Case Study You are the new Finance Manager. The Chief Financial Officer (CFO) has asked you to prepare the General Medicine Division's budget for the next financial year using a blended approach of Activity Based Funding (ABF) and historical block funding. To do this effectively, you must engage with the Division's clinical managers and seek their advice. This is the first time ABF has been used in the hospital. A review of the Division's activity shows the following: DRG Description ALOS No. of pts last year Benchmark ALOS Expected no. of pts next year NWAU (Inlier) F74A Chest Pain, Major Complexity 1 1808 1 1600 0.4142 E65B Chronic Obstructive Airways Disease, Minor Complexity 4 761 3 750 0.6159 2 F73B Syncope and Collapse, Minor Complexity 465 2 450 0.4403 F76B Arrhythmia, Cardiac Arrest and Conduction Disorders, Minor Complexity 2 481 2 450 0.4713 E61B Pulmonary Embolism, Minor Complexity 6 467 450 0.7313 F62B Heart Failure and Shock, Minor Complexity 3 445 450 0.8099 L63A Kidney and Urinary Tract Infections, Major Complexity 3 359 350 1.1555 F42B Circulatory Dsrds, Not Adm for AMI W Invasive Cardiac Inves Proc, Minor Comp 3 303 300 1.1632 11 325 E62A Respiratory Infections and Inflammations, Major Complexity 1.6382 340 315 E62B Respiratory Infections and Inflammations, Minor Complexity 3 300 0.7332 Note: ALOS = average length of stay; NWAU = national weighted activity unit 3 of 9 An analysis shows the types of services and average number of services used for each DRG: DRG Description No. of Scripts No. of X-Rays 3 F74A Chest Pain, Major Complexity 4 E65B Chronic Obstructive Airways Disease, Minor Complexity 3 7 4 5 F73B Syncope and Collapse, Minor Complexity F76B Arrhythmia, Cardiac Arrest and Conduction Disorders, Minor Complexity 1 5 3 4 E61B Pulmonary Embolism, Minor Complexity F62B Heart Failure and Shock, Minor Complexity 4 2 L63A Kidney and Urinary Tract Infections, Major Complexity 2 3 F42B Circulatory Dsrds, Not Adm for AMI W Invasive Cardiac Inves Proc, Minor Comp 1 E62A Respiratory Infections and Inflammations, Major Complexity E62B Respiratory Infections and Inflammations, Minor Complexity 4 3 No w w w c 3 3 3 10 3 2 No. of Path. Tests 8 10 3 5 6 4 5 6 6 4 6 5 An analysis shows the average cost for the daily stay and each type of service (different for each DRG): DRG Description Daily Cost of Stay (ex. X-ray, Path., Scripts) Cost of each X-ray F74A Chest Pain, Major Complexity $870 $220 E65B Chronic Obstructive Airways Disease, Minor Complexity $870 $150 F73B Syncope and Collapse, Minor Complexity $870 $100 F76B Arrhythmia, Cardiac Arrest and Conduction Disorders, Minor Complexity $870 $110 E61B Pulmonary Embolism, Minor Complexity $870 $150 F62B Heart Failure and Shock, Minor Complexity $870 $100 L63A Kidney and Urinary Tract Infections, Major Complexity $870 $100 F42B Circulatory Dsrds, Not Adm for AMI W Invasive Cardiac Inves Proc, Minor Comp $870 $1,400 E62A Respiratory Infections and Inflammations, Major Complexity $870 $160 E62B Respiratory Infections and Inflammations, Minor Complexity $870 $100 Assumptions and considerations are: The average costs can be applied for the next financial year's budget (i.e. do not increase for CPI). The daily cost of stay incorporates staffing costs. The National Efficient Price for the next financial year is $5,500. All activity is within the inlier NWAU (i.e. no need to consider any outlier adjustors). Cost of each Path. Test $90 $105 $90 $90 $100 $90 $90 $190 $120 $85 Cost of each Script $75 $150 $80 $75 $150 $75 $95 $75 $85 $75 Requirements 1. Produce an ABF budget using the: a. expected number of patients next year b. NWAU (inlier) c. National Efficient Price. 2. To educate the clinical staff on how ABF works you must prepare a one-page flyer on: a. what is ABF b. why is ABF used as a funding model c. how the ABF budget (in Question 1) was calculated Your flyer should be visually-engaging and simple enough for a non-finance audience to understand. You may consider using tables, graphs or infographics. 3. Produce a block-funded budget using the: a. current ALOS b. expected number of patients next year c. daily cost of stay d. total cost of each service type (i.e. expected number of patients next year, average number of services (x-ray, path, scripts), average cost of services). What is the effect if the benchmark ALOS was used to calculate the block-funded budget? (Show your calculations) 4. The General Medicine Division's clinical managers advise you that the expected number of patients next year should be 4% higher, for the following DRGs: F74A, F76B, E61B, E62B. Calculate: a. the change to these DRGs under the ABF budget (calculated in Question 1) b. the effect to the overall ABF budget, as a result of the change. 5. The CFO has asked you to prepare scenarios where there is a 5% and 10% reduction to the National Efficient Price. Using the expected number of patients next year, as advised by the clinical managers (i.e. with the 4% increase applied to the relevant DRGs), calculate: a. the impact to the ABF budget for both scenarios (5% and 10% reduction to the National Efficient Price). 6. The CFO has asked that you prepare scenarios for the block-funded budget (calculated in Question 3) that shows a 1% to 10% (i.e. 1%, 2%, 3%... 10%) reduction in the daily cost of stay. This must be prepared using: a. the benchmark ALOS b. the expected number of patients next year, as advised by the clinical managers (i.e. with the 4% increase applied to the relevant DRGs) Present the overall budget outcome for each scenario (i.e. 1% to 10% reduction in the daily cost of stay) on a single graph. Case Study You are the new Finance Manager. The Chief Financial Officer (CFO) has asked you to prepare the General Medicine Division's budget for the next financial year using a blended approach of Activity Based Funding (ABF) and historical block funding. To do this effectively, you must engage with the Division's clinical managers and seek their advice. This is the first time ABF has been used in the hospital. A review of the Division's activity shows the following: DRG Description ALOS No. of pts last year Benchmark ALOS Expected no. of pts next year NWAU (Inlier) F74A Chest Pain, Major Complexity 1 1808 1 1600 0.4142 E65B Chronic Obstructive Airways Disease, Minor Complexity 4 761 3 750 0.6159 2 F73B Syncope and Collapse, Minor Complexity 465 2 450 0.4403 F76B Arrhythmia, Cardiac Arrest and Conduction Disorders, Minor Complexity 2 481 2 450 0.4713 E61B Pulmonary Embolism, Minor Complexity 6 467 450 0.7313 F62B Heart Failure and Shock, Minor Complexity 3 445 450 0.8099 L63A Kidney and Urinary Tract Infections, Major Complexity 3 359 350 1.1555 F42B Circulatory Dsrds, Not Adm for AMI W Invasive Cardiac Inves Proc, Minor Comp 3 303 300 1.1632 11 325 E62A Respiratory Infections and Inflammations, Major Complexity 1.6382 340 315 E62B Respiratory Infections and Inflammations, Minor Complexity 3 300 0.7332 Note: ALOS = average length of stay; NWAU = national weighted activity unit 3 of 9 An analysis shows the types of services and average number of services used for each DRG: DRG Description No. of Scripts No. of X-Rays 3 F74A Chest Pain, Major Complexity 4 E65B Chronic Obstructive Airways Disease, Minor Complexity 3 7 4 5 F73B Syncope and Collapse, Minor Complexity F76B Arrhythmia, Cardiac Arrest and Conduction Disorders, Minor Complexity 1 5 3 4 E61B Pulmonary Embolism, Minor Complexity F62B Heart Failure and Shock, Minor Complexity 4 2 L63A Kidney and Urinary Tract Infections, Major Complexity 2 3 F42B Circulatory Dsrds, Not Adm for AMI W Invasive Cardiac Inves Proc, Minor Comp 1 E62A Respiratory Infections and Inflammations, Major Complexity E62B Respiratory Infections and Inflammations, Minor Complexity 4 3 No w w w c 3 3 3 10 3 2 No. of Path. Tests 8 10 3 5 6 4 5 6 6 4 6 5 An analysis shows the average cost for the daily stay and each type of service (different for each DRG): DRG Description Daily Cost of Stay (ex. X-ray, Path., Scripts) Cost of each X-ray F74A Chest Pain, Major Complexity $870 $220 E65B Chronic Obstructive Airways Disease, Minor Complexity $870 $150 F73B Syncope and Collapse, Minor Complexity $870 $100 F76B Arrhythmia, Cardiac Arrest and Conduction Disorders, Minor Complexity $870 $110 E61B Pulmonary Embolism, Minor Complexity $870 $150 F62B Heart Failure and Shock, Minor Complexity $870 $100 L63A Kidney and Urinary Tract Infections, Major Complexity $870 $100 F42B Circulatory Dsrds, Not Adm for AMI W Invasive Cardiac Inves Proc, Minor Comp $870 $1,400 E62A Respiratory Infections and Inflammations, Major Complexity $870 $160 E62B Respiratory Infections and Inflammations, Minor Complexity $870 $100 Assumptions and considerations are: The average costs can be applied for the next financial year's budget (i.e. do not increase for CPI). The daily cost of stay incorporates staffing costs. The National Efficient Price for the next financial year is $5,500. All activity is within the inlier NWAU (i.e. no need to consider any outlier adjustors). Cost of each Path. Test $90 $105 $90 $90 $100 $90 $90 $190 $120 $85 Cost of each Script $75 $150 $80 $75 $150 $75 $95 $75 $85 $75 Requirements 1. Produce an ABF budget using the: a. expected number of patients next year b. NWAU (inlier) c. National Efficient Price. 2. To educate the clinical staff on how ABF works you must prepare a one-page flyer on: a. what is ABF b. why is ABF used as a funding model c. how the ABF budget (in Question 1) was calculated Your flyer should be visually-engaging and simple enough for a non-finance audience to understand. You may consider using tables, graphs or infographics. 3. Produce a block-funded budget using the: a. current ALOS b. expected number of patients next year c. daily cost of stay d. total cost of each service type (i.e. expected number of patients next year, average number of services (x-ray, path, scripts), average cost of services). What is the effect if the benchmark ALOS was used to calculate the block-funded budget? (Show your calculations) 4. The General Medicine Division's clinical managers advise you that the expected number of patients next year should be 4% higher, for the following DRGs: F74A, F76B, E61B, E62B. Calculate: a. the change to these DRGs under the ABF budget (calculated in Question 1) b. the effect to the overall ABF budget, as a result of the change. 5. The CFO has asked you to prepare scenarios where there is a 5% and 10% reduction to the National Efficient Price. Using the expected number of patients next year, as advised by the clinical managers (i.e. with the 4% increase applied to the relevant DRGs), calculate: a. the impact to the ABF budget for both scenarios (5% and 10% reduction to the National Efficient Price). 6. The CFO has asked that you prepare scenarios for the block-funded budget (calculated in Question 3) that shows a 1% to 10% (i.e. 1%, 2%, 3%... 10%) reduction in the daily cost of stay. This must be prepared using: a. the benchmark ALOS b. the expected number of patients next year, as advised by the clinical managers (i.e. with the 4% increase applied to the relevant DRGs) Present the overall budget outcome for each scenario (i.e. 1% to 10% reduction in the daily cost of stay) on a single graph