HA4200D – Healthcare Financial Management

HA4200D – Healthcare Financial Management

HA4200D – Healthcare Financial ManagementHA4200D – Healthcare Financial Management

LP04-Owning a car is a big responsibility. Pretend that you are helping your child, nephew, or niece understand the various financial expenses that come with owning a car. Help them by making a list of direct and indirect cost that will allow them to understand how to manage their finances related to owning a vehicle. Share your list to the discussion board.

 

HA4200D – Healthcare Financial Management

 

Health Care Finance: Basic Tools for Nonfinancial Managers -Vitalsource [email protected]#magicMA

Chapter 7:

Cost Classifications

Distinction Between Direct and Indirect Costs (1 of 2)

  • Direct Costs are specifically associated with a particular unit or department or patient.
  • Direct costs are directly attributable to the cost object (any unit for which a separate cost measurement is desired).

Distinction Between Direct and Indirect Costs (2 of 2)

  • Indirect Costs, on the other hand, cannot be specifically associated with a particular unit or department or patient.
  • Indirect costs cannot be directly attributed to the cost object (any unit for which a separate cost measurement is desired).

Practice Exercise 7-1:
Identifying Direct and Indirect Cost

 

Distinction Between Direct
and Indirect Costs

  • Direct Costs are for the sole benefit of a particular operating unit (department) and can be traced.
  • Indirect Costs are for the benefit of the overall operation and not for any one unit (department). They must be allocated.

Figure 7-1 Assigning Costs to the Cost Object.

 

Why the Difference Is
Important to Management

  • The Manager is often responsible for the traceable expenses (Direct Expenses) but is not responsible for the allocated expenses (the Indirect Expenses, or overhead).

(Study the examples in the chapter closely.)

Responsibility Centers

  • In a Responsibility Center the Manager is responsible for both the revenue/volume (inflow) side and the expense (outflow) side of a department, division, unit, or program.
  • Another term for responsibility center is “profit center.”
  • Responsibility Center information is especially important because the Manager is responsible for the operation.

(Study the Westside Center example in the chapter carefully.)

 

Figure 7-2 Lines of managerial responsibility at Westside center.

Courtesy of Resource Group, Ltd., Dallas, Texas

HA4200D – Healthcare Financial Management

HA4200D – Healthcare Financial Management

Distinction Between
Product and Period Costs (1 of 4)

  • Traditionally, Product Costs represent a product that has been manufactured and placed into inventory while waiting to be sold.
  • Then, when the product is sold, it is removed from inventory, matched with revenue, and recognized as a cost.

Distinction Between
Product and Period Costs (2 of 4)

  • A Period Cost is not connected to the manufacturing process.
  • Instead it is matched with revenue on the basis of what period the cost is incurred; thus “period” costs.*

* The term comes from the span of time in which matching occurs, known as a “time period.”

 

Distinction Between
Product and Period Costs (3 of 4)

  • Medical Supply and Pharmacy Departments have inventories on hand.
  • They use the Product Cost method, removing the item from inventory and then matching it with cost.

Distinction Between
Product and Period Costs (4 of 4)

  • Except for departments that carry inventories, however, health care is a service business.
  • One way to think of product costs in this instance is as necessary to the department, division, unit, etc. to deliver the service, while period costs are necessary to support the existence of the organization itself.

,HA4200D – Healthcare Financial Management

Chapter 10: Staffing: Methods, Operations, and Regulations

HA4200D – Healthcare Financial Management

HA4200D – Healthcare Financial Management

Staffing Requirements

  • In Health Care, many positions must be filled, or covered, 7 days a week, 24 hours a day.

Productive and
Non-Productive Time (1 of 3)

Why annualize?

  • Employees are paid for more hours than the hours they are on duty (vacation days, etc.)
  • Annualizing allows the full cost of the position to be computed through a “burden” approach.

Productive and
Non-Productive Time (2 of 3)

  • Productive Time: Represents the employee’s net hours on duty when performing the functions in his/her job description.
  • Non-Productive Time: Represents the paid-for time when the employee is not on duty and not performing his/her job description functions.
  • Includes paid-for vacation days, holidays, personal leave days, and/or sick days

Productive and
Non-Productive Time (3 of 3)

Exhibit 10-1 illustrates:

  • Productive Time—net days when on duty
  • Non-Productive Time—additional days paid for but not worked

FTEs for Annualizing
Staff Positions (1 of 2)

FTE Definition for purposes of understanding annualizing positions:

  • The equivalent of one full-time employee paid for one year, including both productive and non-productive time
  • Two employees working half-time for one year would be the same as one FTE

FTEs for Annualizing
Staff Positions (2 of 2)

  • The calculations to annualize staff positions is a two-step process:

Compute the net days worked.

Convert the net paid days worked to a factor.

(See Exhibit 10-2 as an example.)

 

Number of Employees Required to
Fill a Position (1 of 3)

  • Why calculate by position?
  • Computing by position is used in controlling, planning, and decision-making.
  • The scheduled position method is often used when forecasting new programs and services.
  • You will also find scheduling software using this method.

Number of Employees Required to
Fill a Position (2 of 3)

FTE definition for purposes of filling a scheduled position:

  • A factor expressing the number of employees required measured against, or the equivalent of, one full-time employee’s standard work week.

Number of Employees Required to
Fill a Position (3 of 3)

The calculation to fill scheduled positions is as follows:

  • Compute the number of hours for a full-time position filled for one year. This measure is the baseline.
  • Compute a factor representing the position to be filled for the required number of days (a required seven-day week to cover, for example, versus a five-day work week equals a factor of 1.4).

(See the cast room example in the text.)

 

Tying Cost to Staffing (1 of 6)

  • In the case of the annualizing method, the cost of nonproductive days is already in the formula.

So…

  • Multiply the factor times the base hourly rate to compute cost.

(Study the example in the chapter.)

 

Tying Cost to Staffing (2 of 6)

  • In the case of the scheduled position method, the base rate must be increased, or burdened, by the nonproductive time.
  • First, increase the hourly base rate by a percent or factor that represents the nonproductive time. Then multiply the burdened based rate by the factor to compute the cost.
  • Then, multiply the factor times the base hourly rate to compute the cost.

(Examine the examples in the chapter.)

 

Tying Cost to Staffing (3 of 6)

  • The actual cost is attached to staffing in the books and records
  • Using…
  • a subsidiary journal and
  • a basic transaction record

(Both of which are more fully described in another chapter.)

Tying Cost to Staffing (4 of 6)

  • An example of a subsidiary journal is the Payroll Register illustrated in Exhibit 10-5.

Tying Cost to Staffing (5 of 6)

  • An example of a basic transaction record is the time card illustrated in Exhibit 10-6.

(Of course this time card format will probably be computerized.)

 

Tying Cost to Staffing (6 of 6)

  • In summary, hours worked and pay rates are essential ingredients of staffing plans, budgets, and forecasts
  • Appropriate staffing is the responsibility of the manager.

Staffing Regulatory Requirements

  • The IMPACT Act’s Staffing Report Requirements:
  • Regulatory specifics about staffing reports
  • Additional reporting requirements
  • Funds provided for report implementation

Staffing Regulatory Requirements

  • State Certificate-of-Need (CON) Laws and Requirements:
  • Health planning background
  • Certificate-of-need programs
  • How CON-related regulations affect staffing

Courtesy of J.J. Baker and R.W. Baker, Dallas, Texas

 

Calculation for Annualizing
Master Staffing Plan Example

Step 1: Compute Net Paid Days Worked Total Days in Business Year Less two days off per Week Number of Paid Days per Year RN 364 104 260 LPN 364 104 260 NA 364 104 260
Less Paid Days Not Worked: Holidays Sick Days Vacation Days Education Days Net Paid Days Worked 9 7 15 3 226 9 7 15 2 227 9 7 15 1 226

 

 

 

 

Calculation for Annualizing
Master Staffing Plan: Example

Step 2: Converting Net Paid Days Worked to a Factor

RN

LPN

NA

364

226

=

1.6106192

364

227

364

228

=

=

1.6035242

1.5964912

 

 

FTEs to Annualize Staffing:
Assignment Exercise 10-1

Compute Net Paid Days Worked Laboratory Medical Records
Total Days in Business Year Less Two Days off Per Week Number of Paid Days Per Year _________ _________ _________ ________ ________ ________
Less Paid days Not Worked
Holidays Sick Days Education Days Vacation Days Personal Leave Days _________ _________ _________ _________ _________ ________ ________ ________ ________ ________
Net Paid Days Worked ________ ________ _______ _______
Covert Net Paid Days Worked to a Factor: For the Lab. Total days in business year divided by net paid days worked = factor _______________ For Medical Records Total days in business year divided by net paid days worked = factor _______________
Compute Net Paid Days Worked Laboratory Medical Records
Total Days in Business Year Less Two Days off Per Week Number of Paid Days Per Year 364 104 260 364 104 260
Less Paid days Not Worked
Holidays Sick Days Education Days Vacation Days Personal Leave Days 9 7 3 15 0 9 0 0 0 21
Net Paid Days Worked 34 226 30 230
Covert Net Paid Days Worked to a Factor: For the Lab. Total days in business year divided by net paid days worked = factor 364/226 = 1.610619 For Medical Records Total days in business year divided by net paid days worked = factor 364/230 = 1.582609

 

FTEs to Fill Position
Example (Exhibit 10-4): 8-Hour

Emergency Department Scheduling for Eight-Hour Shifts:
Shift One Day Shift Two Evening Shift Three Night = 24-Hour Scheduling Total
Position: Emergency Room Intake 1 1 1 = Three Eight-Hour Shifts
Staff needed to cover position 7/24 1.4 1.4 1.4 = 4.2 FTEs
One full-time employee works 40 hours per week. One eight-hour shift per day times seven days per week equals 56 hours on duty. Therefore, to cover seven days or 56 hours requires 1.4 times a 40-hour employee.

 

FTEs to Fill a Position:
Practice Exercise 10-2: 8-Hour

Scheduling for Eight-Hour Shifts:
Shift One Day Shift Two Evening Shift Three Night = 24-Hour Scheduling Total
Position: Admissions Officer 2 1 1 = Four Eight Hour Shifts
FTEs to cover position equals 2.8 1.4 1.4 = 5.6
Position Clerical 1 0 0 = One Eight Hour Shift
FTEs to cover position equals 1.4 0 0 = 1.4

 

FTEs to Fill a Position:
Assignment Exercise 10-2: 8-Hour

Scheduling for Eight-Hour Shifts:
Shift One Day Shift Two Evening Shift Three Night = FTEs Seven Day Week
Position: Nursing Supervisor Technician Nurses Clerical Aides 2.8 2.8 4.2 1.4 1.4 1.4 2.8 2.8 0 0 1.4 1.4 2.8 0 0 = 5.6 7.0 9.8 1.4 1.4
Total FTEs needed to cover all shifts 25.2

 

FTEs to Fill a Position:
Example: 12-Hour Shifts

Emergency Department Scheduling for Twelve-Hour Shifts: 36-Hour Week
Shift One Shift Two = 24-Hour Scheduling Total
Position: Emergency Room Intake 1 1 = Two Twelve Hour Shifts
Staff needed to cover position 7/24 2.33 2.33 = 4.66 FTEs
One full time employee works 36 hours per week. One twelve-hour shift per day times seven days per week equals 84 hours on duty. Therefore, to cover seven days or 84 hours requires 2.33 times a 36-hour employee.

 

FTEs to Fill a Position:
Assignment: 12-Hour Shifts

Scheduling for Twelve-Hour Shifts: 36 Hour Week
Shift One Shift Two = FTEs Seven Day Week
Position: Nursing Supervisor Technician Nurses Clerical Aides 4.66 2.66 7 1.4 2.33 2.33 4.66 4.66 0 0 = 7 9.33 11.66 1.4 2.33
Total FTEs needed to cover all shifts 31.75

 

FTEs to Fill a Position:
Example: 12-Hour Shifts

Emergency Department Scheduling for Twelve-Hour Shifts: 48-Hour Week
Shift One Shift Two = 24-Hour Scheduling Total
Position: Emergency Room Intake 1 1 = Two Twelve Hour Shifts
Staff needed to cover position 7/24 1.75 1.75 = 3.5 FTEs
One full time employee works 48 hours per week. One twelve-hour shift per day times seven days per week equals 84 hours on duty. Therefore, to cover seven days or 84 hours requires 1.75 times a 48 hour employee.

 

FTEs to Fill a Position:
Assignment 12-Hour Shifts

Scheduling for Twelve-Hour Shifts: 36-Hour Week
Shift One Shift Two = FTEs Seven Day Week
Position: Nursing Supervisor Technician Nurses Clerical Aides 3.50 3.50 5.25 1.4 2.33 1.75 3.50 3.50 0 0 = 5.25 7 8.75 1.4 2.33
Total FTEs needed to cover all shifts 24.73

 



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