Chapter 10 Fiscal Planning Copyright 2015 Wolters Kluwer

PPACA’s Payment Reform Provisions • Value-based purchasing • Accountable care organizations (ACOs) • Bundled

Fiscal Planning • Not intuitive; a learned skill that improves with practice • An

Cost Containment • Refers to effective and efficient delivery of services while generating needed

Question Tell whether the following statement is True or False: Cost containment is primarily

Answer: Rationale: Copyright © 2015 Wolters Kluwer Health | Lippincott Williams & Wilkins

Cost Effectiveness • Cost-effective means producing good results for the amount of money spent

Responsibility Accounting • Each of an organization’s revenues, expenses, assets, and liabilities is someone’s

Forecasting involves making an educated budget estimate using historical data Copyright © 2015 Wolters

Personnel Workforce Budget • Accounts for the majority of health-care organization’s expense • Health

Budget • A plan that uses numerical data to predict the activities of an

Question What is the goal of a budget? A. To predict an organization’s activities

Calculating Nursing Care Hours Copyright © 2015 Wolters Kluwer Health | Lippincott Williams &

Budget Busters • Going through the difficult process of completing a budget estimate for

Budgeting Methods • Incremental budgeting • Zero-based budgeting • Flexible budgeting • Performance budgeting

Critical Pathways • Strategy for assessing, implementing, and evaluating the cost-effectiveness of patient care

Question What is generally the area of most expenditures? A. Operating budget B. Supplies

Medicare Costs Per Beneficiary in 2013 Copyright © 2015 Wolters Kluwer Health | Lippincott

Reminder • As a result of the PPS and the need to contain costs,

Types of Managed Care Organizations • Health Maintenance Organization (HMO) – Point of Service

Medicare and Medicaid Managed Care • The Centers for Medicare and Medicaid Services is

Question Tell whether the following statement is true or false: The Centers for Medicare

Criticisms of HMOs • Loss of existing physician–patient relationships • Limited choice of physicians

Diagnosis-Related Groups (DRGs) and the Prospective Payment System (PPS) • Diagnosis-related groups (DRGs) are

Managed Care • Broadly defined as a system that attempts to integrate efficiency of

Moral Hazard • Refers to the propensity of insured patients to use more medical

Patient Protection and Affordable Care Act • Put in place comprehensive insurance reforms that

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PPACA’s Payment Reform Provisions • Value-based purchasing • Accountable care organizations (ACOs) • Bundled payments • The medical home • The health insurance marketplace Copyright © 2015 Wolters Kluwer Health | Lippincott Williams & Wilkins

Fiscal Planning • Not intuitive; a learned skill that improves with practice • An important but often neglected dimension of planning • Should reflect the philosophy, goals, and objectives of the organization • A skill increasingly critical to nursing managers because of increased emphasis on finance and “big business” of health care Copyright © 2015 Wolters Kluwer Health | Lippincott Williams & Wilkins

Cost Containment • Refers to effective and efficient delivery of services while generating needed revenues for continued organizational productivity • The responsibility of every health-care provider, and the viability of most health-care organizations, today depends on its ability to use its fiscal resources wisely Copyright © 2015 Wolters Kluwer Health | Lippincott Williams & Wilkins

Question Tell whether the following statement is True or False: Cost containment is primarily the responsibility of the health-care organization as a whole A. True B. False Copyright © 2015 Wolters Kluwer Health | Lippincott Williams & Wilkins

Cost Effectiveness • Cost-effective means producing good results for the amount of money spent • Expensive items can be cost-effective and inexpensive items may not • Cost-effectiveness then must take into account factors such as anticipated length of service, need for such a service, and availability of other alternatives Copyright © 2015 Wolters Kluwer Health | Lippincott Williams & Wilkins

Responsibility Accounting • Each of an organization’s revenues, expenses, assets, and liabilities is someone’s responsibility • As a corollary, the person with the most direct control or influence on any of these financial elements should be held accountable for them, usually the leader-manager • The unit manager also can best monitor and evaluate all aspects of a unit’s budget control Copyright © 2015 Wolters Kluwer Health | Lippincott Williams & Wilkins

Personnel Workforce Budget • Accounts for the majority of health-care organization’s expense • Health care is labor intensive • Next to personnel costs, supplies are the second most significant component in the hospital budget Copyright © 2015 Wolters Kluwer Health | Lippincott Williams & Wilkins

Budget • A plan that uses numerical data to predict the activities of an organization over a period of time • The desired outcome of budgeting is maximal use of resources to meet organizational short- and longterm needs • A budget provides a mechanism for planning and control, as well as for promoting each unit’s needs and contributions Copyright © 2015 Wolters Kluwer Health | Lippincott Williams & Wilkins

Question What is the goal of a budget? A. To predict an organization’s activities B. To maximize the use of resources C. To help with planning and control D. All of the above Copyright © 2015 Wolters Kluwer Health | Lippincott Williams & Wilkins

Budget Busters • Going through the difficult process of completing a budget estimate for the coming year but never using it • Relying on the current year’s budget numbers as a starting point for the next year’s budget • Neglecting or underestimating costs related to capital expenditures • Ignoring declining patient volumes in the hope that the trend will be temporary • Failing to set aside enough money for unexpected capital expenses Source: Adapted from Barr, P. (2005). Flexing your budget: Experts urge hospitals, systems to trade in their traditional budgeting process for a more dynamic and versatile model. Modern Healthcare, 35(37), 24, 26. Copyright © 2015 Wolters Kluwer Health | Lippincott Williams & Wilkins

Critical Pathways • Strategy for assessing, implementing, and evaluating the cost-effectiveness of patient care • Predetermined courses of progress that patients should make after admission for a specific diagnosis or after a specific surgery Copyright © 2015 Wolters Kluwer Health | Lippincott Williams & Wilkins

Reminder • As a result of the PPS and the need to contain costs, the length of stay for most hospital admissions has decreased greatly Copyright © 2015 Wolters Kluwer Health | Lippincott Williams & Wilkins

Types of Managed Care Organizations • Health Maintenance Organization (HMO) – Point of Service (POS) – Exclusive Provider Organization (EPO) • Preferred Provider Organization (PPO) Copyright © 2015 Wolters Kluwer Health | Lippincott Williams & Wilkins

Medicare and Medicaid Managed Care • The Centers for Medicare and Medicaid Services is now the largest purchaser of managed care in the country • MCOs receive reimbursement for Medicare-eligible patients based on a formula established by the CMS, which looks at age, gender, geographic region, and the average cost per patient at a given age. Then, the government gives itself a 5% discount and gives the rest to the MCO Copyright © 2015 Wolters Kluwer Health | Lippincott Williams & Wilkins

Question Tell whether the following statement is true or false: The Centers for Medicare and Medicaid Services is now the largest purchaser of managed care in the country. A. True B. False Copyright © 2015 Wolters Kluwer Health | Lippincott Williams & Wilkins

Criticisms of HMOs • Loss of existing physician–patient relationships • Limited choice of physicians for consumers • Lower level of continuity of care • Reduced physician autonomy • Longer wait times for care • Consumer confusion about the many rules to be followed Copyright © 2015 Wolters Kluwer Health | Lippincott Williams & Wilkins

Diagnosis-Related Groups (DRGs) and the Prospective Payment System (PPS) • Diagnosis-related groups (DRGs) are predetermined payment schedules that reflect historical costs for the treatment of specific patient conditions • With DRGs, hospitals join the prospective payment system (PPS), whereby they receive a specified amount for each Medicare patient’s admission, regardless of the actual cost of care Copyright © 2015 Wolters Kluwer Health | Lippincott Williams & Wilkins

Managed Care • Broadly defined as a system that attempts to integrate efficiency of care, access, and cost of care • Utilization review is a process used by insurance companies to assess the need for medical care and to assure that payment will be provided for the care • Capitation, whereby providers receive a fixed monthly payment regardless of services used by that patient during the month Copyright © 2015 Wolters Kluwer Health | Lippincott Williams & Wilkins

Moral Hazard • Refers to the propensity of insured patients to use more medical services than necessary because their insurance covers so much of the cost Copyright © 2015 Wolters Kluwer Health | Lippincott Williams & Wilkins

Patient Protection and Affordable Care Act • Put in place comprehensive insurance reforms that were to be phased in over a 4 -year period: – New Patient Bill of Rights – Bundled payments – Accountable care organizations – Hospital value-based purchasing – The medical home – Health insurance marketplaces Copyright © 2015 Wolters Kluwer Health | Lippincott Williams & Wilkins