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Leadership Exam 2 - Chapter 12
Yoder-Wise Chapters 12 Budgeting
32
Nursing
Undergraduate 4
06/30/2013

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Term
total HC costs
Definition
  • function of the prices & utilization rates of HC services
  • Costs = Price X Utilization
  • price: rate that HC providers set for services (like hospital rate or physician fee)
  • utilization: quantity or volume of services provided (like diagnostic tests or # of visits)
Term
administrative efficiency/waste
Definition
  • one of the causes of increasing HC prices
  • mainly the result of large # of clerical personnel needed to process reimbursement forms from multiple payers
  • U.S. hospitals spend 20% of budget on billing administration
  • some hospitals advocate for elimination of multiple payers
Term
4 major methods for reimbursement
Definition
  1. charges
  2. cost-based reimbursement
  3. flate-rate reimbursement 
  4. captitated payments: rate based on designated services over designated time
Term
cost-based reimbursement
Definition
all allowable costs payed, retrospective, each payer determines what the allowable costs are for each visit/service/procedure
Term
charges
Definition
  • cost of providing service plust markup, 
  • retrospective, 
  • 3rd party payers often put limits on what they will pay by establishing usual and customary charges by surveying all providers in a certain area, 
  • providers gradually raise their prices
Term
retrospective
Definition
amount of payment is determined after services are delivered
Term
capitated payments
Definition
  • based on the provision of specified services to an individual over a set period such as 1 year
  • providers paid a per-person-per-year (or per-month) fee
  • provider absorbs loss or profit
  • capitation is mode of payment used by HMOs and other managed care systems
Term
flat rate reimbursement
Definition
  • rate decided in advance
  • prospective
  • if the costs of care are greater than the payment, the provider absorbs the loss (but also can make a profit for the reverse)
  • Medicare implemented a flat rate reimbursement system in 1983 that uses diagnosis-related groups (DRGs) as the basis for payment
Term
revenue
Definition
hospital income
Term
contractual allowance
Definition
  • discount that exists when reimbursed costs are less than the full charge for the service in charges and cost-based reimbursement methods
  • these methods were predominant payment methods in the 1960s and 1970s but have been largely supplanted by payer fee schedules determined before before service delivery
Term
managed care
Definition

 

  • health plan that includes both service & finance
  • in contrast with traditional fee-for-service plan where insurers pay based on cost
  • a major goal is to decrease unnecessary services
Term
organized delivery systems (ODSs)
Definition
  • networks of organizations; providers & payers
  • typically, joint venture between hospitals, physicians & insurance companies
  • the aim is to develop & market a comprehensive package of HC services for large # of consumers
  • risk-sharing is expected to provide incentives for efficiency & quality
  • physicians have generally not shared much risk
Term
major areas nurse managers can manage costs
Definition
staffing, then supplies
Term
fixed costs
Definition
those costs in a unit that do not change as the volume of patients change (i.e., rent, loan payments, admin salaries, salaries of minimum # of staff)
Term
variable costs
Definition
vary in direct proportion to patient volume/acuity (i.e., nursing personnel, supplies, meds)
Term
break-even analysis
Definition
tool that uses fixed and variable costs for determining the volume of pts needed to just break even (revenue = expenses) or to realize a profit or loss
Term
patient classification systems
Definition
used appropriately, pt classification systems can help eval changing practice patterns & pt acuity levels and provide info for budgeting processes
Term
operating budget
Definition
  • financial plan for the day-to-day activities of the organization
  • most time-consuming financial function of nurse managers
  • expected revenues & expenses given a specified volume of pts are stated
  • the personnel budget is the largest part of the operating budget for most nursing units
Term
cost center
Definition
  • organizational unit for which costs can be identified & managed
  • a personnel budget & supply & expense budget is calculated for each cost center as part of the expense part of the operating budget
Term
unit of service
Definition
  • a measure appropriate to the work of the unit, such as patient days, clinic visits, hours of service, admissions, deliveries or treatments
  • used to calculate workload volume
    • inpatient units: workload volume = hours of care per pt X number of pt days
Term
full-time equivalents (FTEs)
Definition
  • used to determine how many staff members are needed to provide care when preparing the personnel budget
  • one FTE = 40 hrs/wk, 52 wks/yr, 2080 hrs of work paid per year
  • 0.5 FTE = 20 hrs/wk
  • # of hours in an FTE may vary per organization
  • 2080 hrs paid to an FTE consist of both productive & nonproductive hours
    • productive: paid time that is worked
    • non-productive: vacation, holiday, orientation, education, sick days
  • total # of FTEs needed: divide total patient care hours required by # of productive hours per FTE
Term
productive hours calculation
Definition
  • Method 1: add all nonproductive hours/FTE and subtract from paid hours/FTE
  • Method 2: multiply paid hours/FTE by percentage of productive hours/FTE
Term
cash budget
Definition
  • operating plan for monthly cash receipts & disbursements
  • org survival depends on paying bills on time
  • orgs can be making a profit & still run out of cash
  • profitable trend can induce a cash shortage in the short run as supplies are bought
  • major capital expenditures can cause a cash crisis
  • cash is lifeblood of the org
  • usually prepared by financial officer
  • can be used by nurses to discern when constraints on spending are necessary & the importance of carefully predicting when budgeted items will be needed
Term
total FTEs needed calculation
Definition
required pt care hours / productive hours per FTE = total FTEs needed
Term
case mix & payer mix
Definition
  • data about the volume & types of patients & reimbursement sources that are necessary to project revenues in any HC org
  • revenue budget usually developed by the finance office
Term
capital expenditure budget
Definition
  • expenses related to the purchase of major capital items such as equipment and physical plant
  • a capital expediture must have a useful life of more than 1 year and must exceed a cost level specified by the org
  • minimum cost requirement for capital items in HC is usually between $300 & $1000; below that is routine operating cost
  • capital expenses kept separate from operating budget; subtracted from revenues, affecting profit; depreciate each year
Term
price
Definition
  • cost of providing HC to employees increases price of goods, compromising our ability to compete in the world marketplace
Term
budgeting process
Definition
  1. Gathering info & planning (priorities, objectives, assumptions like employee raises, inflation)
  2. Developing unit & departmental budgets
    • Operating & capital budgets
  3. Developing cash budgets
  4. Negotiating & revising
  5. Evaluating
    • Analysis of variance
    • Critical performance reports
Term
variance
Definition
  • the difference between the projected budget and the actual performance for aparticular account
  • negative variance: budgeted amount less than actually spent
  • positive variance: budgeted amount more than spent
Term
variance analysis
Definition
major control process used in relation to budgeting
Term
productivity
Definition
  • ratio of outputs to inputs
  • productivity = output/input
  • output: nursign services measured by hours of care, # of visits, etc
  • input: personnel hours, supplies, etc
  • hours per patient day (HPPD) often used as measurement unit
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