HPI4007: Financial Management of Healthcare
Summary HPI4007: lectures + cases (summaries of the articles and books based on the reading guide)
+ numerical solution case 1 and 2
With the help of this summary I got an 8 for the exam
Cases
- Case 1: Planning and budgeting – page 2
- Case 2: Renovation or contracting out? – page 26
- Case 3: Shall I do an economic evaluation? – page 46
- Case 4: Understanding financial statements – page 80
Lectures
- Lecture 1: Opening lecture - Costs and cost analysis - Milena Pavlova – page 109
- Lecture 2: DBC system and how to use DBCs in financial management – page 114
- Lecture: Business case – page 119
- Lecture case 1: Budgeting and variance analysis – page 122
- Lecture case 2: Investing in IT (computerization) – page 133
- Lecture 2: Capital investment decisions – business economics perspective – page 141
- Lecture case 3: Mini-HTA and budget-impact analyses – page 152
- Lecture case 4: The Annual Financial Statement – page 159
* Guest lectures are not summarized as they were not important for the test
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,Case 1: Planning and budgeting
What is organization master budget (budget types and budget
elements/components)?
Chapter 7 Gruel
What is a budget?
‘a tool used to relate planned resource consumption to a period of time’. This definition highlights
the three main features of a budget
- it is a plan that is developed before an event has occurred
- it can include a broad range of resources – not just money
- it relates to a specific period of time
Budgets are used at many levels in health care (national - provider units). Levels and ways in which
budgets are determined will depend on the financing system in operation in the country concerned.
Devolving budgets
Budgets are the central link between planning and control. They are quantitative statements which
allow agreed financial and policy objectives to be pursued for a set period of time. Projected income
is the basis for planning expenditure, which can be traced down with an increasing level of detail
from the entire organization to departments, units and eventually individual patients. Different ways
of analysing spending and the corresponding types of budget can be found within a single
organization. They are used in a sequence of steps in devolving a centrally administered budget to
organizational units
- The budgeting process starts with identifying the financial inputs of the organization
- The total financial input is analysed by basic categories of expenditure for staff, goods and
services. Each line item can be further subdivided, for example salaries for doctors and
nurses, supplies, equipment and services obtained from outside the organization if
applicable, such as cleaning or catering → looking at expenditure is sometimes called
subjective analysis
- In a next step funds can be analysed by objectives of the service (objective analysis). The
central budget can be devolved to the functions of the organization, for example, horizontal
or vertical programmes, primary or secondary care or clinical departments of a hospital.
Within an organization or programme, expenditure on administration, energy, facility
management and other items that are shared by all units is considered as overheads.
Overheads can be apportioned to the units according to the resources they consume.
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, Devolved budgets are commonly used where central government entrusts funds to the
regional and district level. In large hospitals, devolved clinical budgets can be used in a similar
way, with managers being responsible for each unit
- Finally, expenditure can be analysed by type of patient care. At the clinical level a range of
further analyses is possible, for example, looking at inpatient or outpatient treatment, clinical
specialty, disease categories for case-based reimbursement (DRGs) and even individual
expenditure profiles, assessing the resource use of patient X or Y.
A unit budget
An example of a budget for a health care unit is set out in Table 7.1. This budget shows only the
amounts that the unit plans to spend in providing services during the year beginning. To arrive at
these figures, however, the budget manager would need to begin by specifying the level of services
to be provided.
Suggest how the activities of the following services might be specified for budgeting purposes
- hospital ward: bed-days, calculated as the number of beds in a ward times the number of
days the ward is open.
- family planning clinic: the number of clients seen.
- radiology unit: the number of X-rays produced.
- physiotherapy department: the number of treatments supplied.
A budget is a list of all the inputs required to reach the planned activity levels for the year. These
are usually organized into headings classifying the different types of input. Thus if you were providing
acute hospital services you might classify inputs as
- Those related to patient care, including medical and nursing staff, drugs, theatre time,
pathology, pharmacy, occupational therapy and radiography
- General services, including catering, domestics, portering, medical records, administration
and estate management
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, The budget package should also include details of the extent of the freedom to manipulate resources
within the total budget. For example, to what extent could a manager use savings from the drugs
budget to pay for an additional staff post?
Chapter 8 Gruel
Two main categories of budget
- revenue budgets that relate to items appearing in the income statement, that is items
relating to the operational activities of the organization
- capital budgets that relate to items appearing in the balance sheet, such as the acquisition
or disposal of property belonging to the organization
Cash budgets, which profile cash flows over the budget period, ensure that there is enough cash to
meet operational and other needs. All of the budgets within an organization will be combined by its
financial managers to form a master budget. This may be translated into a forecast income
statement and a forecast balance sheet showing the organization’s planned position at the end of
the budget period. The two main budgets for most clinical departments will be staff budgets and
nonstaff budgets. Other budgets used include cross charges budgets, capital charges budgets,
capital budgets and income budgets
Staff budgets
Biggest cost item of all in many health care organizations. Once you have the agreed activity level for
the forthcoming year, the first step in constructing a staff budget is to identify and list the number of
posts and their associated costs. The numbers and grades of staff employed are generally prescribed
through some system of human resource control. Within case-mix systems the number of projected
cases can be used to determine the required staffing levels for the agreed contracts, with last year’s
staffing levels being adjusted to reflect any planned change in activity levels. Where staff are
employed in more than one department, or part-time or contract staff are employed, their cost is
calculated as a fraction of a full-time post (full-time equivalent). Where a staff member works in
more than one department, systems should be in place to ensure that their full costs are allocated
between different departments.
- There are several things that must be considered when drawing up a staff budget
• Will staffing levels change during the year? If so, the budget profile should show when
these changes will take place and reflect the resulting changes in staff costs
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