vary by hour of day, day of week, week of the month, and month of the year.
Budgeting steps include:

1.     Project ED visits either total or by type;
2.     Select labor standards in hours per visit or visit type;
3.     Convert the workload volume into staffing in Worked FTEs;
4.     Break them down by skill levels;
5.     Allocate by position for adequate coverage and round up and add
                 staff if necessary;
6.     Add the factor for PTO to come up with the Paid ftes; Compare with the staff on the payroll to determine the use of contract help if there are no pending staff who are in the hiring pipeline;
7.      Apply the wage & salary factors to convert the ftes to labor dollars;
8.     Add the premium cost of overtime, on-call pay, and call-back pay differential;
9.     Add other labor costs if they belong to the operating budget category
10. The sum total of FTEs is the FTE budget and the dollars are labor dollar budget.

Usually hospitals start the budget four to six months before the start of the next fiscal year. In terms of the tools hospitals in general and ED in particular may use include either a spread sheet template or printed work sheets included as part of Budgeting Package distributed by the Finance department.

The department managers may seek help as needed. Otherwise, the manager verifies the projected volumes, follows the steps, completes the budget and submits that to Finance and will be reviewed by the line administrator.

Every time there is a change involved, uncertainty is a given and is accompanied by risk and dilemma requiring help. Imitating reality in the form of a model whether it is physical, schematic, or mathematical is helpful so that the model can be manipulated rather than the reality to show the probability of certainty for making decisions this is the most appropriate type of help for each potential situation.




THE COMMERCE CLAUSE AND HEALTH CARE REFORM








By Melvin J. Howard

For the people by the people

You would think that the State and Federal Government would work together for the common good of its citizens. I would think health care reform would rank high on that scale. But you would be wrong the issue has become polarized and political and for this reason I worry that health care in this great nation of America with its run away costs and the non coverage of some of its most vulnerable citizens will continue to be a long dragged out debate with never ending challenges to the constitutionality of the law. At the heart of health reform is a legal debate surrounding THE COMMERCE CLAUSE. Basically, it is the scope of the federal government's power to regulate interstate commerce. The new healthcare reform bill places a requirement mandating all Americans must obtain some form of health insurance or risk being fined or penalized. Some GOP states argue "The Act represents an unprecedented encroachment on the liberty of individuals living in the Plaintiffs' respective states, by mandating that all citizens and legal residents of the United States have qualifying healthcare coverage or pay a tax penalty. The brief goes on to say that the Constitution nowhere authorizes the United States to mandate, either directly or under threat of perjury, that all citizens and legal residents have qualifying healthcare coverage. But it also states under the Constitution, Congress shall have the Power to Coin Money and Regulate the Value Thereof but we all know that is not the case today.

The GOP wants to argue that the federal government's power to regulate interstate commerce doesn't entail the power to create an individual mandate to buy health insurance, since the act of not buying health insurance shouldn't be seen as engaging in interstate commerce. But yet the GOP's counter-proposal for health-insurance reform is to "let families and businesses buy health insurance across state lines," which would clearly place health insurance in the category of "interstate commerce". That ought to give the federal government all the regulatory powers the states currently have to regulate health insurance and lets not leave out Massachussetts' health care system, with an individual mandate whose constitutionality has never been challenged in court. Also lets not forget Medicaid, which already is heavily subsidized by the federal government. National or multinational firms have increasingly dominated the industry, agriculture, services and finance, the government has the power to regulate national and international commerce and it has had increasing sway over economic regulation since the beginning.

Lets just take a look at what would happen without some key important mandates from congress in the form of the forgotten man: When A takes from B to give to C, the world is well aware of the benevolence of A and of the plight of C; but B is the forgotten man.

The relevant point for us is not that B is being treated unfairly; the point is that B isn't going to stand still for this. He'll look for ways to prevent A from stealing from him. He may begin avoiding or evading taxes; he may earn less so that less will be taken from him; he may move out of A's jurisdiction; or he may start pretending to be C.

The end result is a society in which everyone wants to be C (or A), and no one wants to be B. But B was the person who originally financed A's generosity; and without him, there will be little to redistribute. In addition, if C doesn’t have to pay for his own needs, it's inevitable that his need will grow larger. Society develops that it has boundless needs and no one to pay for them. We can see how this happens if, we look at one sample of the A-B-C process in the health care reform debate.

Health care advocates believe, for example, that people have a "right" to free medical care. Since no "rights" can be asserted against nature, the advocate must not be thinking of a right to live without disease. They are, in fact, thinking that no citizen should have to pay for medical treatment that it should be free.

But since nature doesn't provide medical care, it must come from other human beings. So one person's right to medical care is a claim upon some other person's time, energy, money, or knowledge. The man on whom this claim will be made is B, the forgotten man. Now the politician offers free medical care, but he never says, "You will have free medical care because we are going to force B to pay for it."

The plan becomes unrealistic from the start in that it assumes that B will submissively pay the bill without looking for loopholes. It's unrealistic, also, to believe that the costs of the program won't change when the economics of it change.

The politician sees that people presently spend $100 billion per year on medical care. So he plans to collect $100 billion on new taxes or ( medical insurance "contributions"), and use the money to pay for doctors, nurses, medicine, X ray etc. He believes that this will make medical care free.

But once the program is underway, the economics change drastically the 100 billion was what people had spent yearly when the money came from their own resources. Now that medical care is free their medical needs suddenly in­crease. Why forgo that operation, checkup, or treatment that might have some value.

Or if your lonely, why not go talk to your doctor? Or if you need a place to stay check into the hospital; they'll find something wrong with you many people will see that this is wasteful-for the nation. But for each individual, the con­sideration is always that it costs zero dollars to obtain something that might prove to be valuable so free medical care turns out to cost far more than $100 billion per year.

And after a while B decides that he’s tired of paying for what he deems these loafers and he checks into the hospital, too from stress.

Or at least he stops working so hard. His income is taxed to pay for free medical care and for all the other government programs. And so leisure (unpaid and therefore untaxed) seems more attractive to him. He earns less; and he saves less, too, because he'd just have to pay tax on the interest his savings earn. And because he and all the other Bs are earning less taxable income, the politicians have to raise tax rates even higher than they planned—to collect the money they need for free medical care.

Because even the government's resources are limited (it can't tax what doesn't exist), it is forced eventually to do something to limit the costs of the program. Naturally it won't end the program that’s political Armageddon; it will declare that a crisis exists and impose rationing.

So when the cost of free medical care has reached double or triple or quadruple the original estimate of $100 billion, the government announces that it will decide who gets to see the doctor first. You will have to go without—unless you have the right disease or fill out the right form or know the right people.

And most people will have no choice but to wait in line for free medical care. The billions spent on the program will have bid up the price of medical services; only the very wealthy (of whom there are fewer) will be able to afford to hire a doctor on their own.

Just as promised, medical care is free; it just isn't available. We would be sobered by the medical situation in Canada and some European countries. Government medical and "Social Security" pro­grams are far advanced there, compared to the U.S. The shortage of medical care is chronic because doctors emigrate to the U.S. and other countries where there are greater op­portunities to earn more money. Waiting lists sometimes are years long. Mr. B. has long since disappeared.

I've used this as an example of the way the health crises develops. The crisis is always a conflict between the government's goals and the actions of individuals. Many in­dividuals will sympathize with the government's position, but none will sacrifice his personal interest.

It isn't a matter of selfishness vs. unselfishness. Every indi­vidual acts in his own self-interest; that's a principle of hu­man action. The conflict is between the individual who selfishly pursues what he believes is best for himself and the politician who selfishly wants the individual to act under his direction. There is no right or wrong answer to this dilemma but in order to have true dialogue about how to cover the uninsured and to bring down health care costs in America. We must first acknowledge good ideas and implement them no matter what the source political or otherwise. So no one becomes the FORGGOTEN Man, Woman or Child!