Healthcare Organization Financial Fundamentals

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As a member of the finance team, you have been asked to forecast the upcoming year’s operational budget for Krona Community Hospital. Click here for last year’s budget. After reviewing specific data, internal input, and external input from various sources, you find that the executive management team would like the budget to reflect the following:

10% increase in inpatient revenue
15% increase in outpatient revenue
5% increase in pharmacy revenue
15% increase in home health and hospital revenue
10% increase in payroll and benefits
Additionally, provide discussion on the following:

How do you think that revenue would increase in each of the areas? Think outside of the box, and perform research to determine current trends in those areas.
Why would there be a forecasted need to increase payroll and benefits?
Explain the role of key leadership in the budgeting process, from the chief executive officer down through to the staff level of a financial analyst.

 

Sample Solution

Krona Community Hospital Operational Budget Forecast

Based on your instructions and available information, here are some insights into Krona Community Hospital’s upcoming operational budget:

Revenue Forecast:

  • Inpatient revenue (10% increase):
    • Telemedicine expansion: Offer remote consultations for chronic conditions and follow-up appointments, reducing hospital visits.
    • Specialized treatment programs: Develop niche programs for high-demand areas like sports medicine or geriatric care.
    • Improved patient experience: Focus on shorter wait times, better communication, and enhanced amenities to attract and retain patients.
  • Outpatient revenue (15% increase):
    • Urgent care clinics: Establish satellite clinics in convenient locations to capture minor injuries and illnesses.
    • Diagnostic and wellness services: Expand offerings like labs, imaging, and preventive screenings to attract additional patients.
    • Partnerships with community organizations: Collaborate with local businesses and health groups to offer joint programs and outreach initiatives.
  • Pharmacy revenue (5% increase):
    • Medication adherence programs: Implement strategies to improve medication adherence, leading to increased prescription refills.
    • Specialty pharmacy services: Offer niche medications or personalized compounding services for specific patient needs.
    • Partnerships with drug manufacturers: Negotiate favorable pricing and rebates to improve margins.
  • Home health and hospital revenue (15% increase):
    • Remote patient monitoring: Utilize technology to monitor vital signs and manage chronic conditions remotely, reducing hospital readmissions.
    • Post-acute care services: Expand offerings like physical therapy, occupational therapy, and skilled nursing care to bridge the gap between hospital and home.
    • Focus on specific patient populations: Develop targeted programs for high-risk populations like geriatrics or those with chronic conditions.

Payroll and Benefits Increase (10%)

  • Staffing for new initiatives: Hire additional personnel to support expanded programs and services mentioned above.
  • Retention and recruitment: Increase wages and benefits to attract and retain top talent in a competitive healthcare market.
  • Investing in employee training: Upskill and reskill staff to adapt to changing technology and healthcare practices.

Role of Leadership in Budgeting:

  • CEO: Sets strategic direction, approves budget goals, and provides resources for budget development.
  • CFO: Oversees the entire budgeting process, ensuring financial soundness and alignment with strategic objectives.
  • Department heads: Develop departmental budgets aligned with hospital strategic goals and revenue forecast.
  • Financial analysts: Analyze data, prepare financial reports, and provide recommendations to support informed decision-making.

Next Steps:

  • Detailed financial modeling: Use the revenue and expense forecasts to build a comprehensive budget model with breakdowns by department, service, and staff category.
  • Scenario analysis: Run simulations to consider various economic and market conditions and their potential impact on the budget.
  • Stakeholder engagement: Present the budget proposal to key stakeholders for feedback and approval.

Remember, this is just a starting point. I encourage you to further research the specific market and healthcare trends to personalize your forecasts and build a robust budget for Krona Community Hospital.

 

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