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Introduction

Nurse managers set goals and design the budget—usually in collaboration with the finance department—for their own responsibility center or nursing unit. After the budget has been developed and updated, it is submitted for approval to administration and ultimately to the board of directors. After the budget is approved and the fiscal year begins, the organization must deliver the planned services and programs.

The budgeting process is ongoing and dynamic and should provide feedback. This is essential in managing the budget. The budget-development workflow involves the following steps:

  1. Collecting relevant data

  2. Planning services

  3. Planning activities

  4. Implementing the plan

  5. Monitoring the budget

  6. Taking corrective measures when necessary

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Spreadsheets, typically in Microsoft Excel, are used to calculate all budget components at the unit level.

Step 1: Collecting Relevant Data

A critical task in creating a budget is collecting relevant data. The finance department ultimately collects this data but does so in collaboration with the nurse manager to create a functional budget. This includes the following information:

  • Services offered: This data is collected by the nurse manager, who has the most insight into services currently on offer and those that will be offered in the future. For example, a nurse manager might plan to increase bed capacity in an underused nursing unit in response to an increase in the census in the past year and the knowledge that an additional surgeon will be coming on staff, which will increase volume even more.

  • Patient mix/case mix: This pertains to the complexity of care. Generally, the more complex the case, the higher the reimbursement. The finance department of every hospital and skilled nursing facility calculates an overall case-mix index. The higher the number, the higher the reimbursement level.

  • Payer mix: This number, also calculated by the finance department, reflects patient demographics. For example, suppose the payer mix indicates that 50% of the patients of a healthcare facility are below the age of 65 and have managed care insurance. Generally, for such patients, the length of stay is shorter and reimbursement is higher than for Medicare patients. Now suppose the payer mix indicates that 70% of a facility's patients are over 65 and that their primary insurance is Medicare. For these patients, the length of stay will typically be longer and reimbursement lower than for patients with commercial insurance.

  • Acuity index: This is a numeric calculation that considers the acuity of each patient in a given nursing unit to predict the level of staffing required. It used to be that the nurse manager or charge nurse on each shift assessed each patient in the unit and assigned a numeric acuity level to each one to calculate the acuity index. Because these were subjective assessments, however, the index was almost always inaccurate, typically predicting the need for huge increases in staffing that the organization could not afford. Today, ...

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