Managing Cost and Budgets

Question 1

WHAT ESCALATES HEALTHCARE COSTS?

Answer 1

• Cost are a function of price and utilization rates
• Price inflation
• Administrative inefficiency
• Multi-payer systems

Question 2

The rate that healthcare providers set for the services they deliver,
such as the hospital rate or
physician fee

Answer 2

price

Question 3

The quantity or volume of services provided, such as diagnostic tests
provided or the number of
patient visits

Answer 3

utilization

Question 4

The rise in healthcare costs has
outpaced general inflation. Examples of factors that stimulate price inflation:

Answer 4

• Insurance premiums
• Medical technology
• Drug costs
• Health plan administration
• Waste

Question 5

factors increasing cost

Answer 5

• Unnecessary care
• Consumer attitudes
• Healthcare financing
• Pharmaceutical usage
• Increase cost of drugs
• Population demographics

Question 6

how healthcare is financed

Answer 6

1.Government
2.Private insurance companies
3.Individuals
4.Others

Question 7

government managing costs

Answer 7

• Medicaid
• Medicare
• Military members
• Veterans
• Native Americans
• Federal prisoners

Question 8

what is medicare**

Answer 8

the most extensive federal program, pays for care provided
to people 65 and older and some disabled individuals.

Question 9

the medicare coverage is separated into:

Answer 9

• Part A: An insurance plan for the hospital, hospice, home health,
  and skilled nursing care paid for through Social Security taxes.
• Part B: An optional insurance that covers physician services,
  medical equipment, and diagnostic tests. It is funded through
  federal taxes and monthly premiums paid by the recipients.
• Part C: It allows private health insurance companies to provide
  Medicare benefits, known as Medicare Advantage Plans.
• Part D: Offers outpatient drug prescriptions.

Question 10

what is medicaid**

Answer 10

Medicaid pays for services provided to persons who are medically indigent, blind, or disable and children with disabilities.
* A state-level program
* Majority paid by federal government

Question 11

The second major source of financing for the healthcare system.

Answer 11

private health insurance

Question 12

buying private health insurance

Answer 12

• It can be purchased, but the rates are higher and provide minimal
  coverage.
• Most Americans have private health insurance, which is provided
  by employers through group policies.
• It is problematic, contributing to the rolls of uninsured and
  underinsured Americans.
• Many uninsured workers are employed in part-time, seasonal, or
  service positions in small businesses that cannot afford group
  insurance.

Question 13

out of pocket costs

Answer 13

It is the costs paid by individuals directly for health services.
* It includes deductibles, copayments, and coinsurance.
* Individuals pay out-of-pocket when they do not have health
insurance, or when insurance does not cover the service.
Insurance often covers limited preventive care and typically
does not cover:
Cosmetic surgeries
Alternative healthcare therapies
Items such as eyeglasses and nonprescription medication

Question 14

major methods of healthcare reimbursement

Answer 14

1.Cost-based reimbursement
2.Prospective payment system (PPS)
3.Diagnosis-related groups (DRGs)
4.Value-based purchasing
5.Hospital value-based purchasing
program (HVBPP)

Question 15

COST-BASED SYSTEM
* It consists of the cost of providing a service plus a markup for profit or excess income

Answer 15

Third-party payers limit what they will pay by establishing usual and customary charges by surveying all providers in a specific area. These rise over time as providers continue to raise prices

Question 16

cost based systems
In cost-based reimbursement, all allowable costs are calculated and used as the basis for payment.

Answer 16

Each payer determines allowable costs for each procedure, visit, or service.
Charges and cost-based reimbursement are retrospective payment methods.
Payment is determined after services are delivered
When the reimbursed costs are less than the full charge for the service, a
contractual allowance (or discount) exists

Question 17

PROSPECTIVE PAYMENT SYSTEM (PPS)

Answer 17

It is a method in which the third-party payer decides what and
how much will be paid for a service or episode of care. If the
costs of care are:
* Higher than the payment, the provider absorbs the loss
* Less than the payment, the provider makes a profit
Medicare implemented a PPS for hospital care that uses
diagnosis-related groups (DRGs) as the basis for payment.

Question 18

DIAGNOSIS-RELATED GROUPS (DRGS)

Answer 18

The DRG system is a classification system implemented by
Medicare that groups patients based on the average number of
hospitalization days for specific medical diagnoses, considering
factors such as the patient’s age, complications, and other
illnesses.
* Payment includes the expected costs for diagnostic tests,
various therapies, surgery, and length of stay (LOS).
* The cost of nursing services is not explicitly calculated.
* It does not adequately reflect the variability of patient
intensity or acuity within the DRG.

Question 19

Implementation of a PPS with DRGs resulted in:

Answer 19

• Increased patient acuity
• Decreased LOS in hospitals
• Greater demand for home care
• Increased need for hospital and community-based nurses

Question 20

Pay -FOR-PERFORMANCE SYSTEM

Answer 20

Introduced in the early 2000s, it used a system that reimbursed hospitals
and providers.
* It is based on performance and quality outcomes.
* Also referred to as value-based purchasing, it offers rewards and
incentives to high-performing organizations.
* The incentives are based on how well a hospital performs on each
measure or as compared with its performance at baseline.
* The overall score includes the clinical process of care measures and
patient experience of care measures.
* It evolved into the Hospital Value-Based Purchasing Program (HVBPP)
established by the ACA, in October 2012.

Question 21

THE CHANGING HEALTHCARE ECONOMIC ENVIRONMENT

Answer 21

• Major public concern
• Need to reduce costs
• Improve outcomes
• Improve wellness

Question 22

HEALTHCARE DELIVERY REFORM STRATEGIES**

Answer 22

• Managed Care
• Organized Delivery Systems (ODSs)
• Competition based systems

Question 23

managed care

Answer 23

Managed care, also known as managed cost, brings together the delivery
and financing functions into one entity to control costs, utilization, and
quality.
* A significant goal of managed care is to decrease unnecessary services, thereby reducing costs.
* Managed care also works to ensure timely and appropriate care.
* Health maintenance organizations (HMOs) are a type of managed care system in which the primary physician serves as a gatekeeper who determines what services the patient uses.
* Other types of managed care plans give the patient more options than traditional HMOs for selecting providers and services:
Preferred provider organizations (PPOs)- Patients have access to a large network of providers and hospitals, but at a higher price.
Point-of-service (POS) plans

Question 24

ORGANIZED DELIVERY SYSTEMS

Answer 24

Organized delivery systems comprise networks of healthcare
organizations, providers, and payers.
* Aim to develop and market collectively a comprehensive healthcare
package that will meet the largest numbers of consumers.
* Hospitals, physicians, and payers share the financial risks of the
enterprise.
Risk sharing is expected to provide incentives to eliminate
unnecessary services, use resources more effectively, and
improve service quality.

Question 25

COMPETITION BASED SYSTEMS

Answer 25

Cost and quality outcomes are two factors driving increasing competition among healthcare providers. * Decision making regarding price and utilization of services is shifting from physicians and hospitals to payers demanding significant discounts or lower fees. * As the system evolves, providers who cannot compete based on price, patient outcomes, and service quality will find it difficult to survive.

Question 26

THE HEALTHCARE ECONOMIC ENVIRONMENT AND NURSING PRACTICE

Answer 26

* Practice within a context of organizational viability and quality of care. * “Financial Thinking” * Nursing services considered value added for patients * Use cost-conscious nursing practices

Question 27

understanding what is required to remain financially sound

Answer 27

* Knowing Costs and Reimbursement Practices * Capturing All Charges in a Timely Fashion * Using Time Efficiently * Discussing the Cost of Care with Patients * Evaluating Cost-Effectiveness of New Technologies * Predicting and Using Nursing Resources Efficiently * Using Research to Evaluate Standard Nursing Practices

Question 28

cost of nursing care

Answer 28

* Nursing is the biggest expense in a hospital’s budget * In hospitals, the cost of nursing care usually is not calculated or billed separately to patients – it is part of a general per diem (per use) charge * All patients get the same charge – assumes that all get the same amount of nursing care * Nursing is viewed not as revenue producing but as an expense * Customer (patients) do not see direct charges of nursing services received and have no way to understand the monetary value of the nursing care they receive

Question 29

types of budgets

Answer 29

￿ Operating budget ￿ Capital expenditure budget ￿ Cash budget

Question 30

a budget

Answer 30

A detailed financial plan for carrying out the activities an organization wants to accomplish for a certain period. An organizational budget is a formal plan stated in terms of dollars and includes proposed income and expenditures.

Question 31

operating budget

Answer 31

The operating budget is the financial plan for the organization’s day-to-day activities. * It includes the expected revenues and expenses generated from daily operations, given a specified volume of patients. The operating budget expense consists of a personnel budget and a supply and expense budget for each cost center, which is typically a clinical unit or division for which costs can be identified and managed.

Question 32

OPERATING BUDGET-PERSONNEL

Answer 32

* Largest part of the operating budget for most nursing units. * Requires establishing the volume of work predicted for the budget period. * Patient acuity mix is another factor needed to calculate the workload.

Question 33

Nurse managers should inform administrators about factors that affect the forecast’s accuracy, such as:

Answer 33

* Changes in physician practice patterns * New treatment modalities * Inpatient versus outpatient treatment practices * Changes in technology or equipment

Question 34

operating budget-personnel Staff members are classified by their FTE status * FTE= Full Time Equivalent

Answer 34

FTE status is calculated based on the hours worked as a percent of a full-time (40-hour) person: 1.0 FTE = 40 hours per week 0.9 FTE = 36 hours per week (36/40=0.9) 0.8 FTE = 32 hours per week (32/40=0.8) 0.6 FTE = 24 hours per week (24/40=0.6) 0.5 FTE = 20 hours per week (20/40=0.5)

Question 35

FTEs consider all paid time (productive and nonproductive hours)

Answer 35

* Productive hours: paid time that is worked. * Nonproductive hours: paid time that is not worked, such as vacation, holiday, orientation, and sick time.

Question 36

OPERATING BUDGET- SUPPLY AND EXPENSE

Answer 36

* Often called the other-than-personnel services (OTPS) expense budget. * Includes various items used in daily unit activities, such as medical and office supplies, minor equipment, books, and journals. * Also provides orientation, training, and travel. * Different methods are used to calculate the supply and expense budget,but the previous year’s expenses are commonly used as a baseline. ￿ This baseline is adjusted for projected patient volume and specific circumstances known to affect expenses, such as predictable personnel turnover, which increases orientation and training expenses. ￿ A percentage factor is also added to adjust for inflation.

Question 37

OPERATING BUDGET-REVENUE

Answer 37

* It projects the income that the organization will receive for providing patient care. * The anticipated revenues are calculated according to the price per patient day. * Data about the volume and types of patients and reimbursement sources (i.e., the case mix and payer mix) are necessary to project revenues in any healthcare organization. * Nurses have not historically been directly involved with developing the revenue budget, but this is changing. In most hospitals, the revenue budget is established by the financial office and given to nurse managers.

Question 38

Capital Expenditure Budget

Answer 38

It reflects expenses related to purchasing major capital items, such as equipment and the physical plant. * These must have a useful life of more than one year and must exceed the organization’s cost level. * Minimum cost level requirement for capital items is usually $300 to $1000 and anything below this is considered operating cost. (Some organizations have a much higher level) * These are kept separate from the operating budget because it would inflate the costs of providing patient care during the year of purchase. * A portion of the cost of capital items are allocated to the operating budget each year as an expense because capital items depreciate. * Organizations usually set aside a fixed amount of money for capital expenditures each year.

Question 39

Complete, well-documented justifications for capital expenditures should be developed using the principle of any business case and should include:

Answer 39

￿ Projected amount of use ￿ Services duplicated or replaced ￿ Safety considerations ￿ Need for space, personnel, or building renovation ￿ Effect on operational revenues and expenses ￿ Contribution to the strategic plan

Question 40

cash budget

Answer 40

* Cash budget is the operating plan for monthly cash receipts and disbursements. * Cash is the lifeblood of any organization, so the cash budget is as important as the operating and capital budgets. Organizations can be making a profit and still run out of cash.

Question 41

the budgeting process

Answer 41

1.Gathering information and planning ￿ Environmental assessment (Community needs) ￿ Mission, goals, and objectives ￿ Program priorities ￿ Financial objectives ￿ Assumptions (employee raises, inflation, volume projections) 2.Developing unit and departmental budgets ￿ Operating budgets ￿ Capital budgets 3.Developing cash budgets 4.Negotiating and revising 5.Evaluating ￿ Analysis of variance ￿ Critical performance reports

Question 42

tips for managing cost and budgets

Answer 42

*Know the significant changes in the organization and how they might affect the organization’s budget. * Analyze the supplies you use in providing care and what is commonly missing as one way to make recommendations about supply needs. * Evaluate what your patients would find most helpful during the time you care for them. * Decide which of your actions create costs for the patient or the organization. * Be aware of how changes in patient acuity and patient census affect staffing requirements and the unit budget. * Know how charges are generated and how the documentation systems relate to billing. * Be knowledgeable about the anticipated discharge day and discharge plan, and include the patient and the family in the plan upon admission. * Examine the upsides and downsides of the cost–care polarity thoughtfully.