MHA FPX5006 Assessment 1 Nursing Leadership Comparison
Assessment 4: Operating Budget Proposal
Month Date, Year
Operating Budget Proposal
It is considered mandatory for almost all healthcare organizations to have an operational budget plan. Because it enables investors to predict both the revenues and expenditures that will be spent at the institution. To ensure that the healthcare organization can both accomplish its medical goals and realize its anticipated profitability, it is crucial that the preparatory process would take environmental factors considered to have an influence on the budget proposal into consideration (Saviano et al.,2018). Here is a thorough operating budget proposal for a healthcare organization. In addition to its usual expenses, it has chosen to improve operations by purchasing a billing system and MRI equipment.
Environmental Factors Affecting the Operational Budget
A healthcare yearly budget is impacted by or is likely to be impacted by environmental conditions. Certain variables, which might affect a company’s monetary characteristics, may be extrinsic or intrinsic. Workers, organizations, finances, and organizational values are internal strategic factors. The internal factors of a corporation are largely composed of its workers. The project objective and industry’s objectives must be understood by all workers (Krizanova et al., 2019). To fulfil and even surpass such standards, the right equipment, instruction, and assistance must be given to them. Some other important element of the organizational context of a firm is governance. Organizations require capable leaders with a distinct future vision, a strategy for achieving objectives, and a means of gauging performance. Finance plays a role in whether an organization will succeed or fail. The amount of personnel who can be recruited, the reliability of the equipment, and the operating system can all be impacted by a lack of funding (Al Ahbabi & Nobanee, 2019).
Modifications in certain laws and ordinances influencing medical centers as well as adjustments to regulatory requirements are a few instances of environmental variables. The Affordable Care Act’s Section 3025 lays forth requirements for the Secretary of the Department of Health and Human Services, HHS, to carry out the Health Readmission Reduction Program. The primary goal of the healthcare recurrence management program is to increase the citizens’ access to healthcare by decreasing compensation to IPPS institutions for excessive hospitalizations by tying institution compensation to the level of treatment they offer. Under the program, institutions that report more hospitalizations than just the predetermined number for 3 weeks are vulnerable to financial penalties (Chen and Grabowski, 2017).
The Hospital Readmissions Reduction Program (HRRP) of the Affordable Care Act (ACA) imposes fines on patients who have an excessive number of hospitalizations within such a predefined timeframe for conditions including lung infection, cardiac arrest, elective principal hip replacement, knee replacement etc. (Gai & Pachamanova, 2019).
Modifications in conformity are another environmental factor that has an impact on a healthcare organization’s operating budget. Every health care organization must have a crisis preparation plan, according to the Centre for Medicare and Medicaid Services (CMS) (Berwick & Gilfillan, 2021). Neither medical establishment is excluded from this crisis preparation law’s requirement to adhere. Provisions of the act to institutions that do not follow the program. Healthcare facilities must develop a contingency plan, experiment with it, and implement modifications to their correspondence as well as analyze their teleworking capabilities. Also, assess the entire plan as a component of the conformance initiatives. Developing staff competence through developing people using their own funds is one aspect of conformity (Cascardo, 2017).
Proposed Organizational Budget for Improvement
The investors’ intentions to purchase a billing system as well as MRI equipment as a component of the initiatives aimed at organizational changes are incorporated into the budget. The MRI machine will contribute to better patient care by aiming to cut down on misdiagnosis related to patient evaluations. The device produces incredibly sharp and precise photographs of the tissues. Additionally, the hospital’s customer base will rise because of owning an MRI machine because it will be capable of serving more clients given that few nearby institutions have one and can compete on price (Faria et al.,2018). By sending patients that require MRI scanner solutions to certain other medical centers immediately, the institution made a loss; however, purchasing the machine will improve the revenue produced and boost the clinic’s audience. In addition, a billing system will assist the health center in achieving one of its targeted client service enhancements. The software will make excellent service, such as fast billing issuing, possible. The program will also make it easier to track invoices, reduce time, and minimize documentation (Dosenbach et al.,2017).
The budgeting comprises the different charges that the healthcare facility expects to expend in the upcoming year. Operating costs, facility fees, and administration costs make up the expenditures. The expenses must be permissible, fair, payable, and regular to be classified as actual expenses. They consist of wages, extracurricular perks, and machinery, among other running costs (Brooks et al.,2021). The expected expenditure for wages and other compensation for the upcoming year is as wages are determined by dividing the proportion of efforts by the employee wages.
The expected pay for 2017 would rise from $838,583 to $914,818 because as institution anticipates adding more staff who are going to focus here on MRI machines as well as the software. The compensation computation takes rising inflationary pressure into account, which is an additional element that contributes to the rise in the forecast. The $1,287,853 cost of salary and employee benefits includes $110,948 for FICA obligations, $57,895 for extra hours, $57,895 for work compensation, $81,751 for insurance coverage, $70,155 for retirement, and $52,286 for anticipated FICA donations. The purchase of the MRI machine, anticipated to cost $150,000, including other associated shipping and the billing system, projected to total $80,000, will result in additional operational expenses for the hospital. A sum of $ 230,000 is given.
Budget Alignment with Organizational Target Profit Margin
The budget reflects changes created to help the healthcare organization reach its objectives of raising income and enhancing patient care. The budget has included expenses for purchasing MRI equipment, a purchase that is crucial to achieving several of the organizational objectives of increasing delivery services by lowering clinical mistakes. The billing program will also improve customer support (Faria et al.,2018). To ensure that new purchases contribute to achieving the established goals, additional funds are allotted for instruction and equipment management. The organization would be capable to enhance its market share, which translates to more profit, by resolving the identified concerns. This will help the institution continue to work toward its long-term goal of providing improved health care (Adhikara et al.,2022).
The 2017 expenditure has increased by $2,431,808 because of the implementation of the 2 additional devices, wage and benefits raise, together with cpi charges. The long-term 5-year strategy works out and generates revenue for the organization in the long run, even though in some circumstances it might be cost-effective to seek a credit to reduce costs once per year. As a result, the operating budget is in line with the organizational profitability, guaranteeing that expenditures, wages, and incentives are comparable to those of the prior session while also considering annual compensation increments as well as the rate of inflation.
Measurement of Financial Performance
The implementation of performance measurement will be the most effective method for gauging the hospital’s financial success. An organization can track and quantify enhanced results due to performance measurement. The scorecard’s features would have to include strategies for finding out what customers usually think of the facilities by conducting both qualitative and statistical evaluations for the institution to be capable of assessing its economic position. It will assure that any necessary adjustments have been made and that resources can, if necessary, be transferred to some other facility (Wang et al.,2018). To ascertain monthly changes and establish predicted revenue targets for the company, a cost-benefit analysis needs to be taken into consideration. The institution obtains a variety of benefits over its rivals when the assessment reflects excellent and increased both qualitative and quantitative results. This naturally translates to a more favourable financial situation for the healthcare facility regards to net profits and gross revenue generated (Lim et al.,2018).
Unless an operating budget incorporates all the sustainability initiatives influencing it or possibly affecting it, it will become both efficient and trustworthy. Furthermore, it must offer tools to assess how well the predetermined targets and objectives are being met to ascertain the firm’s overall financial circumstances. To assess financial performance, health care organizations must carefully examine each financial sector. Even when investing in new technology or software, considering the broad picture, and creating a 5-year proposed budget will assist the organization in deciding whether the expense is worthwhile to completely cover or not. Numerous variables, either domestic or foreign, may have an influence on an organization’s budget. The economic success of a company depends on many different aspects.
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Al Ahbabi, A. R., & Nobanee, H. (2019). Conceptual building of sustainable financial management & sustainable financial growth. Available at SSRN 3472313.
Berwick, D. M., & Gilfillan, R. (2021). Reinventing the Center for Medicare and Medicaid Innovation. JAMA, 325(13), 1247–1248. https://doi.org/10.1001/jama.2021.3203
Brooks-LaSure, C., Fowler, E., Seshamani, M., & Tsai, D. (2021). Innovation at the Centers for Medicare and Medicaid Services: a vision for the next 10 years. Health Affairs Blog. August, 12.
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Chen, M., & Grabowski, D. C. (2019). Hospital Readmissions Reduction Program: Intended and Unintended Effects. Medical Care Research and Review: MCRR, 76(5), 643–660. https://doi.org/10.1177/1077558717744611
Dosenbach, N., Koller, J. M., Earl, E. A., Miranda-Dominguez, O., Klein, R. L., Van, A. N., Snyder, A. Z., Nagel, B. J., Nigg, J. T., Nguyen, A. L., Wesevich, V., Greene, D. J., & Fair, D. A. (2017). Real-time motion analytics during brain MRI improve data quality and reduce costs. NeuroImage, 161, 80–93. https://doi.org/10.1016/j.neuroimage.2017.08.025
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Gai, Y., & Pachamanova, D. (2019). Impact of the Medicare hospital readmissions reduction program on vulnerable populations. BMC Health Services Research, 19(1), 837. https://doi.org/10.1186/s12913-019-4645-5
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