Case 13.4: Westside Hospital Key concept: Preparing a departmental budget when given volume estimates The radiology department head thinks there will be a 10 percent increase in volume for next year. This he Westside Hospital radiology department is additional volume is expected to have the same preparing a budget for the following year. procedure mix as the current year. Rates are not A major budget category is hand, foot, and expected to change. forearm imaging. Current-year admissions for these The controller projects the payer analysis to be 50 imaging categories totaled 2,000, which breaks down percent Medicare (reimbursement rate =70 percent as follows: of charges), 20 percent Medicaid (reimbursement rate - 60 percent of charges), 20 percent managed care (reimbursement =70 percent of charges), and 10 percent self-pay (full charges, but 20 percent of self- expenses are expected to increase 6 percent, primarily pay results in charity care). due to increases in precious metals costs. The These three procedures account for 20 percent of department's overhead expenses are forecasted to the radiology department's current $1,225,000 labor, remain constant for the next year. imaging materials, and overhead expenses, which can In addition to their individual cost increases, all three be broken down in the following manner: expenses are expected to increase by 10 percent due to the overall volume increase. Assignments 1. Prepare a budget for the next year by completing the following steps: The department's labor expenses are expected to a. Calculate the current volume for each imaging increase 5 percent next year due to an anticipated procedure by multiplying the total volume of across-the-board pay raise. Imaging materials 2,000 by the proportion for each procedure. b. Increase the current volumes by 10 percent to get the projected volume for each procedure. d. Use the reimbursement rates to convert gross projected revenue to net projected revenue. c. Multiply the projected volume for each procedure by the rates to get gross projected revenues. e. Divide current expenses in each category by current volume in that category to calculate current expense per procedure. f. Forecast expenses per procedure using individual expense increase information. g. Multiply the forecasted per-procedure expenses by the projected volume to get total expenses for the procedure. h. Prepare a summary income statement for overall revenues and expenses