By Adam Mejia
The healthcare industry is one of the world’s largest industries that will be in need till the end time. The field has shown to continuously change with every passing year and with the advancement of technology many look to improve their way of help and an aging population causes a growing need for care. Many technological advances made are done to contribute to care in this industry. From pharmaceuticals to new surgical devices lives are saved every passing day due to new advances in healthcare. As a greater understanding in providing care is made so does the importance of management to understand for budgeting so those advancements can be made. Within this short blog I will reflect upon the key points of healthcare financial management regarding capital budgeting. It will also provide points to why it important for management to have a full understanding of those key points for effective operations for the organization.
Capital budgeting is often defined as a “planning process that can determine if a long-term investment, expenditure, and major capital should be pursued by the organization (Boundless.com, 2016).” Capital budgeting or investment appraisal is used by executives and management to make many large investment decisions such as new systems or equipment. In hospitals this big budget expenses usually means new medical equipment to provide better care like an MRI machines, CAT Scans, Ultrasounds, and more.
Capital budgeting plans are crucial for the success of the healthcare facility because without it then the facility will not budget for the funds needed for that medical equipment. If an MRI machine has meet its life’s end for a clinic, then the capital budget plan comes to pay. If not plan is in place then the clinic may not be able to replace the necessary equipment and at worst means the clinic must close down.
Making the most effective decisions is one of the most important factors for long term success. This leads me to my next point for why it important for management to have a full understanding for how to effectively budget. Healthcare organizations who brace for what lies ahead are better prepared for changes as they come. “With healthcare markets changing day-to-day, it is not always easy to determine where funds are best spent, and how capital budgets should be balanced. However, those who are ready for the many possibilities of what the future may hold for the healthcare industry, can better strategically plan their financial future (Banks, 2018).”
To prevent a negative event from happening facilities must take note of the fallowing points.
- Aligning Rolling Forecast, Multi-year plans and Detailed Budgets
Making sure the organizations plans, models, and budgets all align are key point for success. For all plans to align the organization must set quarterly goals and touch base to make sure all plans stay in place. Refinements are made with the proper collaboration with every department. When done effectively the budgeting process gives the organizations leaders a vision into how baseline projections and new initiatives are impacting by managements financial plan. If management does not plan for replacements of equipment, then they will demonstrate a massive loss of patients as an area of care they provide would be eliminated. “Multi-year planning enables organizations to understand not only the impact external market business drivers will have on bottom-line results, but also internal initiatives. Baseline assumptions (current outlook 3-5 years), combined with independently modeled initiatives projecting the impact of targeted growth strategies or cost containment efforts, can be used to evaluate different “scenarios” (Kaufmanhall, 2017.)”
- Embrace statistically driven approaches to enable efficient “what-if” modeling.
In an ever-changing industry organization must establish the correct strategic relationship to adjust for the potential change in volume, workload, revenue, and other barriers that the organization may see well the facility aims for more growth in its field. All factors change as revenue is limited if workload is limited as well. It’s important for management to see and understand such events to better shift time and resources for more effective use. You don’t want to have two people doing one job. To do so Kaufmanhall listed 4 key steps for facilities to keep in mind.
- “ Identify each departments statistic that represents its workload intensity.
- Establish the relationship each Department Workload stat has to Global Drivers (Acute Admissions)
- Use intuitive calculation methods that enable managers to clearly see impact of volume and rate changes on variable dollars/hours
- In Nursing floors, accommodate differences in staffing various shifts so that changes in volume adjust daily census and flex hours using staffing grids (Kaufmanhall, 2018).”
- Incorporate Service Line Analytics to refine projections
With more and more organizations using technology to improve care, many facilities are using technology to analyze threats that may be seen in the future. Organizations have shifted care by incorporating patient centric data into different plan models for more accurate volume projections for the facility. “Consistent use of service line volume, cost, and profit measures across multi- year plans, forecasts, and budgeting models aligns key functions such as market planning, physician recruitment, and revenue forecasting. Such analytics integrate the volume planning with revenue planning so future reimbursement rates can be modeled more precisely by clinical population ( Banks, 2016).” If the life spand for an equipment costing over $500k is projected to be 10 years, then the facility is able to start planning and budgeting for such technology now as the equipment is so expensive saving for it will for when needed.
- Provide Cross departmental Initiative-based modeling
For organizations to improve there must be a baseline on where they should be and a like where they are looking to improve on. Budgets, baseline, and planning are all comprised of sets of assumptions on the best course of action. In many cases due to the many departments, a large variety of assumptions are made to better serve the organization. To add, “initiatives modeled separately allow organizations to evaluate how directed efforts related to growth, cost containment, or process improvement will (or should) impact functional departments (Kaufmanhall, 2018).” To identify the best approach the management team must come together with different approaches that will benefit the organization as a whole well keeping interest on how to better serve members in there department. This plan should keep in mind that funds maybe limited for each area.
- Promote Feedback Loop with management and executive via reporting
Every process can be improved in some form. Once organization set a baseline then they are able to look for ways to improve from it. Once reporting is collected from this baseline then areas to improve upon are identified so management knows where attention should be focused on. This will create an improved feedback to review at a later time to identify if changes have been made or if changes must be made again. “Notifications related to report readiness or outlier variances should proactively notify users by pushing notifications to inboxes or phones. Ideally, explanations and commentary are part of the reporting process. Managers must understand “what” outliers exist and then offer commentary around “why” (Kaufmanhall, 2018).”
Conclusion
Most Managers must have an understanding of different budgeting requirements for sound business decisions. Budgeting requires for careful consideration to aid with effective planning. As our knowledge of these matters expands, the care in which patients receive expands as well. This short blog provided a look into what key points management should keep in mind when looking for more effective decisions.
Word Cited:
capitalbudgetingforhealthcare, A. (2016, August 15). Capital Budgeting for Healthcare. Retrieved December 19, 2019, from https://capitalbudgetingforhealthcare.wordpress.com/2016/08/15/capital-budgeting-for-healthcare/.
Banks, k. (2018, November). The Importance of Budgeting in Business: WLF Accounting & Advisory. Retrieved December 20, 2019, from https://wlf.com.au/importance-budgeting-business/.
Kaufmanhall. (2018). Healthcare News. Retrieved December 21, 2019, from http://pages.healthcareitnews.com/rs/himss/images/ebook-hc-budgeting-approaches-kha_revised7.pdf?aliId=88003541 .
Assess Capital Decisions 