Basics of Budgeting
Truth bomb: My ADN program in the 1980s did not teach me ANYTHING about budgeting for a department. Aseptic technique for inserting a Foley catheter? Yes. But business acumen? Nada.
Flash forward 15 years, and I was the director of an extensive musculoskeletal orthopedic service line, up to my compression socks in numbers. Luckily, a trusted mentor walked me through the basics before my scheduled line-by-line review with the controller (the budget and money people) of the $19 million allocation I was responsible for managing and then cutting.
Like your home budget, resources are limited by the dollars you get each month or year. Additionally, healthcare organizations must develop a plan to anticipate what will be needed, what those needs will cost, and how to fill the gaps (or account for the surplus). Budgets coincide with a fiscal year that may be different than a calendar year, such as April 1st to March 31st. Healthcare budgeting is further complicated by regulatory agencies, not-for-profit/non-profit status, and board/shareholder agreements.
First, it must be engrained in all staff that fiscal responsibility starts with them.
From judicious use of paper products to stocking rooms with the bare basics before the patient arrives to weighing the cost and benefit of large equipment purchases, we ensure the organization prudently uses its resources.
From the leadership view, budgeting starts with knowing these essential elements:
Prior Year Allocation
What budget was set the prior year? Did the department stay within that budget? Were there areas within the department that did not stay within budget (supplies, a new hire mid-year)? Does the organization plan to allocate similar funds for the next budget cycle or expect you to cut expenses? If so, in what areas of your department?
Projected Work Volume
How many patients came through the unit/department or billed services in the past 12 months? Unless something significant changes in the organization or environment (the surgeon who ran two rooms simultaneously to perform more total knee surgeries moved), the projected work for the upcoming year will be similar, plus some inflationary costs.
For the past year, what did your department spend on supplies, essential equipment, patient care equipment, and items for the physical environment of the department? This will likely remain the same for the following year unless significant changes to the service line or patient population exist.
The people’s part of the budget is usually the most expensive as this includes the hourly wage and the cost of any benefits packages (medical/dental/vision insurance, life insurance, vacation, sick pay, etc.) plus taxes the employer pays to the state. Consider if you plan to add a service to the department in the next year (a clinical educator or more admin support) or if a service line is moving to another department and how that might affect your budget.
Capital budgeting is usually a separate process from the department budget, and the review of requests is typically scheduled mid-fiscal year. Organizations often earmark profits from the prior year(s) to purchase significant equipment and often set a threshold, such as items costing over $5,000. When considering a significant equipment purchase, know your policy’s required elements (multiple bids or contracted spec sheets, business case, impact that the equipment provides to the organization, additional personnel, or training package) before submitting the request.
It is a great responsibility to be charged with conscientiously spending our patient’s money. Yes, it is insurance payments, but it weighs a bit heavier when considering the patient’s money. A solid budget strives for appropriate staffing along with the equipment, supplies, and training they need to provide care and services while being frugal with this limited resource.
OTHER FINANCIAL RESPONSIBILITIES CONTENT