Budgeting for Success in Health Centers

Budgeting for Success in Health

Budgeting for Success in Health

Centers 

Centers 

Michael Holton, Manager, RSM McGladrey,

Michael.Holton@rsmi.com

Mississippi Primary Health Care Association

February 17, 2010 – Holmes Community College

Session Goals

This session is designed to help health center managers gain an

understanding of the types of reports and financial tools necessary for

management and Board of Director decision-making.  To achieve this

goal the following reporting guidelines will be discussed:

1.

330 Grant budgeting

2.

Operations budgeting

3.

       Monitoring health center financial condition

4.

Developing management reports and monitoring key

indicators

•

The budget is the 

culmination of negotiations 

among health center

managers, clinicians, and board members as they determine the level

and scope of services to be provided within the constraints of the center’s

resources.

•

As part of the center’s operating plan, the budget must accurately

project both resources available and expenditures 

required to achieve

the center’s goals and objectives in the upcoming budget period.

•

The budget should be 

based on both prior experience and expected

upcoming internal and external changes 

in revenue sources or payment

methodologies (e.g., capitation payments under Medicaid managed care).

•

The health center’s 

operating budget

must be approved by the board

; it

should also be reviewed throughout the year 

and adjusted, as necessary

,

by the center’s management and the board.

Source:  BPHC Policy Information Notice 98-23

Grant  Budgeting

Grant Budget (Scope of Project)

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TOTAL BUDGET CONCEPT HEALTH CENTER –

SINGLE BRHC GRANTEE

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TOTAL BUDGET CONCEPT HEALTH CENTER –

MULTIPLE BPHC GRANTEE

Operating Budget (Scope of Project)

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Preparation of Budget(s):

–

330 grant applications must submit a balanced

budget (Revenues = Expenses)

•

Grant Year

•

Change in Scope (PIN 2002-07 demonstrate

financially viable operation

–

Operational budget = Surplus ?

•

Fiscal Year

Budgeting Issues

–

Existing grantees 

may not 

request a change in their scope of

project through the service area competition and non-

competing continuation application. Application is only for

current scope of project by an existing grantee in the defined

service area. (See PIN 2002-07 for scope change requests)

–

Existing grantees may propose in service area competition a

multi–year project period not to exceed 5 years

–

New grantees may request up to a 3 year project period when

applying for a service area competition against existing

grantee.

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330 Grant Applications

–

Budget presentation should include the following forms:

•

BPHC funding request summary

    (Not required for SAC)

•

PHS 5161-1: Form SF 424A, Sections A-F

–

Section C – Non Federal Resources and Section D -

Forecasted Cash Needs are not applicable

•

Detailed budget justification (line item and narrative) for each

12-month period requested for federal funding

•

Proposed staff profile for 12 month period requested

•

Income analysis format for 12 month period requested

330 Grant Applications

•

Keys to writing line item to budget:

–

Justification Amounts Should Agree to Budget Forms

–

Be Specific Regarding Each Line of the Budget (Revenue and

Expenses - See example in PIN):

•

If Variable Costs, Describe Calculation of Cost (e.g., Supplies

Cost Per Visit X Visit)

•

If Fixed Cost, Describe Cost (e.g., Rent – As Per Lease

Agreement)

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330 Grant Applications

•

Budget Narrative – Additional information and detail may be provided in narrative

form, as needed.

–

Cost effectiveness (Cost/Visit, Cost/User, Grant $ per user)

–

Users

–

Visits

•

If a capital managed care program is included, the applicant should: describe each

current capitated managed care arrangement, identifying the services for which the

applicant is at risk; provide the current number of enrollees and support for the

projected number of enrollees included in the total user count

•

In addition, if there are budget items for which costs are shared with other

programs (e.g. HRSA programs or an independent home health program

administered by the applicant organization), the basis for the allocation of costs

between federally supported programs and other independent programs must be

explained.

330 Grant Applications

Budgets for Year 2, 3, 4 and 5

•

Continue to budget conservatively

•

Consider any contractual agreements (Union Contacts) for impact on

salaries and fringe benefits

•

If organization has a strategic plan – it should be factored into budget

•

No change in scope can be factored into 330 grant application budgets

•

Consider new contracts being received in the near future

•

Consider cost of living adjustments or inflationary factors on expenses

•

Any variances greater than 5% should be explained

330 Grant Applications And Budgeting

•

Make Certain the Budget Balances!!!!!

–

Review Patient Revenue Factors

–

Review Staffing

•

BE CONSERVATIVE WHEN PROJECTING PATIENT

SERVICES REVENUE!!!!

(If overly aggressive projection are used, an unobligated

balance (UOB - 



) of Federal funds instead of Estimated

Program Income (EPI - 



) could result when the Financial

Status Report (FSR) is filed)

330 Grant Applications

1.

Applicant demonstrates that the budget presentation (an annualized

budget for each 12 month period for which funding is requested of

the new project period) is appropriate and reasonable in terms of:

a.

The level of requested Federal grant funds versus total budget for each year;

b.

The total resources required to achieve the goals and objectives of the

applicant’s proposed service delivery plan (i.e., total project budget);

c.

The maximization of non-grant revenue relative to the proposed plan and other

Federal/State/local/in-kind resources applied to the project;

d.

The projected patient income is reasonable based on the patient mix and

number of projected users and encounters;

e.

The number of proposed users and encounters;

f.

The total cost per user and encounter;

g.

The total federal section 330 grant dollars per user.

SUPPORT REQUESTED – NAP (10 points)

330 Grant Applications

2.

Applicant demonstrates that the Federal grant funds requested are

being used to leverage other sources of funding

3.

Applicant demonstrates that the business plan goals and objectives

are targeted and demonstrate appropriate financial planning in the

development of the proposal and for the long-term success of the

project

4.

Applicant describes how the proposed health center is a cost-

effective approach to meeting the primary care needs of the target

population given the health care needs of the target population and

the level of health care resources currently available in the

community

SUPPORT REQUESTED – NAP (continued)

Note:  As of  2008 NAP grant applications and could change in the

future.  Please refer to most recent guidance available.

330 Grant Applications

1.

Applicant provides a complete and clear budget presentation (SF-

424A, budget justification, Form 2: Staffing Profile, and Form 3:

Income Analysis) and describes:

a)

How the total budget is aligned and consistent with the applicant’s

proposed service delivery plan and number of patients to be served.

b)

How reimbursement is or will be maximized from third party-

payors (e.g. Medicare, Medicaid, SCHIP, private insurance, etc.)

given the patient mix and number of projected patients and

encounters.

c)

How the proportion of requested Federal grant funds is appropriate

given other sources of income discussed in (b) and specified in

Form 3: Income Analysis

SUPPORT REQUESTED – SAC (10 POINTS)

330 Grant Applications

Budgeting of Expenditures

Salaries

=

Staffing Plan (FTEs)

Fringe benefits

=

Percent of Salaries and Wages

Supplies

=

Based on Visits

Rent 

=

Based on Current Leases

Interest

= 

Based on Current Loan Payments

Other

=

Based on Reasonable/justifiable 

methodology (sq/ft, visits, FTE, etc.)

330 Grant Budgeting

•

Staffing Budget:

–

Consider:



Current Payroll Register



New Program or Site Expansion

–

Need Salary Cost and FTE Detail



Provider Versus Non-Provider Staff

–

Staffing Assists in the Budgeting of Various Expenses and Visits

330 Grant Budgeting

Expenditures:

•

Review Prior Year Audited Financial Statements

•

Review First 6 Months’ Internal Financial Statement

•

Base Expenditures on First 6 Months’ Financial

Statement:

–

Compare to Prior Year for Major Differences



Reconcile

–

Increase or Decrease Appropriate Cost Due to Visit Volume

Variance

–

Increase or Decrease Due to Unit Cost Differences

330 Grant Budgeting

Patient Revenue Projection

1.

# Visits = # of Providers (FTEs) X Indicator or Projected Visits

(Indicators:  Providers = 4,200 Visits/Year; Mid-levels = 2,100)

2.

Payor Mix %

3.

Current Approved Rates (MCD, MCR, Capitation - PMPM and

Specialty Care Visits)

4.

Sliding Scale & Contractual Adjustment

5.

Collection % (Bad Debt Expense)

330 Grant Budgeting

Calculation of Projected Visits

Projected    

Budgeted

Employee

Position

FTE

Visits

Visits

Dr. S. Smith

Internist

1.00

 4,000

     4,000

Dr. M. Sanchez

Internist

1.00

 4,000

4,000

Bill Jones

Nurse Prac.

1.00

 2,500

2,500

Total Visits

     10,500

330 Grant Budgeting

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*  Average collection $7.50

**  Average collection $25.00

***Based on projected member months and capitation rate

330 Grant Budgeting

D

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$

4

9

4

,

4

2

6

(

1

)

Program Income

       397,545

Contract Services

       237,195 (2)

Interest Income

           4,180 (2)

Other

       8,644

 (2)

Total Revenue

    $1,141,990

          Total Projected Expenses

$1,141,990

Excess of Projected Expenses

Over Projected Revenue                 

$               0

***

*** CHCs must always submit a balanced budget when

submitting a 330 grant application.

330 Grant Budget Summary

•

Other Key Points / Coordination Needed With Other

Sections of Grant Application:

–

Run Budget as a Check of Compliance with Financial

Performance Measures

–

Business and Healthcare Plan

–

Improvement Proposal (Goals & Objectives)

–

Address Findings and Issues (Audit & Performance Reviews)

330 Grant Applications

Operational Budgeting Development

Operational Budgeting Development

Importance of Budgeting

Preparation of an annual operational budget and continuous budget

monitoring allows management to anticipate and prepare for the

effects of change from year to year.

Projecting an operational budget begins with the determination of

assumptions (internal and external) and a review of historical visit

volume, expenses, and revenue.

Monitoring the operational budget monthly will ensure the

organization is apprised of the actual financial situation of the

organization as well as allow adjustments in expectations and

planning based on actual numbers.

Operational and Programmatic Budgeting

In addition to 

retrospective

 reporting of financial and statistical data,

CHCs should 

prospectively

 develop operational budgets to assist in the

management of health center service delivery.

There are various approaches to building an operational budget:

•

Zero-Based Budgets

•

Top-Down Budgets

•

Incremental Budgets

Deciding which approach works best for your organization depends on

management style, current financial and strategic position, available

resources, etc.

Operational and Programmatic Budgeting

Zero-Based Budgeting

 - budgets are built from the unit level up.  Each

unit of revenue (visits, rates, grants) and cost (FTEs, salaries, fringe, and

OTPS line items) are created based on expected performance.

Advantages:

•

Forces careful consideration of all items

•

Allows health center to measure the impact of specific items

•

Allows for decision-making at the lowest level

Disadvantages:

•

Individual parts may not tie together as a whole

•

Time-consuming

Operational and Programmatic Budgeting

Top-Down Budgeting

 - budgets are built from the highest level down

(total revenue, total expense).  Goals for the entire health center are

applied to total revenue and expenses, and individual components (sites,

programs) adjust their budgets accordingly.

Advantages:

•

Takes into account big picture

•

Allows management to have large budget influence

•

Measures realism of health center goals

Disadvantages:

•

May ignore specific, important unit level issues

Operational and Programmatic Budgeting

Incremental Budgeting

 - prior year amounts are trended based on

expected performance.

Advantages:

•

Incorporates historical perspective with expected trends

•

Easy to create budget quickly

Disadvantages:

•

Trending from full-year vs. point in time (i.e., FTE that started in the

middle of the year)

Operational and Programmatic Budgeting

Under all three budget development options, CHCs can develop budgets

for each department/program of the health center and/or budget by site.

The following are some of the reasons to prepare budgets in one form or

another:

•

Department (i.e., Pediatrics) - allows management to understand the

yearly changes of visit volume and costs by department and allows a

focus on productivity at the individual provider level.

•

Delivery Site - provides focus on health center operations and visit

volume by a group.  By creating a profit and loss statement by site,

management can identify where additional resources are needed.

Budget Preparation Timeline

Overall organization budget preparation for the next year should

begin four months prior to the health center’s current year end.

For 330 budgets, health centers need to consider appropriate

preparation timeline.  330 grant budgets are due four months prior to

the beginning of a grant period.

Sample Budget Preparation Timeline

Timeline Leading to

Approved Budget

 Action

•

  4 months 

-  Executive Management Meeting with Department

   Managers and Site Managers

•

  3 months 

-  Budget template distributed to Department Managers

-  Budget preparation training

-  Equipment request lists prepared

•

  2 months 

-  Department budgets due to Finance Department

-  Provider production, salaries, fringe benefits, and 

   contractual revenue entered by Finance Department

Sample Budget Preparation Timeline

Timeline Leading to

Approved Budget

 Action

•

  6 weeks 

-  Finance team reviews department budgets

-  Begin dialogue with Board Finance Committee

•

  4 weeks 

-  Departmental budgets returned to Department 

    Managers for revisions

-  Meetings set with Finance Department

•

 2 weeks 

-  Revised budgets due from Department Managers

•

 1-2 weeks 

-  Finance team finalizes budget for Board of

                                           Directors Meeting  and for final approval by

                                           Board of Directors

Preparing Budget

:

•

Review prior year’s budget and actual expenditures

•

Identify capital and equipment needs

•

Provide written explanation for budget changes (increases or

decreases of more than 10%) from prior year

•

Provide crosswalk between performance goals and budget

requests

During Budget Period

:

•

Provide written explanation for variance between actual amounts

and budgeted amounts during the fiscal year

•

Ensure proper coding of invoices

Department Head Responsibility

Preparing Budget

:

•

Prepare visit volume projections

•

Estimate staffing changes for coming year

•

Review projected revenue, compare against current contracts and

reimbursement rates

•

Review program-specific spending patterns

•

Develop recommendations for program-specific spending authority

•

Review capital and equipment needs submitted by department heads

Finance Department Responsibility

During Budget Period

:

•

Generate actual versus budget reports for each department head monthly

•

Review with department head if necessary

•

Prepare monthly financial package by site for management and the

Board

•

Adjust for any unforeseen regulatory changes in a program’s budgeted

reimbursement

Finance Department Responsibility

Steps To Preparing An

Steps To Preparing An

Organizational Budget

Organizational Budget

Importance of Budgeting

Preparation of an annual budget and continuous budget monitoring

allows management to anticipate and prepare for the effects of

change from year to year.

Projecting a budget begins with the determination of assumptions

(internal and external) and a review of historical visit 

volume,

expenses, and revenue.

Monitoring the budget monthly will ensure the organization is

apprised of the actual financial situation of the organization as well

as allow 

adjustments in expectations and planning based on

actual numbers.

Re-budgeting is not recommended as a strategy during the year,

but that significant variances of actual experience be explained

from the original budget.

Step One: Identify All Sites

and All Programs by Site

It is recommended that a health center prepare a budget by building

from the program/department up.

 Health Center

                                               Site

Department

                                                             Program

Step One: Identify All Sites

and All Programs by Site

Step Two: Prepare A Projected Visit Report

Because revenue and expenses are projected from visit assumptions

the first step is to develop an organization-wide staffing list by site,

department and program which includes FTEs, job title and funding

source.

Sources to Use:

•

Provider FTE Detail - Payroll

Step Two: Prepare A Projected Visit Report

Step Two: Prepare A Projected Visit Report

There are various factors to consider when projecting visit volume.

The following are a few examples:

•

User trends (demand side)

•

Payor mix (demand side)

•

New sites and/or departmental expansion = new hires (supply

side)

•

Provider productivity targets (supply side)

User Trends:

 (What are the trends?)

•

Is the health center increasing the number of users due to

outreach?  Is it losing users to competitors?

•

Are there any changes in the community that may cause current

users to increase/decrease their number of visits?

•

Has there been a change in community demographics that may

cause a variation in the user profile, (i.e., more families moving

into the community, less migrant workers due to economy)?

•

Has managed care changed utilization rates (up or down)? Do

certain payors have different use rates than others?

Step Two: Prepare A Projected Visit Report

Payor Mix:

•

Changes in economy resulting in changes in payor mix

•

Implementation of Medicaid Managed Care, Child Health

Programs, Family Health Programs

•

Age of community

•

Changes in policy, (i.e., welfare reform, State programs -

uncompensated care)

Step Two: Prepare A Projected Visit Report

New Sites and/or Services

:

•

Opening/Closing of a site

–

Consider whether a new site will shift visits from an

existing site.

•

Adding new services/departments

Step Two: Prepare A Projected Visit Report

Productivity:

•

Review prior year productivity levels by provider.  What

factors may contribute to a change in provider productivity?

–

Has the health center actively taken steps to increase

productivity (i.e., implemented an incentive

compensation plan, educational training, individual

provider productivity reporting)?

–

Are there new providers who are building their panel?

–

Are exam rooms and support staff at capacity?

–

Is productivity driven by supply (internal) or demand

(external) issues?

Step Two: Prepare A Projected Visit Report

Productivity

:

•

Set productivity projections:

–

Consensus between Medical Director and providers on

realistic productivity projection

–

If the health center is planning a major expansion, is there

demand in the community to meet visit targets?

•

Recognize the role of contracted providers – is the data

available to impute FTEs (may also be useful for

provider dependent expenses)

•

Consider folding in providers who only spend a portion

of their time doing visits with other providers

Step Two: Prepare A Projected Visit Report

Revenue Budgeting – Fee for Service/Cost-Based Reimbursement

:

In the visit projection for ABC Health Center, the physicians at Site

A performed 7,980 visits and the dentist performed 2,500 visits.  To

calculate revenue for Site A, the steps are to:

1.

Divide up visits by payor mix

2.

Multiple visits by charge per visit

3.

For all payors except self-pay and capitation, compare charge per

visit to net revenue per visit to calculate contractual allowance

rate and calculate net revenue.

4.

For self-pay, multiply charge by average sliding fee percentage.

5.

Multiply by collection percentage to calculate projected revenue.

Step Three: Revenue Projection

Revenue Budgeting - Capitation

:

In projecting capitation rates for commercial plans a standard trend

factor could be applied based on historical rate increases.

In projecting capitation rates for State programs, such as Medicaid

Managed Care, Child Health Program and Family Health Program,

an understanding on policy legislation, and overall market trends

will help accurate projections.

Step Three: Revenue Projection

Capitation

:

Factors to consider when projecting capitation revenue:

•

Estimate any change in utilization.  Does actual/projected

utilization conform with visit assumptions?

•

Estimate any changes in members and member months from

the prior year:

•

Enrollment

•

Disenrollment

•

New contracts

•

Conversion of existing FFS members

Step Three: Revenue Projection

Step Three: Revenue Projection

Calculating Medicaid Managed Care Projected Revenue:

Step 1: 

Estimate Average Members Per Month and PMPM Rate

Step 2: 

Calculate monthly reimbursement (Members X PMPM) = $3,420

Step 3: 

Annualize the monthly reimbursement - $3,420 X 12 = $41,040

Estimate any changes in the age/sex/eligibility categories of members.

Revenue Budgeting - Capitation

:

In many capitated arrangements several procedures are carved out

of the capitated rate as billable fee-for-service procedures.

If the capitated plan contract is up for negotiation during the

budgeted year or prior, project any changes to current arrangement

regarding which procedures a billable fee-for-service procedures

and which are not.

Step Three: Revenue Projection

Step Three: Revenue Projection

Patient Services Revenue Projections By Site and Payor

Site A - Medical

Step Three: Revenue Projection

Patient Services Revenue Projections By Site and Payor

Site A - Dental

Step Three: Revenue Projection

Step Three: Revenue Projection

Patient Services Revenue Projections By Site and Payor:

Step Three: Revenue Projection

Patient Services Revenue Projections By Site and Payor:

Step Three: Revenue Projection

Patient Services Revenue Projections By Site and Payor:

 Step Three: Revenue Projection

Patient Services Revenue Projections By Site and Payor

:

Step Three: Revenue Projection

Patient Services Revenue Projections by Site - Overall:

 Step Three: Revenue Projection

Patient Services Revenue Projections by Program - Overall:

Revenue Budgeting - Grant Revenue:

In budgeting 330 and other Federal grant dollars, the following

questions should be considered:

•

Are you expecting a 330 Grant increase?

•

Do you expect to be able to spend the full grant during the

year?

•

Have you received approval for any carryover of any

unobligated balances from the prior grant year?

•

Have you reprogrammed any unobligated balances from the

prior grant year?

Step Three: Revenue Projection

Revenue Budgeting - Wraparound:

•

Calculate eligible visits

•

Calculate difference between cost based rate and projected

Medicaid Managed Care revenue (varies by State)

 Step Three: Revenue Projection

Wraparound Protection

 :

Example:

 Step Three: Revenue Projection

Revenue Budgeting - State/Local Grants or Contracts:

•

State or local contracts require a contract specific budget be

prepared and followed throughout the contract term.

•

Modifications to the budget must be approved by the State or

local agency.

•

The contract specific budgets should roll into the overall

organization budget.

Step Three: Revenue Projection

 Step Three: Revenue Projection

(1) 2008 current service level + 1.5%

(2) Same as annualized 2008 revenues

 Step Three: Revenue Projection

Projected Interest Income and Miscellaneous

:

It is recommended to base projected interest income and other

miscellaneous revenue on historical/prior year data.

ABC Health Center Projected Revenue

:

DHHS Grant

   $999,160  (1)

Program Income

  1,807,969

Contract Services

     230,150  (2)

Wraparound

     196,620

Interest Income

         2,750  (2)

Miscellaneous

  1,901

  (2)

Total Revenue

$3,238,550

(1) 2008 current service level + 1.5%

(2) Same as annualized 2008 revenues

 Step Three: Revenue Projection

Step Four: Budget Expenditures

Key Points to Budgeting Expenditures:

•

Review prior year financial statements

•

Review first 6 months internal financial statement

•

Base expenditures on first 6 months financial statement:

–

Compare to prior year for major differences and reconcile

–

Increase or decrease appropriate costs due to visit volume

variance

–

Increase or decrease due to unit cost differences

Expense Budgeting:

Important factors to consider:

•

Health center growth (number of units)

•

Inflation or salary increases (unit costs)

•

Fringe benefit changes

•

Fixed vs. variable expenses

Step Four: Budget Expenditures

 Step Four: Budget Expenditures

Budgeting of Expenditures:

Projecting the expenditures for the following expense categories will

be based on different variables:

Salaries

=

Staffing Plan (FTEs) from the Salary List

Fringe Benefits

=

Percent of Salaries and Wages

Supplies

=

Based on Visits

Ancillary Cost

=

Based on Visits by Site and Department

Facility

=

Based on Current Leases

Interest

= 

Based on Current Loan Payments

 Step Four: Budget Expenditures

Start your budget by listing

projected providers and staff’s

FTE and salary.  For current staff

incorporate expected salary

increases.  Based on assumptions

of change in volume and/or scope

of services include new hires.

Next step is to distribute FTE and

salary among sites.

Step Four: Budget Expenditures

Expense Budgeting - Staffing:

Staffing is far and away the most important item in your budget:

•

Salary and fringe typically makes up 65% - 75% of a health

center budget

Step Four: Budget Expenditures

Expense Budgeting - Staffing

:

Direct support staffing:

•

Includes nurses, nurse aides, medical attendants, medical/dental

receptionists

•

Should closely correlate to the number of providers

•

Health centers average approximately 2.2 direct support staff

FTEs per each provider FTE

 Step Four: Budget Expenditures

Expense Budgeting - Staffing:

Enabling/program staffing:

•

May be prescribed in a grant/contract

•

Enabling staff FTEs may appear lower than expected, since

providers may also perform enabling services. Health centers

average approximately .6 enabling staff FTEs per each provider

FTE

 Step Four: Budget Expenditures

Expense Budgeting - Staffing:

Overhead staffing

•

Key expense driver - measure overhead salaries per visit and as a

percentage of total cost

•

Includes administration, billing, facility and other

•

Health centers average approximately 2.9 overhead support staff

FTEs per each provider FTE

 Step Four: Budget Expenditures

 Step Four: Budget Expenditures

Projected Expenditures - Contracted Ancillary:

The first step in budgeting ancillary expenses is to determine for

which payors the health center is responsible for the ancillary

service and for which the payor is responsible.

The second step would be to allocate ancillary expenses by site

and by payor based on visits.

Expense Budgeting - Fixed/Variable OTPS:

•

80% - 90% of health center OTPS costs are fixed, (i.e., they will

not change significantly regardless of health center volume,

unless other changes are made).

•

Other expenses will vary based on a number of factors:

–

Malpractice - Provider FTEs

–

New rent or depreciation charges -  Square footage

–

Medical supplies - Visits

 Step Four: Budget Expenditures

Expense Budgeting - OTPS

:

There are several ways to consider OTPS line items:

•

Contractual - is there a contract (for example a lease) that

specifies a dollar amount?  Does this contract include inflation?

When is the contract renewed?

•

Fixed dollar amount - is there a pre-existing schedule (i.e., for

interest or depreciation) that allows you to budget a specific

amount?

 Step Four: Budget Expenditures

 Step Four: Budget Expenditures

Step Four: Budget Expenditures

Projected Expenditures - Facility

:

Budgeting of facility expenses is based on current leases

.

Step Four: Budget Expenditures

Allocating Expenses to Programs:

In order to properly allocate overhead/indirect expenses, salaries

should be separated into DIRECT and INDIRECT categories.

Allocation of indirect expenses to programs should be based on the

following methodologies:

•

  Administration - Percentage of total direct expense

•

  Facility* - Square Footage

•

  Medical Records/Data Processing - Visits

*Centralized Administration facility should be allocated among sites

by percentage of total direct expense.

 Step Four: Budget Expenditures

The allocation of indirect expenses may be distributed among sites using

the following methodologies:

Administration -  Total Direct Exp.         

/ 

 Total Direct    X    Total Admin

at Site

          Expense

            Salary

Data Processing -  Total Site Visits       /   Total Visits     X    Total Data

            Processing Salary

Medical Records - Total Site Visits      /   Total Visits      X    Total Medical

            Records Salary

Facility Staff -  Sq. Ft. of Site   /   Total Sq. Ft.    X   Total Facility Salary

Step Four: Budget Expenditures

Medical, administrative and janitorial

supplies should be budgeted using

inflation, demand, and volume

considerations.  In projecting a

percentage increase from prior year,

consider the following:

•

Change in visit volume

•

Opening/closing of site

•

Increase/decrease in staff

In this example, the health center increased supply expenses by 5% over the prior year .

Projected Supplies Budget

:

 Step Four: Budget Expenditures – Allocate to Sites

Step Five: Bottom Line

Projected Expenses

:

Total Projected Expenses

$3,305,400

Excess of Projected Expenses

Over Projected Revenue

$      11,540

***

*** CHCs must always submit a balanced budget when

submitting a grant application.

Step Four: Budget Expenditures

What If Budget Results are Different from Expectations

?

REVIEW -  Patient revenue assumptions, staffing ratios, salaries, capital and

other expense requests by site and program.  Ensure all grant, contracted, and

foundation funding is included.

REASSESS ASSUMPTIONS - Are volume assumptions realistic?  Are

productivity assumptions realistic?

REALIZE - Areas of expenses to cut.

The budget process is iterative and requires several cycles to get to the final

budget.

Step Five: Review Budget

Budget Monitoring

Budget Monitoring

Budget Monitoring

THINGS DO NOT ALWAYS TURN OUT

THE WAY WE WOULD LIKE.

Budgeted revenues and expenses must be compared on a monthly

basis to actual data and prior year data.  From this analysis, all

significant fluctuations will be identified, allowing the

management team to investigate and rectify areas of concern, and

if necessary, modify the budget and create a new action plan.

Why Differences Occur

While monitoring the budget, there are several factors that may

contribute to differences between actual and budgeted data.  The

following highlights common factors that require adjustments to a

projected budget:

•

Unforeseen windfalls of revenue (i.e., reinvestment money)

•

Unexpected expenses (i.e., ancillary usage increase)

•

Shift in payor mix

•

Provider productivity

•

Increase/decrease of visit volume

•

FTEs

•

Accounting entries

Management Report Package

Management Report Package

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Should accompany monthly financial and activity

reports

•

Written explanation of significant variances from either

budget or prior year’s actual figures

•

Does not preclude Board from asking questions about

other variances.

It is recommended that the following additional reports be prepared

monthly:

•

Revenue and expense statements by department / program

•

Days in accounts receivable by payor source

•

User trends

•

Managed care actuarial mix and utilization

•

Contract revenue and receivable analysis

Interpreting Management Reports

Analyze changes in patient revenue as compared to changes in patient

volume (i.e., visits), prior year vs. current year and current year vs.

budget.

•

Change in Reimbursement Rates - how do these changes compare

to your rates or contracts?

•

Shifts in Payor Mix - are you losing Medicaid FFS patients to

managed care?  Are more of your visits self-pay?

Analyzing Patient Service Revenue

•

Analyze trends in days in accounts receivable by payor:

–

Is days in A/R less than 100?

–

Are certain payors not paying on a timely basis?

–

Are you appropriately recording contractual allowances?

•

Total A/R:

–

Has A/R been cleaned up to recognize bad debt?

Analyzing Accounts Receivable

•

Analyze changes in expenses as compared to changes in patient

volume (i.e., visits).

•

Any Unusual Trends Should Be Researched:

1.  Analyze by department

2.  Review costs per visit



  By department



  By ancillary cost (i.e., Lab, x-ray)

Analyzing Expenses

•

Current users:

–

Is payor mix shifting?

–

Are you losing users to your competitors?

–

What is the visit utilization of your users?

–

Are managed care users retaining the health center as their

PCP?

•

New users:

–

What is the source of new users?  Outreach?

–

Does the payor mix of new users differ from that of current

users?  Are other demographics different?

Analyzing Users

•

Payor mix:

–

What is capitated vs. fee-for-service utilization per user?

–

How does utilization vary by payor?

•

Provider productivity:

–

How does productivity vary by provider?

–

How does productivity compare to prior year?

Analyzing Visits

Session Summary

Health center managers need to understand and utilize a number of

reports and financial tools to aid management and the Board of

Director decision-making.  Key components to achieving this goal are:

•

Preparing and monitoring departmental and organizational budgets

•

Analyzing both expense and revenue drivers at the health center

•

Keeping the Board of Directors and senior management informed

•

Updating fiscal information throughout the year

Questions???

107