Financial Management - Professor Frazier by hcj

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									Budgeting
            Budgeting Defined

• Process of converting the operating plan into
  monetary terms.
• Budgets become the control standard against
  which performance is measured.
• The budget process is an excellent
  opportunity for the financial manager to
  educate nonfinancial department managers.
        Prerequisites to Budgets

• Sound organizational chart
• Well-defined chart of accounts
• Prompt and accurate accounting system
• Comprehensive management information
  system
• Budget director
• Budget committee
• Budget manual and budget calendar
              Types of Budgets

•   Top-down versus bottom-up
•   Incremental versus zero-based
•   Comprehensive versus limited-in-scope
•   Fixed versus flexible
•   Discreet versus continuous
    Steps in the Budgeting Process

14) project volumes
     -forecasting volumes
      -forecast content--description of specific situation in
      question
        -expert opinion
        -task forces
        -Delphi techniques
        -Delbecq techniques
        -questionnaires
        -permanent panels
        -PERT analysis
        -causal models
        -time series models
    Steps in the Budgeting Process

14) project volumes
     -forecasting volumes
      -forecast content--description of specific situation in
      question
      -forecast rationale--explanation of how the situation will
      progress from its current state to its forecasted state
    Steps in the Budgeting Process

15) Convert volumes into revenues
    Steps in the Budgeting Process

16) Convert volumes into expense
     requirements
     -review staffing mix
     -review skill mix
     -review cost-of-living raise policy
     -review merit raise policy
     -review bonus policy
    Steps in the Budgeting Process

17) Adjust revenues and expenses as
     necessary
    Evaluating Budget Performance

• Variance Analysis--comparing actual
  performance to budget.
  – Revenue variance
  – Expense variance
           Budgeting Exercise

• Review the budgeting exercise, Problem
  12.1, on p. 268 of the text
                     Budgeting Exercise

STEP 13--PROJECT VOLUMES

1. Calculate the current volume for each x-ray procedure



       Procedure          Admissions            Volume

      Hand x-ray          1,100 x .50             550
       Foot x-ray         1,100 x .20             220
     Forearm x-ray        1,100 x .30             330
                    Budgeting Exercise

STEP 13--PROJECT VOLUMES

2. Convert the current volumes to RVUs




  Procedure     Minutes    Minutes/GCD     RVUs/     Volume   Total RVUs
                                         Procedure
  Hand x-ray       5           5/5          1         550        550

  Foot x-ray       15          15/5         3         220        660

Forearm x-ray      30          30/5         6         330       1,980

                                                                3,190
                    Budgeting Exercise

STEP 13--PROJECT VOLUMES

3. Calculate the projected volume for each x-ray procedure (1,100 DRG
   250 x .091 increase = 1,200 DRG 250)




             Procedure               Admissions                 Volume


            Hand x-ray               1,200 x .50                  600

             Foot x-ray              1,200 x .20                  240

           Forearm x-ray             1,200 x .30                  360
                    Budgeting Exercise

4. Convert the projected volumes to RVUs




  Procedure     Minutes   Minutes/GCD        RVUs/     Volume   Total RVUs
                                           Procedure
  Hand x-ray       5           5/5            1         600        600

  Foot x-ray       15         15/5            3         240        720


Forearm x-ray      30         30/5            6         360       2,160

                                                                  3,480
                         Budgeting Exercise
  STEP 14--CONVERT PROJECTED VOLUMES INTO PROJECTED REVENUES

  •    Calculate projected gross and net revenues by payer

  MEDICARE

 Procedure      Projected     Projected       %       Gross     Contractual     Net
                 Charge        Volume                Revenue    Allowance     Revenue
 Hand x-ray        $75           600         .45      $20,250       .20       $16,200

 Foot x-ray        285           240         .45      $30,780       .20       $24,624


Forearm x-ray      450           360         .45      $72,900       .20       $58,320

                                                     $123,930                 $99,144
                        Budgeting Exercise
 STEP 14--CONVERT PROJECTED VOLUMES INTO PROJECTED
    REVENUES

 1. Calculate projected gross and net revenues by payer

    MEDICAID


 Procedure      Projected   Projected   %      Gross      Contractual     Net
                 Charge      Volume           Revenue     Allowance     Revenue
 Hand x-ray       $75         600       .35    $15,750        .15       $13,388

 Foot x-ray       285         240       .35    23,940         .15       20,349

Forearm x-ray     450         360       .35    56,700         .15       48,195

                                               $96,390                  $81,932
                     Budgeting Exercise

STEP 14--CONVERT PROJECTED VOLUMES INTO PROJECTED REVENUES

1. Calculate projected gross and net revenues by payer

MANAGED CARE

 Procedure      Projected   Projected   %      Gross     Contractual     Net
                 Charge      Volume           Revenue    Allowance     Revenue
 Hand x-ray       $75         600       .15   $6,750         .30       $4,725
 Foot x-ray       285         240       .15   10,260         .30        7,182

Forearm x-ray     450         360       .15   24,300         .30       17,010

                                              $41,310                  $28,917
                        Budgeting Exercise
 STEP 14--CONVERT PROJECTED VOLUMES INTO PROJECTED REVENUES

 1. Calculate projected gross and net revenues by payer


 SELF-PAY

 Procedure      Projected   Projected   %      Gross      Contractual     Net
                 Charge      Volume           Revenue     Allowance     Revenue
 Hand x-ray       $75         600       .05    $2,250         .10        $2,025

 Foot x-ray       285         240       .05    3,420          .10        3,078

Forearm x-ray     450         360       .05    8,100          .10        7,290

                                              $13,770                   $12,393


    Total                                     $275,400                  $222,386
                        Budgeting Exercise

STEP 15--CONVERT PROJECTED VOLUMES INTO PROJECTED EXPENSES

1. Calculate current expenses per RVU

   $225,000 x .25 = 56,250 ÷ 3,190 = 17.63 labor expense/RVU

   $185,000 x .25 = 46,250 ÷ 3,190 = 14.50 supply expense/RVU

   $375,000 x .25 = 93,750 ÷ 3,190 = 29.39 overhead expense/RVU
                      Budgeting Exercise

STEP 15--CONVERT PROJECTED VOLUMES INTO PROJECTED
  EXPENSES

2. Calculate projected expenses per RVU

  Projected labor expense            = 17.63 + 5% = 18.51

  Projected supply expense           = 14.50 + 6% = 15.37

  Projected overhead expense         = 29.39 + 0% = 29.39

  Total expense per RVU                           $63.27
                     Budgeting Exercise
STEP 15--CONVERT PROJECTED VOLUMES INTO PROJECTED
   EXPENSES

3. Calculate projected expenses per procedure




      Procedure        Projected RVUs        Projected   Total Projected
                                           Expense/RVU      Expense
      Hand x-ray             600                $63.27      $37,962

       Foot x-ray            720                63.27        45,554

     Forearm x-ray          2,160               63.27       136,663

         Total                                             $220,179
                           Budgeting Exercise

STEP 16--ADJUST REVENUES AND EXPENSES AS NECESSARY

1. Determine initial gain/loss

   Net Revenues                  $222,386
   Expenses                       220,179
   Gain/(Loss)                   $ 2,207
                         Budgeting Exercise

STEP 16--ADJUST REVENUES AND EXPENSES AS NECESSARY

2. Make adjustments, first to revenues, then to expenses

								
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