4209- fiscal planning & drgs presented by teri pierce, msn, rn nsg 401 rev. fall 10
TRANSCRIPT
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4209- Fiscal Planning & DRGs
Presented by Teri Pierce, MSN, RNNsg 401
Rev. Fall 10
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Fiscal Planning
1. Not intuitive; it is a learned skill that improves with practice.
2. An important but often neglected dimension of planning.
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Fiscal Planning
1. Should reflect the philosophy, goals, and objectives of the organization
2. Increasingly critical to nursing managers because of increased emphasis on finance and the business side of health care
3. NM’s role: Understanding fiscal terminology and maintaining a cost-effective unit
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Cost Containment• Refers to effective and efficient delivery of services
while generating needed revenues for continued organizational productivity
• Responsibility of every health care provider
• Viability of most health care organizations today depends on wise use of resources
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• Not the same as being inexpensive
• Defined by the American Heritage Dictionary of the English Language (2005) as “economical in terms of the goods or services received for the money spent.” (A product is worth the price)
• Cost does not always equate to quality in terms of health care
Cost Effective
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Responsibility Accounting Each of an organization’s revenues, expenses, assets, and liabilities is someone’s responsibility.
Person with the most direct control is held accountable (unit level= nurse manager)
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Budget
• A plan that uses numerical data to predict the activities of an organization over a period of time
• Desired outcome- maximal use of resources to meet organizational short- and long-term needs
• Provides a mechanism for planning and control and
promotes each unit’s needs and contributions
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Steps in the Budgetary Process
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Forecasting
Forecasting involves making an educated budget estimate using historical data.
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Types of Budgets1. Personnel or workforce2. Operating3. Capital4. Continuous or perpetual5. Fiscal year
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• Largest of the budget expenditures
• Reason: health care is labor intensive• Takes a lot of people to run a hospital• Don’t want to be overstaffed or understaffed
Personnel Budget
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• Productive/Worked Time• Worked hours• Overtime• Per diem
Personnel Budget
• Nonproductive Time• Cost of benefits• New employee
orientation• Employee turnover• Sick time• Holiday time• Education time• Breaks
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Nursing Care Hours Per Patient Day (NCH/PPD)
Total hours worked by nursing staff in a 24-hour period
patient census at the end of that 24-hour period
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FTE Formula(Full Time Equivalent)
Total hours worked by a nurse (over 7 days)
40 hours
FTE’s
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Operating Budget
• Involves all managers• After personnel costs, 2nd most significant
component of hospital budget• Reflects expenses that change in response to
the volume of service• Examples
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Capital Budget• Plans for the purchase of buildings or major medical
equipment • Includes equipment that has a long life • Equipment not used in daily operations• Equipment is more expensive than operating supplies• May have to exceed a certain $ amount • Annual or semi-annual• May also be called capital expenditures• Examples
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Budgeting Methods• Incremental budgeting– Not very cost effective, predicts for next year
• Zero-based budgeting– Decision package – that’s how you set your priorities for what
you want in your budget– Each year you start over from ground zero, can’t assume that
because it was included last year that it will be included this year
• Flexible budgeting– Varies with volume and labor, calculates what you need based
on your bottom? Who knows• New performance budgeting– Based on outcomes, like home health wants new glucometers,
keeps track of how these new ones work better than the old ones, to justify need for new ones
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Critical Pathways
Also called clinical pathways
Definition- standardized prediction of patients’ progress for a specific diagnosis or procedure
Length of stay (LOS)
Variance analysis - may be justifiable… ?
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Other Budgeting Terms
• Direct costs– Attributed to direct source, like medication. You can
track exactly where they came from and where they went
• Indirect costs– We can’t attribute to a specific source, usually more
hidden costs, usually spread out over all departments, like housekeeping. Everyone in the hospital needs housekeeping
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Other Budgeting Terms
• Controllable costs– Staffing ratios, staffing mix (more LVN’s vs less
RN’s), the type of materials you buy
• Uncontrollable costs– Equipment depreciation, the number and type of
supplies that pt’s need (lots of drains go thru lots of stuff), overtime in the instance of an emergency
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Fixed costs – things that don’t change, the amt you pay every month is the sameVariable costs – varies with volume and staff
Other Budgeting Terms
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DRGs, Reimbursement, & Managed Care
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Types of Health Care Reimbursement
• Fee for Service (FFS)• Medicare• Medicaid• Diagnosis-Related Groups (DRGs) & the
Prospective Payment System (PPS)• Managed Care
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Fee for Service (FFS)
• Little emphasis on budgeting• Virtually limitless reimbursement• Reimbursement= cost to provide service+ profit• More services= greater amount billed• Encourages overtreatment of patients• Health care costs skyrocketed
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Medicare• CMMS – Center for Medicare and Medicaid Services
• Medicare– Elderly (>65)– Catastrophic or chronic illness (no age limit)– Part A – covers hospital or inpatient services, pts have to
pay deductable– Part B – usually covers labs, flu shots, outpt services
(physician charges)– Part C (Medicare Advantage)– Part D – newer, came into existence in 2006, Medicare
prescription drug coverage
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Medicaid
• Federal and state cooperative health insurance plan • Administered by the states under broad federal
guidelines (CMMS)• Primarily for the financially indigent• Majority of Medicaid recipients are women and
children
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Prospective Payment System (PPS)
• The creation of Medicare, Medicaid, and fee for service (FFS) reimbursement caused health care costs to skyrocket
• Government established regulations for justifying need for service and quality monitoring
• So… the Prospective Payment System was started• Here’s what you’re going to get paid, you can work
within these bounds…
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Diagnosis-Related Groups (DRGs)
• 1983- to monitor cost containment • Medicare & Medicaid• Predetermined pay rates set for inpatient hospital
stays based upon admitting diagnosis (flat fee)• Rates reflected historical costs for treatment• Prospective payment, not retrospective as in the
past with FFS
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Prospective Payment System (PPS)
• Hospitals receive a specified amount for each Medicare patient’s admission- regardless of the actual cost of care
• Outliers– Exceptions– Extra payment justified
• Length of stay (LOS) declining• Reimbursement declining
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Managed Care• Attempts to integrate efficiency of care, access,
and cost of care• Primary care physicians (PCPs)- “gatekeepers” • Selective contracting• Copayments- “copays”• Use of formularies• Continuous quality monitoring/improvement• Utilization review (UR)
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Types of Managed Care Organizations (MCOs)
• HMO–Certain financial, geographic, & professional
limits–Different types of HMOs
• PPO– Financial incentives to consumers if using
preferred provider• Medicare & Medicaid Managed Care
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Capitation• A hallmark of managed care• Fixed payment regardless of services used by
the patient during that month • Less cost= provider profit• Cost > capitated amount= loss for provider• Goals– Stay healthy, avoid illness– Eliminate unnecessary use of health care services
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Capitation• Most difficult part- calculation of the capitation amount
• Must be acceptable to the purchaser and must cover the expenses
• Number of enrollees too low- provider may not be able to cover practice costs
• Ethical dilemma- encourages underutilization of services
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Pros and Cons of Managed Care• Pros• Decreased costs• Broader patient benefits• Shift from inpatient to
outpatient settings• Higher physician productivity• High enrollee satisfaction levels
• Cons• Loss of existing physician-patient
relationships• Limited choice of physicians• Lower continuity of care• Decreased physician autonomy• Longer wait times• Consumer confusion over rules
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Moral Hazard
• Overuse of more medical services than necessary just because insurance covers so much of the cost.
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Impact of Managed Care
• Reimbursement is not guaranteed by provision of service
• Need for self-awareness regarding values in provision of care
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Participation in managed care plans (by both consumers and providers) declining
Still a major force affecting contemporary health care
Managed care no longer significantly less expensive for consumers or insurers
Providers frustrated- limited reimbursement & need to justify services
Will continue to change
Recent Trends
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Marquis, B. L., & Huston C. J. (2009). Leadership roles and management functions in nursing: Theory and application (6th ed.). Philadelphia: Wolters Kluwer Health.
References