Chapter 10

1. Chapter 10 Fiscal Planning

2. PPACA’s Payment Reform Provisions • Value-based purchasing • Accountable care organizations (ACOs) • Bundled payments • The medical home • The health insurance marketplace

3. Fiscal Planning • Not intuitive; a learned skill that improves with practice • An important but often neglected dimension of planning • Should reflect the philosophy, goals, and objectives of the organization • A skill increasingly critical to nursing managers because of increased emphasis on finance and “big business” of health care

4. Refers to effective and efficient delivery of services while generating needed revenues for continued organizational productivity The responsibility of every health-care provider, and the viability of most health-care organizations, today depends on its ability to use its fiscal resources wisely Cost Containment

5. Question Tell whether the following statement is True or False: Cost containment is primarily the responsibility of the health-care organization as a whole • True • False

6. Answer Answer: Rationale:

7. Cost Effectiveness • Cost-effective means producing good results for the amount of money spent • Expensive items can be cost-effective and inexpensive items may not • Cost-effectiveness then must take into account factors such as anticipated length of service, need for such a service, and availability of other alternatives

8. Responsibility Accounting • Each of an organization’s revenues, expenses, assets, and liabilities is someone’s responsibility • As a corollary, the person with the most direct control or influence on any of these financial elements should be held accountable for them, usually the leader-manager • The unit manager also can best monitor and evaluate all aspects of a unit’s budget control

9. Forecasting involves making an educated budget estimate using historical data Forecasting

10. Personnel Workforce Budget • Accounts for the majority of health-care organization’s expense • Health care is labor intensive • Next to personnel costs, supplies are the second most significant component in the hospital budget

11. Budget • A plan that uses numerical data to predict the activities of an organization over a period of time • The desired outcome of budgeting is maximal use of resources to meet organizational short- and long-term needs • A budget provides a mechanism for planning and control, as well as for promoting each unit’s needs and contributions

12. Question What is the goal of a budget? • To predict an organization’s activities • To maximize the use of resources • To help with planning and control • All of the above

13. Answer Answer: Rationale:

14. Calculating Nursing Care Hours

15. Budget Busters • Going through the difficult process of completing a budget estimate for the coming year but never using it • Relying on the current year’s budget numbers as a starting point for the next year’s budget • Neglecting or underestimating costs related to capital expenditures • Ignoring declining patient volumes in the hope that the trend will be temporary • Failing to set aside enough money for unexpected capital expenses Source: Adapted from Barr, P. (2005). Flexing your budget: Experts urge hospitals, systems to trade in their traditional budgeting process for a more dynamic and versatile model. Modern Healthcare, 35(37),24, 26.

16. Budgeting Methods • Incremental budgeting • Zero-based budgeting • Flexible budgeting • Performance budgeting

17. Critical Pathways • Strategy for assessing, implementing, and evaluating the cost-effectiveness of patient care • Predetermined courses of progress that patients should make after admission for a specific diagnosis or after a specific surgery

18. Question What is generally the area of most expenditures? • Operating budget • Supplies • Personnel budget • Capital budget

19. Answer Answer: Rationale:

20. Medicare Costs Per Beneficiary in 2013

21. Reminder • As a result of the PPS and the need to contain costs, the length of stay for most hospital admissions has decreased greatly

22. Types of Managed Care Organizations • Health Maintenance Organization (HMO) • Point of Service (POS) • Exclusive Provider Organization (EPO) • Preferred Provider Organization (PPO)

23. Medicare and Medicaid Managed Care • The Centers for Medicare and Medicaid Services is now the largest purchaser of managed care in the country • MCOs receive reimbursement for Medicare-eligible patients based on a formula established by the CMS, which looks at age, gender, geographic region, and the average cost per patient at a given age. Then, the government gives itself a 5% discount and gives the rest to the MCO

24. Question Tell whether the following statement is true or false: The Centers for Medicare and Medicaid Services is now the largest purchaser of managed care in the country. • True • False

25. Answer Answer: Rationale:

26. Criticisms of HMOs • Loss of existing physician–patient relationships • Limited choice of physicians for consumers • Lower level of continuity of care • Reduced physician autonomy • Longer wait times for care • Consumer confusion about the many rules to be followed

27. Diagnosis-Related Groups (DRGs) and the Prospective Payment System (PPS) • Diagnosis-related groups (DRGs) are predetermined payment schedules that reflect historical costs for the treatment of specific patient conditions • With DRGs, hospitals join the prospective payment system (PPS), whereby they receive a specified amount for each Medicare patient’s admission, regardless of the actual cost of care

28. Managed Care • Broadly defined as a system that attempts to integrate efficiency of care, access, and cost of care • Utilization review is a process used by insurance companies to assess the need for medical care and to assure that payment will be provided for the care • Capitation, whereby providers receive a fixed monthly payment regardless of services used by that patient during the month

29. Moral Hazard • Refers to the propensity of insured patients to use more medical services than necessary because their insurance covers so much of the cost

30. Patient Protection and Affordable Care Act • Put in place comprehensive insurance reforms that were to be phased in over a 4-year period: • New Patient Bill of Rights • Bundled payments • Accountable care organizations • Hospital value-based purchasing • The medical home • Health insurance marketplaces