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Health Care Business Analysis - Assessment Activity - Week6 - HCS/577 - eCampus

Part 1 - 2010 Operating Budget

Reviewthe "2009 Budget Issues - Nurses" file in the Patton-Fuller Community Hospital Virtual Organization (accessed via the University Library).This document can be found on the Chief Financial Officer's web page under Special Projects.

Decidewhich of the two highlighted options you will implement from the Nursing Statistics memo of the "2009 Budget Issues - Nurses" document.

Discuss decision-making processes in creating a budget.

Createa new 2010 Operating Budget based on the labor decision you select from the Nursing Statistics memo.Useyour Week Five Health Care Budget assignment as the foundation to develop your new projected budget.

2010 Operating Budget Projection 1 HCS/577 Version 4 University of Phoenix Material Patton-Fuller Community Hospital Statement of Revenue and Expense 2009 to 2010 Operating Budget Complete the Operating Budget. Assume the 2009 projections were realized. Use the 2009 budget and the 2010 budget assumptions to calculate expenses and income for 2010. The revenues have been completed for you. 2009 (Proj) 2010 Budgeted % Change From 2009 Projectio n 2010 Budget 2010 Operating Budget Assumptions Based on these 2009 assumptions: a 3% overall deflation rate for prices in 2009 due to the weak economywill continue into 2010. Revenue Net patient revenue 459,900 3% 473,697 Patient revenue will continue to increase, but at a decreased rate, with little or no increase in patient volume, due to new managed care contracts. Other revenue 3,082 15% 3,544 Marketing's plan to increase donations by 15% 462,982 3% 477,241 Total revenue 2010 Operating Budget Projection 2 HCS/577 Version 4 2009 (Proj) 2010 Budgeted % Change From 2009 Projectio n 2010 Budget 2010 Operating Budget Assumptions Expenses Salaries and benefits 220,752 1% 222,959 Salaries will hold to a 1% overall increase in cost due to price deflation nationwide, with no increase in labor hours, due to no increase in patient volume. This assumption could be affected by a board decision either to raise nursing wages by $1 per hour or to increase the nursing hour ratio. Supplies 74,584 -3% 72,346 Supplies cost will decrease 3% due to the price deflation and our current overstock purchased last year. Physician and professional fees 110,376 3% 113,687 Contracts for fees have a built-in 3% increase. Utilities 1,200 5% 1260 Utilities cost will increase to the rising cost of oil partially offset by the efficiency of the hospital's new heating and cooling systems. Other 1,840 0% 1840 No net change in the cost or volume of these items. Depreciation & amortization (noncash expenses) 36,036 0% 36,036 Some high-cost equipmentair conditioning, telephone system, all patient beds, and headwallswere replaced in 2009, and depreciation rose sharply. Depreciation will remain at this level in 2010. Interest 3,708 30% 4820 The repayment plan for any monies borrowed in 2009 will come due in 2010, with a sharp increase in interest cost. 2010 Operating Budget Projection 3 HCS/577 Version 4 Provision for doubtful accounts Total expenses 13,797 10% 15195 The renegotiation of managed care plans has delayed collection and made collections less certain. 462,293 1% 468,143 Total expenses will rise ____%. 2010 Operating Budget Projection 4 HCS/577 Version 4 2009 (Proj) 2010 Budgeted % Change From 2009 Projectio n 2010 Budget 2010 Operating Budget Assumptions 689 66% 923 Operating Income will improve, with the hospital's loss reduced by 2/3. (62) 0 0 The market is down, expected to hold steady; a zero-return is expected, with neither losses nor gains. 923 The hospital will continue its dramatic turnaround, taking advantage of the stagnation in patient volume, price deflation, the efficiency of new equipment, and the improved arrangements with the managed care companies. Income Operating income Loss (nonoperating income) Investment income Net income 627 47% \fPFCH Email Record From: To: Subject: Davis Geach Zachary Hardie Increase in nursing staff Zach: Caterina has been insisting for some time that we need to hire more nurses. I've arranged for her to give a presentation to the Board next month to plead her case. I know that following her presentation, they will want me to advise them of any alternatives. Caterina's argument is that the nurses are over-worked and that has a negative effect on patient care and also leads to the nurses leaving PFCH for other hospitals. I'm wondering whether giving the nurses a raise might solve the problems. Please put together some numbers to compare hiring more nurses versus giving the nurses a raise. Davis Geach, President/CEO Please consider the environment before printing this email. This message is private and confidential. If you have received it in error, please contact the sender immediately and delete it from your system. PFCH Email Record From: To: Subject: Zachary Hardie Caterina Hossack Re: Increase in nursing staff Hi Caterina. Mr. Geach asked me to prepare some information for the Board of Directors relating to your proposal to add more nurses to the hospital staff. In order to do this, I need to know the current nursing ratio and what nursing ratio you are proposing. Thanks for your help. Zachary Hardie, Chief Financial Officer Please consider the environment before printing this email. This message is private and confidential. If you have received it in error, please contact the sender immediately and delete it from your system. PFCH Email Record From: To: Subject: Caterina Hossack Zachary Hardie Re: Increase in nursing staff The hospital currently maintains a 5 to 1 nursing ratio (5 patients for every nurse). I will suggest to the Board of Directors that we move to a 4 to 1 nursing ratio (4 patients per nurse). Will the information that you are preparing address patient care, worker satisfaction and nursing turnover? Caterina Hossack, Chief Nursing Officer Please consider the environment before printing this email. This message is private and confidential. If you have received it in error, please contact the sender immediately and delete it from your system. PATTON - FULLER COMMUNITY HOSPITAL From: Zachary Hardie, CFO To: Davis Geach, President/CEO Re: Increase in nursing staff Per your request, I have prepared a financial analysis comparing the increasing of the nursing staff to the granting of an across the board raise to the existing nursing staff. In order to have a common basis for the comparison, it was necessary to take our existing salary and benefit costs for the nursing staff and show how they related to the existing patienturse ratio. I have attached as an exhibit a table that presents our current patient statistics. While the hospital has a capacity of 600 beds, we generally have only 60% of the beds occupied. The occupancy of the hospital is also affected by well-established seasonal fluctuations. Using the average occupancy and the expected seasonal fluctuations, we try to anticipate our daily and monthly patient loads and match our staffing needs accordingly. The attached table sets forth that modeling and shows how changes in the daily and monthly patient census affect our patient revenues. Also attached is a second table that deals with our nursing statistics. Using the expected number of patients per day from the first table, it sets out how many nurses would be required to serve the patients ,based on our existing 5 to 1 nursing ratio, and then what the cost of those nurses is based on the existing average salary and benefits of the nurses, expressed as an hourly wage of $30 per hour. The table then sets forth how the nursing costs would be changed by either giving the nurses a $1 per hour raise or by changing the hospital's nursing ration to 4 to 1 (4 patients for every nurse). If you need any additonal information, please let me know. Patton - Fuller Community Hospital Patient Statistics Jan 31 Days in the month Patient Days (60% occ x seasonal x days in month) Average Census: Patton Fuller # of beds= Patton Fuller avg occupancy (HFMA) Patton Fuller Avg Daily Census (ADC) 13,271 11,983 119% 428 Apr 30 12,286 May 31 10,171 Jun 30 9,092 7,258 119% 428 110% 396 94% 339 81% 293 67% 242 $ 3,500 Average Daily Revenue Patton Fuller Avg Net Rev/month (1000's) Mar 31 600 60% 360 Month as % of Average "Seasonal Adjustment" Patton Fuller Avg Daily Census w/seasonal adj. Patton Fuller Avg Net Rev/pt day Feb 28 1,498,381 $ 46,450 1,497,857 $ 41,940 1,387,134 $ 43,001 1,186,616 $ 35,598 1,026,495 $ 31,821 846,801 $ 25,404 C:\\Documents and Settings\\mkriorda\\My Documents\\Web Development\\CIST Server\\CIST\\VOP Development\\Healthcare\\PFCH\\HosDepts\\CFO\\2009 Financial Statements\\2009PatientStatsPDF.xls Patton - Fuller Community Hospital Patient Statistics Jul 31 Days in the month Patient Days (60% occ x seasonal x days in month) Average Census: Patton Fuller # of beds= Patton Fuller avg occupancy (HFMA) Patton Fuller Avg Daily Census (ADC) 7,294 10,723 65% 235 $ Oct 31 11,182 Nov 30 11,607 Dec 31 13,419 Total 365 13,113 131,400 96% 346 104% 373 104% 374 124% 447 117% 423 100% 3,500 Average Daily Revenue Patton Fuller Avg Net Rev/month (1000's) Sep 30 600 60% 360 Month as % of Average "Seasonal Adjustment" Patton Fuller Avg Daily Census w/seasonal adj. Patton Fuller Avg Net Rev/pt day Aug 31 823,560 $ 25,530 1,210,686 $ 37,531 1,304,520 $ 39,136 1,310,523 $ 40,626 1,565,592 $ 46,968 1,480,451 $ 45,894 $ 459,900 C:\\Documents and Settings\\mkriorda\\My Documents\\Web Development\\CIST Server\\CIST\\VOP Development\\Healthcare\\PFCH\\HosDepts\\CFO\\2009 Financial Statements\\2009PatientStatsPDF.xls Patton - Fuller Community Hospital Nursing Statistics Jan Number of Patients per day Cost of nurse per hour w/benefits Cost of nurse per 24hour day Number of nurses per patient based on 5 patients per nurse or a "5 to 1" nursing ratio Number of nurses per day Nursing cost per day Nursing cost per month Feb 428 $ $ 30.00 720.00 Mar 428 $ $ 30.00 720.00 Apr 396 $ $ 30.00 720.00 May 339 $ $ 30.00 720.00 Jun 293 $ $ 30.00 720.00 242 $ $ 30.00 720.00 0.2 85.6 85.6 79.3 67.8 58.7 48.4 $ 61,648 $ 61,626 $ 57,071 $ 48,821 $ 42,233 $ 34,840 $ 1,911,078 $ 1,725,532 $ 1,769,190 $ 1,464,623 $ 1,309,221 $ 1,045,194 Simulation: Effect of a $1 per hour raise for all nurses Cost of nurse per hour w/benefits Number of nurses per patient based on a ratio of 5 patients per nurse or a "5 to 1" nursing ratio Number of nurses per day Nursing cost per day Nursing cost per month $ $ 31.00 744.00 $ $ 31.00 744.00 $ $ 31.00 744.00 $ $ 31.00 744.00 $ $ 31.00 744.00 $ $ 31.00 744.00 0.2 85.6 85.6 79.3 67.8 58.7 48.4 $ 63,703 $ 63,680 $ 58,973 $ 50,448 $ 43,641 $ 36,001 $ 1,974,781 $ 1,783,050 $ 1,828,163 $ 1,513,444 $ 1,352,862 $ 1,080,034 Increase in cost per month due to a $1 raise per nursing hour $ 63,702.62 $ 57,517.73 $ 58,973.00 $ 48,820.77 $ 43,640.71 $ 34,839.80 Simulation: Effect of changing to a "4 to 1" nursing ratio Number of nurses per day 0.25 107.0 107.0 99.1 84.8 73.3 60.5 Nursing cost per day (Nursing ratio of "4 to 1" and an hourly rate of $30 ) Nursing cost per month $ 77,060 $ 2,388,848 $ 77,033 $ 2,156,915 $ 71,338 $ 2,211,487 $ 61,026 $ 1,830,779 $ 52,791 $ 1,636,527 $ 43,550 $ 1,306,493 Increase in cost per month due to a change in nursing ratio from 5 to 1 down to 4 to 1 $ $ $ $ $ $ 477,770 431,383 442,297 366,156 327,305 261,299 C:\\Documents and Settings\\mkriorda\\My Documents\\Web Development\\CIST Server\\CIST\\VOP Development\\Healthcare\\PFCH\\HosDepts\\CFO\\2009 Financial Statements\\2009NursingStatsPDF.xls Patton - Fuller Community Hospital Nursing Statistics Jul Number of Patients per day Cost of nurse per hour w/benefits Cost of nurse per 24hour day Number of nurses per patient based on 5 patients per nurse or a "5 to 1" nursing ratio Number of nurses per day Nursing cost per day Nursing cost per month Aug 235 $ $ 30.00 720.00 Sep 346 $ $ 30.00 720.00 Oct 373 $ $ 30.00 720.00 Nov 374 $ $ 30.00 720.00 Dec 447 $ $ 30.00 720.00 Total 423 $ $ 30.00 720.00 0.2 47.1 33,884 1,050,392 69.2 49,811 1,544,143 74.5 53,672 1,610,150 74.9 53,919 1,671,479 89.5 64,413 1,932,388 84.6 60,910 1,888,210 Simulation: Effect of a $1 per hour raise for all nurses Cost of nurse per hour w/benefits Number of nurses per patient based on a ratio of 5 patients per nurse or a "5 to 1" nursing ratio Number of nurses per day Nursing cost per day Nursing cost per month $ $ 31.00 744.00 $ $ 31.00 744.00 $ $ 31.00 744.00 $ $ 31.00 744.00 $ $ 31.00 744.00 $ $ 31.00 744.00 0.2 47.1 69.2 74.5 74.9 89.5 84.6 $ 35,013 $ 51,471 $ 55,461 $ 55,716 $ 66,560 $ 62,940 $ 1,085,405 $ 1,595,615 $ 1,663,822 $ 1,727,195 $ 1,996,801 $ 1,951,150 Increase in cost per month due to a $1 raise per nursing hour $ 35,013.05 $ 51,471.44 $ 53,671.66 $ 55,715.97 $ 64,412.93 $ 62,940.33 $ 630,720.01 Simulation: Effect of changing to a "4 to 1" nursing ratio Number of nurses per day 0.25 58.8 86.5 93.2 93.6 111.8 105.7 Nursing cost per day (Nursing ratio of "4 to 1" and an hourly rate of $30 ) Nursing cost per month $ 42,354 $ 1,312,989 $ 62,264 $ 1,930,179 $ 67,090 $ 2,012,687 $ 67,398 $ 2,089,349 $ 80,516 $ 2,415,485 $ 76,137 $ 2,360,262 Increase in cost per month due to a change in nursing ratio from 5 to 1 down to 4 to 1 $ $ $ $ $ $ 262,598 386,036 402,537 417,870 483,097 472,052 $ 4,730,400 C:\\Documents and Settings\\mkriorda\\My Documents\\Web Development\\CIST Server\\CIST\\VOP Development\\Healthcare\\PFCH\\HosDepts\\CFO\\2009 Financial Statements\\2009NursingStatsPDF.xls Health Care Business Analysis Decision Making Processes in Creating a Budget The decision-making processes in creating a budget involve five steps. This includes the assembling of a budget team, creation of a budget calendar, preparation for budget process, building the budgets, and the monitoring of the budgets. The budget team involves the various executives and managers to promote budget development. The decision making process will entail the setting of financial goals, gathering data, forecasting current results as well as conducting meetings. In summary, these steps summarize the key steps in making decision process relating to the creation of a budget. Patton Fuller Community Hospital Operating Budget 2010. REVENUES Net patient revenue 2010 473,697 Other revenue 3,544 Total Revenues 477,241 EXPENSES Salaries and benefits 222,959 Supplies 72,346 Physician and professional fees 113,687 Utilities 1,260 Other 1,840 Depreciation & Amortization (noncash expenses) 36,036 Interest 4,820 Provision for doubtful accounts 15,195 Total Expenses 468,143 Net Income 9,098