Budget management analysis
Intensive care units are a costly resource accounting for nearly 10 to 20% of hospital expenses and 1 to 2% of the gross national product in the US. Continuous reforms in the health care sector targeted at improving the quality of health care while lowering its costs have been witnessed over the last several decades. ICUs are expensive mainly they are labor intensive and they involve expensive treatment modalities. The fact that ICUs consume about 10 to 20% of hospital budgets whilst caring for only about 5% of total inpatient populations in hospitals decries the need for containment of costs in these units. The aim of this paper therefore is to discuss the various strategies that can be explored in managing the budget of a 32-bed ICU in a community hospital with an aim of ensuring that it remains within forecasts. Further, the reasons that prompted variances in the ICU budget for the last quarter as well as the strategies that can be employed in reducing them will be described. The final section of this paper will provide recommendations of the three benchmarking techniques that are most appropriate in avoiding budget variances as well as the justification for them.
Strategies to manage budgets within forecasts
A number of strategies can be employed to maintain the budget of the 32 bed ICU unit at the community hospital within forecasts. They include managing expenses, monitoring for variances and implementing corrective actions, establishing a culture of accountability and setting accurate budgets for the department (Clark, 2005; Brady, Cornett & DeLetter, 2011). As far as managing expenses is concerned, the manager of the department should involve the staff nurses in identifying cost-containment opportunities; these staffs are in frequent and direct contact with patients and hence they are best placed for identifying such opportunities. Cost containment measures in the ICU may include but are not limited to inventory control so as to reduce unnecessary stock, identifying and eliminating costly habits such as habitual imaging studies which may not be indicated and endeavoring to make the most cost-effective decisions possible when managing patients (Clark, 2005; Brady, Cornett & DeLetter, 2011).
Effective management of expenses can only be achieved if all the ICU staffs are actively involved in the budgeting process. Cost awareness amongst ICU staffs is a prerequisite since it has been established that nurses are poorly aware of the costs of medical supplies they use. Therefore, it is vital for the ICU manager to create cost awareness amongst the staffs working in the unit and to also instill a culture of accountability. Awareness should be created via a self-instructional cost-awareness program mandatory for all staffs that would educate them on the various costs incurred in running the unit. A team should also be established to brainstorm on how to effectively curtail costs under direct control of the staffs without compromising the quality of care. In addition, the unit manager should always present the budget to the employees once it has been prepared so that they can own it. All the aforementioned measures are geared towards instilling a sense of accountability and thereby engendering commitment amongst the employees for meeting the budget (Clark, 2005; Brady, Cornett & DeLetter, 2011).
Budgetary variances should be monitored each month and explanations for these variances provided. The senior management of the hospital should require the manager of the ICU unit to prepare, present and institute remedial actions within a given timeline for instance within a week of the variance reports. The latter requirement would heighten the unit’s sense of accountability in meeting the budget (Clark, 2005).
Accurate determination of ICU costs is an overwhelming task marked by many difficulties mainly because there is no single internationally accepted methodology for calculating these costs (Seidel, Whiting & Edbrooke, 2006). The preparation of the ICU budget should however be based on the hospital’s five year strategic plan. In addition, the most suitable method for calculating the costs related to this particular ICU should be determined and employed during the budget preparation process. The ICU budgets for the past five years are also useful guides that can be used to study trends in the various ICU costs and hence arrive at a near accurate figure. More importantly, the budget preparation process should be guided by acceptable benchmarks from ICU units from other similar or near similar hospitals. Although it may be impossible to precisely match the ICU budget with benchmarks from other hospitals, acceptable limits can be agreed upon as far as preparation of the budget is concerned. Lastly, the budget prepared should be flexible to cater for variability in costs. In the end, an accurate realistic budget is critical if the goal of achieving reductions in the variances between the actual and the projected costs is to become a reality (Clark, 2005; Brady, Cornett & DeLetter, 2011).
Orientation for new nurses
A number of factors positively contributed to the variances depicted in the figure above. The variance in the costs of the new IV pumps for replacement and upgrading was prompted by an increase in the price of the pumps. As for the transfer monitors, two rather than the one monitor budgeted for broke down during the period and had to be replaced hence the variance of $4000. Moreover, an increase in the number of pressure ulcers to 7 four more than those recorded in the previous quarters necessitated the purchase of extra specialty beds and thus the $50000 variance. The $1350 variance in the cost of hemoglobin probes was due to the fact that the probes purchased during this period were more expensive than originally planned. Lastly, the ICU experienced a high rate of staff turnover during this specific quarter which significantly increased the costs related to the orientation of new nurses.
Strategies to avoid variances in expenses
Various strategies can be explored in an effort to keep the costs of expenses in line with the figures projected in the budget. These cost containment strategies include but are not limited to one, creating awareness amongst staff on the cost of the various items used during the delivery of care with an aim of making them cost conscious. This would in turn encourage them to use less expensive but quality products where possible and expensive supplies only when absolutely necessary. Turning some fixed costs into variable cost is another avenue that can be explored to reduce budget variances. For instance, in this particular case, specialty beds which are traditionally purchased as fixed assets can be leased on short-term or long-term basis at cheaper rates and hence eliminate the need to incur more costs purchasing and maintaining them (Elliot, Aitken & Chaboyer, 2007, p.25). The unit in charge of the ICU unit can also liaise with other departmental heads and reach an agreement to purchase standardized products in bulk for all the units where possible so as to capitalize on quantity discounts.
Avoiding unnecessary habitual procedures for stable patients is another opportunity for reducing the budgetary variances. More importantly, the unit in-charge needs to constitute a team to investigate and come up with sustainable solutions to the increase in bed sores and to lower the high rate of staff turnover. External benchmarking of care procedures can help the unit identify best practices in preventing the occurrence of complications such as bed sores which as shown by the $50000 variance caused are very expensive to manage. Last but not least, the unit needs to utilize health information systems for the orientation of new nurses (Marini & Wheeler, pp.352-353).
Benchmarking techniques recommended
Internal, competitive and functional benchmarking techniques are the most appropriate in reducing the variances in the budget noted. Internal benchmarking entails comparing the unit’s budget and other indicators such as health practices with those of other units within the hospital as well as those practiced within the ICU unit in the past. Competitive benchmarking involves comparing the unit’s performance with those of the hospital’s best competitors or with national values. Functional benchmarking involves comparing cost and care indicators in different sectors of organizations which carry out similar procedures or processes (Forgia & Couttolenc, 2008, p.320). These three benchmarking techniques will help the unit staffs to gain insight on their own performance as well as learn how to reduce budget variances by utilizing best practices from other organizations. Therefore, they will provide a unique opportunity for the ICU staff to identify gaps and opportunities for lowering costs in the unit (Forgia & Couttolenc, 2008, p.320; Brouwer, 2008, p.12).
Conclusion
In conclusion therefore, managing expenses, establishing accountability, setting accurate budgets are just but a few of the strategies that can be explored to manage budgets within forecasts for the ICU unit. On the other hand, factors that drove the budget variances for the last quarter included a high rate of staff turnover, an increase in the number of complications during the management amongst others. Strategies that can be explored to avoid such variances in future include using less costly supplies, avoiding unnecessary routine procedures and liaising with other departments so as to purchase products in bulk. Internal, competitive and functional benchmarking are the most appropriate benchmarking techniques that can be employed to reduce the previously mentioned budget variances because they provide an opportunity for the unit to learn from its past performances and from external ICU units.
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