Question

discuss the most effective approaches to budgeting in the healthcare industry?

Answer 1

1) Align rolling forecasts, multi-year plans, and detailed budgets

Planning across multiple time horizons has becoming increasingly important due to industry reform. Historical run-rates are no longer the best indicator of future performance, driving the need for more dynamic forecasting and "what-if" modeling. Aligning plans, models, and budgets is imperative.

• Rolling Forecasts – Actual and monthly projections for 6-12 quarters provide a trended view of performance, typically represented at an entity level. The model helps assess current realities that will influence longer-range (multi-year) projections, as well as detailed operational plans.

•Multi-Year Plans – Multi-year planning enables orgranizations 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."

• Detailed Budgets – When done effectively, budgeting gives each Manager visibility into how baseline projections and new initiatives are impacting his/her financial plan. Refinements are made collaboratively with each department, resulting in a plan that promotes ownership of the numbers.

All of these plans must be kept in sync using the same assumptions to provide a holistic short- and long-term outlook that supports informed decisions.

2) Embrace statistically- driven approaches to enable efficient "what-if" modeling

When organizations are leveraging stand-alone spreadsheet models, or using "bottoms-up" approaches, the models are not easily adjusted to reflect impacts to varying volume and rate assumptions.

Establishing the proper statistical relationships to adjust hospital drivers to "flex" volume, workload, revenue, and departmental plans is essential to efficient planning in healthcare. Assumptions related to global volumes, reimbursement rates, inflation factors, labor rates, and efficiency targets should cascade down to "flex" revenue and expense plans.

When evolving to a driver-based model, the following are key design considerations related to data flow and "points of control" in the model:

• Identify with each department the statistic that represents its workload intensity (Acuity Adjusted Patient Days, Weighted RVUs)

•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

3) Incorporate Service Line Analytics to refine projections

More and more organizations are looking to incorporate patient-centric data into their planning models to drive more accurate volume and workload projections. Resulting plans more accurately reflect and offer transparency to the impact a service line’s growth would have on department budgets and net revenue.

Why incorporate Service Line Analytics into your planning model?

• 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

•Historical or modeled department utilization profiles by service line can be developed to project workload statistics

•Such analytics integrate the volume planning with revenue planning so future reimbursement rates can be modeled more precisely by clinical population

• With volume and revenue plans based on service line categories, variances to the overall volume and mix of cases are better explained in plan-to-actual reporting.