Unit-Ix Fiscal Planning New 1

Mr. Channabasappa. K.
UNIT IX FISCAL PLANNING 1. BUDGETING IN NURSING PRACTICE INTRODUCTION Budget, as a control device is an extension of planning. After the planning and programming decision, the approved programme is translated into a totaled statement of monetary requirements and financial consequence. Budgeting, though primarily recognized as a device for controlling, becomes a major part of the planning process in any organization budgeting is done for indicating the expected results of the business and the possible future lines of action to be followed for the attainment of such results. Expected results are projected either in financial terms or in other numerical terms like units of products person-hours machine hours.etc MEANING OF BUDGET The word budget derived from the old English word budget tee means a tack or pouch which the Chancellor of the Exchequer use to take out his papers for lying before the parliament, the government, financial scheme for the ensuring year. DEFINITION Budget is a concrete precise picture of the total operation of an enterprise in monetary terms (HM Donovan) Budget is a operation plan, for a definite period usually a year- Expressed in financial terms and bused an expected income and expenditure PURPOSES The purposes of budgeting are: 1. Budget supplies the mechanism for translating fiscal 1-year objectives into projected monthly spending pattern. 2. Budget enhances fiscal planning and decision marking. 3. Budget clearly recognizes controllable and uncontrollable cost areas. 4. Budget offers a useful format for communicating fiscal objectives. 5. Budget allows feedback of utilization of budget. 6. Budget helps to identify problem areas and facilities for effective solution. 7. Budget provides means for measuring and recording financial success with the objectives of the institution. FEATURES OF BUDGET It should be flexible It should synthesis at past, present and future. 1
Mr. Channabasappa. K. M
It should be product joint venture, cooperation of executives / department heads at different levels of management. It should be in the form of statistical standard laid down in the specific numerical terms. It should have a support at top management throughout the period of its planning and implementation. PRINCIPLE OF BUDGET Budget should provide sound financial management by focusing on requirement of the organization. Budget should focus on objectives and policies of the organization. It must flow from objectives and give realistic expression to the way of realistic such objective. Budget should ensure the most effective use of scarce financial and non financial resources. Budget requires that programme activities planned in advance. Budgetary process requires consistent delegation for which fixed duties and responsibilities are required to be allocated to managers at different level for framing and executing budget. Budget should include co-ordinating efforts of various departments establishing a frame of reference for managerial decision and providing certain criteria for evaluating managerial performance. Selling budget target requires an adequate checks and balance against the adoption of too high or too low estimate, almost care is a must for fixing targets. Budget period must be appropriate to the nature of business or service and to type of budget. Budget is prepared under the direction on the supervision of the administration or financial officer. Budget are to be prepared and interpreted consistently throughout the organization in the communication in the planning process IMPORTANCE OF BUDGET 1. Budget is needed for planning for future course of action and to have a control over all activities in the organization. 2. Budget facilitates coordinating of various departmental and selection for realizing organizational objectives 3. Budget serves as a guide for action in the organization. 4. Budget helps one to weigh the values and to make decision when necessary on whether one is of greater values in the programmes than the other. TYPES OF BUDGET Since budget express plans and an organization may have different types of plans, there may be different types of budgets. These may be classified on the basis of
1. 2. 3. 4.
Coverage of functions master and functional budgets. Nature of activities covered capital and revenue budgets Period of budgets long term and short-term budgets Flexibility adopted fixed and flexible budgets.
1. Master and Functional budgets A master budget is prepared for the entire organization incorporating the budget of different functions. For example when we refer to the annual budget of government of India, it incorporates the budget outlays of different ministries. In the business organizations, the maser budget incorporates various functions and units and their outlays. It generally includes sales, production, costs. A functional budget is prepared incorporating a major function and its sub- functions. Since an organization may have a number of functions, numerous functional budgets are prepared. Eg. Production budget, cash budget in an organization. 2. Capital and Revenue budgets An organization activity involves two processes- creating facilities for carrying out activities and actual performance activities. Creating facilities for carrying out activities include capital expenditure whose returns accrue over a number of years. For such activities, capital budget is prepared which is essentially a list of what management believes to be worthwhile projects for acquisition of new assets together with the estimated cost of each project. Revenue budget involves the formulation of target for a year or so in respect of various organizational activities such as production, marketing, finance, etc. Thus, a revenue budget includes expenditure and earning for a specific period like one year. 3. Long term and short-term budgets Many organizations integrate their yearly budgets with long-term projections of business activities and along with yearly budgets; they prepare budgets for a longer period of 2 3 years. When one budget period is over, budgets are prepared for the next year and subsequent 2 -3 years. The short term budget is for a year and is divided into a number of periods for effective implementation. For eg. Cash budgets are on yearly basis as well as on monthly or quarterly basis to facilitate better cash management. 4. Fixed-celling and flexible budgets: Generally, organizations prepare which certain to only certain projected fixed volume of operations for a year or so. Such budgets are known as fixed of static budgets. When an organizations volume of business can be predicted with fair amount of precision, the fixed budget is satisfactory. 3
A budget which is designed to change in accordance with the activities of the organization is known as flexible budget. It considers several level of activity and assumes that labour, material or facilities used in production and hence cost vary with a known relationship to the actual of activity. OTHER TYPES OF BUDGET 1. INCREMENTAL BUDGET It is one based on estimated changes in present operation, plus a percentage increase for inflation, all of which is added to previous year budget. 2. OPEN ENDED BUDGET Is a financial plan in which each operating manager presents a single cost estimate for each programme in the unit, without indicating how the budget should be scaled down if less funding is available. 3. FIXED CEILING BUDGET Is a financial plan in which the upper most spending limit is set by top executive before the unit and divisional managers develop budget proposals for their areas of responsibility 4. FLEXIBLE BUDGET Consist of several financial plans, each for a different level of programmes activates. It is based on the fact that operating conditions rarely conform to expectations. 5. ROLL OVER BUDGET Is one that forecasts programmed revenues and expanses for a period greater than a year. To accommodate programmed that greater target than annual budget cycle. 6. PERFORMANCE BUDGET It is one based on functions, which allocate function, not division. Eg. Direct Nursing care, in service education, quality improvement, nursing research. 7. PROGRAMMED BUDGET Is one which costs are computed for a total programmed, i.e, grouping total coasts for each services programmed eg. MCH, FP and UIP etc. These base budgets requires the nurse manager to examine, justify each cost of every programmed both old and new in every annual budget preparation. 8. SUNSET BUDGET It is designed to Self Destruct within a prescribed time period to ensure the cessation of spend in by a predetermined date.
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SALES BUDGET Is the starting point in a budgetary programmed, since sales are basic activates which give shape to all other activities. Sales budget are compiled in terms of quality as well as of values. 10. PRODUCTION BUDGET It is the budget that aims at securing the economical manufacture of products and maximizing the utilization of production facilities Revenue and expanse Budget. It is expressed in financial terms and takes the nature of a perform income statement for the future. It may use prepared in a detailed form or in an abstract statement showing the items of profit and loss under classified headings. APPROACHES TO DEVELOP AN ORGANIZATION WIDE BUDGET Organizations adopt different approaches for preparing their budgets. One of the most common approaches is in the form of traditional budget in which the current years budget is taken as a base with the provisions of some additions and deductions in the next years budget. The traditional approach of budgeting does not eliminate the draw back of the past. Therefore, newer approaches of budgeting have emerged. These have resulted into three types of budgeting. 1. 2. 3. Performance budgeting Zero base budgeting Strategic budgeting
1. Performance budgetings A performance budget is an input / output budget or costs and results budget. Performance budget emphasis on non-financial measures of performance, which can be related to financial measures in explaining changes and deviations from planned performance. Performance measurements are useful for evaluating past performance and for planning future activities. Performance budgeting, results into the following. It correlates the financial and physical aspects of every programme or activity. It improves budget formulation, review and decision making at all levels of the organization. It facilitates better appreciation and review of organizational activities by the top management. It makes possible more effective performance audit. It measures progress towards long-term objectives. 2. Zero base budgeting This was applied for the first time in preparing the divisional budgets of Texas instruments of the USA in 1971. 5
Zero base budgets is based on a system where each function, irrespective of the fact whether it is old or new, must be justified in its entirety each time a new budget in detail from scratch that is zero bases. The process of zero bases involves four basic steps: Identification of decision units, that is cluster of activities or assignments within a managers operations for which he is accountable. Analysis of each decision units in the context of total decision package. Evaluation and ranking of all decision units to develop the budget request. Allocation of resources to each unit based Benefits of zero base budgeting: 1. effective allocation of resources 2. improvement in productively and cost effectiveness 3. effective means to control costs 4. elimination of unnecessary activities 5. Better focus on organizational objectives. 6. Saving time of top management. 3. Strategic budgeting It is used as a tool of resource allocation to various strategic business units and other units of an organization. Under strategic budgeting, in determining the resource needs of various units Formation of a budget committee: Budgeting is a cooperative undertaking. In smaller organization, the task of budget preparation may be entrusted to the accountant who works in close cooperation with the general management and department heads. But in bigger concerns, the budget should be prepared by each departmental/division manager. The accounts department assists in providing necessary background information and coordinates the budget of different departments. There may be a budget committee in an organization comprising of the departmental heads and finance manager or a budget officer. The function of the budget committee is to a) receive and approve all forecasts, departmental budgets, periodic reports showing comparison of actual and budgeted income and expenditure. b) the committee may also request for special studies of deviations from the budget and consider revision of budget to meet changed conditions. Essential requirements for budget preparation: 1) sound forcasting: 2) an adequate and well conceived accounting system 3) a well devised cost accounting system 4) a soundly constructed organization with fixed lines of responsibility. 6
5) Statistical informations 6) Support of top management 7) Length of budget period. PLANNING THE BUDGET Planning yields forecasts for one year and several years. The budget is an annual plan, intended to guide effective use of human and material resources, products or service and managing the environment to improve productivity. Budgetary planning ensures that the best methods are used to achieve financial objectives. In nursing, budgetary planning helps to ensure that clients or patients receive the nursing services they want and need from satisfied nursing workers. A nursing budgeting is a systematic plan that is an informed best estimate by nurse administrators of revenue and nursing expenses. Managing the financial end of nursing through an operational budget obviously can create a new dimension for nurse. The budget can be a strong support for developing written objectives for the nursing division and for each of its units. 2. STEPS IN THE BUDGETARY PROCESS
The nursing process provides a model for the steps in the budget planning. 1. Assessment
The first step is to assess what needs to be covered in the budget. Historically, toplevel managers frequently developed the budget for institution without input from middle or first level managers. Because unit managers who participate in fiscal planning are more up to be cost conscious an better understand the institutions long and short term goals, budgeting today generally reflects input from all level of the organizational hierarchy. Unit managers develop goals, objectives and budgetary estimates with input from colleagues and subordinates. Budgeting is most effective when all personnel using the resources are involved in the process. Managers therefore must be taught how to prepare a budget and must be supported by management throughout the budgeting process. 2. Develop a plan The second step is to develop a plan. The budget plan may be developed in many ways. A budgeting cycle that is set for 12 months is called a fiscal year budget. This fiscal year which may or may not coincide with calendar year, is then usually broken down into quarters or subdivided into monthly, quarterly or semiannual periods. Most budgets are developed for a one-year period, but a perpetual budget may be done on a continual basis each month. So that 12 months of future budget data are always available. Selecting the optimal time frame for budgeting is also important; a budget that predicted too far in advance has greater probability for error. If the budget is short sighted, compensating for unexpected major expenses or purchasing capital equipment may be difficult. 7
3. Implementation The third step is implementation. In this step, ongoing monitoring and analysis occur to avoid inadequate or excess funds at the end of fiscal year. In most health institutions, monthly-computerized statements outline each departments projected budget and any deviations from the budget. Each unit manager is accountable for budget deviations in their unit. Most units can expect some change causes and remedial actions must be taken if necessary .some managers artificially inflate their departments budgets as a cushion against budget cuts from a higher level of administration. If a major change in the budget is indicated, the entire budgeting process must be repeated. Top-level managers must watch for and correct unrealistic budget projection before they are implemented 4. Evaluation: This is last step. The budget must be reviewed periodically and modified as needed throughout the fiscal year. With each, successive year of budgeting, managers can more accurately predict their unit is budgetary requirements. BUDGET STAGES: The nursing budget follows three stages of development. 1. Formulation 2. Review and enactment 3. Execution 1. Formulation stage It is usually a set of number of month before the beginning of the fiscal year for the budget. One of the first steps in writing a budget is gathering data for accurate prediction of expenses and revenues (income). Primary sources of data are the objectives for the division of nursing and each cost center .other data include programmes from other departments that will require use or expansion of nursing resources, expansion of nursing clinics and client teaching programmes, incentive awards, library requirements, clinical and office supplies and equipments etc. 2. Review and enactment stage Review and enactment stage are budget development process that pull all the pieces together for approved of a final budget. Once the cost center managers present their budgets to the budget council, the chief nurse executive will consolidate the nursing budget. The chief executive officer of the organization and the governing broad will then give their approval. Throughout this process, conferences will be held at which budget adjustments are made.
3. Execution stage Execution of the budget involves directing, executing, and evaluating activities. The nurse administrator and managers who planned the budget execute it. Revisions in execution of the budgets are scheduled at stated intervals, frequently once or twice during fiscal year. Certain procedures are followed for evaluating the budget at cost center levels.
Steps in the preparation of an operating budget: 1) Collection of past data (historical data) as a background material for the preparation of budget in a cumulative form. 2) Examining the expressed objectives of the previous years and to note in each instance the extent to which these objectives have been achieved or exceeded. Before setting programs for future, it is necessary to assess the successes and failures of the past. Budget time is ideal for such reviews. 3) Setting objectives for the forecast year. These objectives might include ways to increase the utilization of existing facilities and personnel. 4) Stating the objectives in terms of units of production or services or activities. The indicated units are increased or decreased by the effect of expected achievements. 5) Consideration of salary of wages adjustments. A complete schedule of cost of living increase and merit increase must be prepared of all cost centres, detailing the persons and months and the amount of adjustments. However these increases should not exceed the ceiling salary/ wages established under the job evaluation study. 6) Preparation of report on the expenses related to insurance, taxes, supplies, services, maintenance and repair costs etc to be included in the budget schedule. 7) Preparation of budget report: this report comprises of a) narrative section summarizing the budget of explaining the budget plan for the year ahead, including the anticipated operating result and principal factors entering into increases and decreases in income and expenditure b) budget statements and supporting schedules in a concrete manner c) a comprehensive presentation of budget informations by activities and cost centres. 8) Review of the budget report by the administrator of the organization who ultimately presents it to the board of trustees. 9) Evaluation of the budget as an operating plan, incorporating any changes and presenting it to the finance committee. 10) The finance committee may further initiate any changes or modifications before finally presenting to the board for its consideration and decision. 11) Final approval by the board. THE BUDGET CALENDAR Formulation stage: 1. Develop objectives and management plans 2. Gather all financial, historical and statistical data and distribute 9
to cost center managers 3. Analyze data Review and enactment stage: 4. 5. 6. 7. 8. 9. Prepare unit budgets Present unit budgets for approval Revise and combine into organization budget. Present to budget council Revise and present to governing board Revise and distribute to cost center managers
Execution stage 10. 11. Direct and evaluate expenses and receipts Review budgets if indicated
BUDGETING CYCLE: The nurse administrator should use a system approach in designing and implementing a planning program budgeting cycle as follows 1. Agency goals are reviewed to identify activities of highest priority, because these are most likely to receive funding. 2. Objectives are reviewed for existing programs and written for proposal programs to ensure that achievement of these objectives will support agency mission. 3. Existing programs are revised and proposed programs designed to maximize goal achievement. 4. Labour, capital and operating expenses are computed for each program, old and new. 5. Alternative methods are identified for realizing designated objectives and price of each alternative is determined. 6. Comparisons are made to determine which alternative is most cost effective 7. A budget request is developed that details a fiscal plan for the preferred program, indicates alternative methods for meeting the same objective and explain why the recommended program is preferred. Cost expenditure: Cost can be defined as the value of economic resources used for producing a commodity or for carrying out the activity for providing services, which consist of two components, i.e quantity used and price fixed. Cost is the expenditure required to achieve a desired object. The total cost of a budget, service or program includes all significant elements-monetary property and personnel resources that are consumed to acquire or achieve the object service or program. Total cost can be direct or indirect labour cost. 10
1. Direct labor costs are wages paid to employees who are directly engaged in productive output, e.g. services to client. 2. Indirect labor cost includes all labor costs not included in direct costs, such as salaries to supervisors on above categories,e.g. services to ANO. 3. Semi variable costs are expenses that change as volume of output changes but not in direct proportion to the change in output, e.g. IJE. 4. Period costs are expenses that are associated with a period of time rather than with a level of activity,e.g. insurance premium. 5. Committed costs are expenses that are required to maintain an agencies legal and physical existence, e.g. license fee, application fees. 6. Programmed costs are expenses that are subjected to managerial control but relatively unconnected to current activities, e.g. research costs. 7. Overhead costs are expenses that are essential to agency operations but cannot be directly related to work volume or service delivery, e.g. cost of housekeeping or basic amenities.
3. Audit: Audit is an independent appraisal activity within an organization for review of accounting, financial and other operation as a basis of services to the management. It is monitoring the budget process. Here, the budget reports are needed to monitor expenditure and keep the budget process focused on long- range objectives. The most common tools are Capital inventory is an itemized list of current capital asset that enumerates each piece of capital equipment, together with items serial number, current valuation, and physical location, e.g.checking stock register and inventory. Supply inventory is itemized list of available supplies. It is needed to implement the operating budget for each unit. Position control system is a status of each budgeted position. The serial number assigned to each budgeted position should indicate both the job classification and the budget unit and cost centre which the position is assigned it should be documented, dated and identified the nature of transactions and facilitates later retrieval information. Monthly account reports are reports of the amount spent and remaining per item, e.g salary, T.A.etc Cost accounting is process of linking each expenditure to its purposes. Variance analysis a variance is a discrepancy between the amount of funds intended to be spent for particular purpose and the amount of funds actually used for that purpose. Variance analysis is a process that has the following four steps 1. Founds required for each budget item or expenditure are calculated for the expected level of activity. 2. For each budget item, the difference between actual and planned expenditure is calculated.
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3. These differences or variances are examined and the cause of each variance is identified. 4. Each positive variance (amount expended that exceeds the amount budgeted) is corrected either by increasing the funds allocated for the item or decreasing expenditure for it. The common causes of budget variance are: 1. 2. 3. 4. 5. 6. 7. 8. Unanticipated increase in supply or equipment price. Bills received in a different month from when purchases were made. Higher-than- expected inflation rate. Failure to calculate the cost of disposable supplies needed for new equipment. Professional practice charges that entail additional purchase. Unforeseen technological improvement demanded by patients and doctors. Reimbursement changes that alter the type and volume of service delivered. New medical staff members who implement new treatments requiring new equipment and supplies. 9. Changes in safety or injection control standard. 10. Excessive breakage of equipment by untrained staff. 11. Opening or closing of nursing unites. 12. Improperly budgeting unproductive time. The responsibility of nursing administration in budget includes the following. 1. Participation in planning budget. 2. Consult and take assistance of his /her subordinate in determining the needs of the unit for ensuing year on the basis of information received. 3. Request sufficient funds to suggest a sound programme such as provide for developing programme provision, expansion of programme, to attract and hold qualified staff to provide for expansion of physical facilities, supplies, equipment, for improving instruction (school and college) and also to carry out adequate functions of the institution. 4. Submit budget request with justification with proposed expenditure. The administrators define his/her budget so that nursing unit will have enough money to conduct programme effectively. Money must be available to allow experimentation also. 5. He/she should support the budget and interpret the subordinates, any changes that may affect instruction services for the adopted budget. He/she secures for the adapted budge and responsibility of the administrator to see that expenditure should not exceed the appropriation made. 6. Nurse administrator also is responsible for budget, and covers the routine budget control.
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To sum up the general rules and functions administrator/manager in budgeting are as given below: Rules: He/she: 1. Is visionary in identifying or forecasting short and long term unit needs, thus inspiring proactive rather than reactive fiscal planning. 2. Is knowledgeable about political, social and economic factors that shape fiscal planning in health care today. 3. Demonstrates flexibility in fiscal goals setting in a rapidly changing system. 4. Anticipates, recognises and creativity problem-solves budgetary constraints. 5. Influences and inspires group members to become active in short and long range fiscal planning. 6. Recognises when fiscal constraints have result in an inability to meet organisational or unit goals and communicate this insight effectively, following the chain of command. 7. Ensures that client safely is not jeopardised by cost contents.
Functions: 1. Identifies the importance of, and develops short and long range fiscal plans that reflect unit need. 2. Articulates and documents unit needs effectively to higher administrative levels. 3. Assess the internal and external environment of the organizations in forecasting to identify diving forces and barriers of fiscal planning. 4. Demonstrates knowledge of budgeting and uses appropriate techniques. 5. Provides opportunities for subordinates to participate in relevant fiscal planning. 6. Co-ordinates unit level fiscal planning to be congruent with organisational goals and objectives. 7. Accusatively assesses personal needs using predetermined standards or an established patient classification system. 8. Co-ordinates the monitoring aspects of budget control. 9. Ensures that documentation of clients need for services rendered in clear and complete to facilitate organisational reimbursement. Advantages of clinical budgeting: 1. Head of the clinical units are involved in planning, allocation of resources and achievement of objectives. 2. Head of the clinical units seeks specific resources, personnel and equipment to perform optimally the services. 3. Each clinical unit is responsible for expenditure including referrals, investigations, drugs and materials and services from other departments. 4. Clinical budgeting leads to cost containment and control over wastage. Conclusion: The budget is very important in management of patients in health care setting .proper planning of budget will improve the quality of services provided in the organization. So the nurse should know about types, steps, and cost containment. 13
4. COST EFFECTIVENESS AND COST ANALYSIS INTRODUCTION Cost-effectiveness analysis (CEA) is a form of economic analysis that compares the relative expenditure (costs) and outcomes (effects) of two or more courses of action. Costeffectiveness analysis is often used where a full cost-benefit analysis is inappropriate e.g. the problem is to determine how best to comply with a legal requirement. Typically the CEA is expressed in terms of a ratio where the denominator is a gain in health from a measure (years of life, premature births averted, sight-years gained) and the numerator is the cost of the health gain. The most commonly used outcome measure is quality-adjusted life years (QALY). Cost-utility analysis is similar to cost-effectiveness analysis.Cost-effectiveness analysis is generally not equivalent to cost-benefit analysis (CBA). Cost is money expended for all the resources used, including personnel, supplies, and equipment. COST DEFINITION The total amount of money that needs to be spent by an organization or a person or government. TYPES OF COST 1. Fixed cost: Fixed costs are those costs which stay the same regardless of the level of the activity. They are not related to volume. They remain constant as the volume increases and decreases over the period of time. Among fixed costs are deprivation of equipments and buildings, salaries, benefits, utilizes, interest on loans or bonds, and taxes. Example: Fixed costs are those which would exist even if the organization were shut down. 2. Variable cost: Variable costs are those cost that change depending on the level of volume. They do relate to volume and census (patient days). They include items such as meals and linen. The cost of supplies varies by patient census, physician orders and diagnosis. Example: the cost of surgical dressings increases when the patients wound has drainage and dressings to be changed frequently. 3. Sunk costs: Sunk costs are fixed expenses that cannot be recovered even if program is canceled. Example: Advertising 4. Accounting cost: A measure of cost based on a number of simplifications such as an assumed useful life for a price of equipment. 14
5. Average cost: Full cost divided by the number of units of service or patients 6. Cost center: A unit of department in an organization for which a manager is assigned responsibility for costs. 7. Direct costs direct costs are those expenses that directly effects patient care Ex: salaries for the nursing personnel who provide hands on patient care is considered as direct cost. 8. Indirect costs indirect costs are the expenditures that are necessary but dont effect patient care directly. Ex: salaries for dietary or housekeeping personnels. 9. Economic cost: The amount of money required to obtain the use of a resource. 10. Joint cost: Costs that is required for the treatment of several or more types of patients. The cost would not incur unless the organization stopped treating all of those different types of patients. 11. Opportunity costs: A measure of cost based on the value of the alternatives that are given up in order to use the resources as the organization has chosen. STAGES OF COSTS: Costs have two stages: 1) Acquisition cost: when some asset or service is purchased, the resource given in exchange represents the acquisition cost. 2) Expired cost: once the asset is fully consumed, it becomes an expired cost or an expense. FACTORS AFFECTING COST The volume of service provided is the greatest factor affecting costs. Other factors include length of patient stays, salaries, price of the material, case mix, seasonal factors, and efiiciencies (such as simplification of procedures and quality management to prevent errors that increase patient complications and increase costs). Still other factors that have an impact on cost are regulation and competition for market share; third party payers; the age and size of the agency; type and amount of services provided; the agencys mission; and relationships among nurses, physician and other personnel.
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COST CONTAINMENT The goal of the cost containment is to keep cost within acceptable limits for volume inflation, and other acceptable personnels. It involves the following: 1. Cost awareness. 2. Cost monitoring. 3. Cost management. 4. Cost avoidance. 5. Cost reduction. 6. Cost control. COST AWARENESS: It focuses the employees attention on costs. It increases organizational awareness of what costs are, the process available for containing them, how they can be managed, and by whom. COST MONITORING: It focuses on how much will be spent where, when and why. It identifies, reports and monitors costs. Staffing costs should be identified. Recruitment, turnover, absenteeism, and sick time are analysed, and inventories are controlled. COST MANAGEMENT: It focuses on what can be done by whom to contain costs. Programs, plans, objectives,a nd strategies are important. Responsibility and accountability for the control should be established. A committee can identify long and short range plans and strategies. COST AVOIDANCE: It means not buying supplies, technology, or services. Supply and equipment cost should be carefully analyzed. Costs and effectiveness of disposable versus reusable items are compared. The receipts, storage and delivery of disposables and labour and processing cost of reusable items are part of the analysis. The least expensive and most effective supplies, equipment, and services should be identified and expensive and less effective items avoided. COST REDUCTION: It means spending less for goods and services. The amount of reduction depends on the size of the agency, previous efficiency, skills of managers, and cooperation of employees. COST CONTROL: It is effective use of available resources through careful forecasting, plaaning, budget preparation, reporting and monitoring. COST ANALYSIS It is the system of analyzing the relationship between the fixed and the variable cost.
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TYPES OF COST ANALYSIS
1. 2. 3. 4. 5. 6. 7. 1.
Cost benefit analysis [CBA] Cost benefit ratio [CBR] Cost effectiveness analysis [CEA] Cost-of-illness analysis Cost-minimization analysis Cost utilization analysis Cost consequences analysis COST BENEFIT ANALYSIS [CBA]
Cost benefit analysis [CBA] is measurement of the relative costs and benefits associated with a particular project or task. The cost benefit analysis is a tool which is useful in setting priorities for various sources of action to meet objectives, and provide an estimate of the net financial value associated with each course of action (eg. Manpower and labour, material and equipment, facilities). All the inputs and outputs have to be converted into momentary terms because all inputs (ie costs) and all the outcomes (ie benefits) are valued in money terms. OR It is a procedure by which all the costs resulting from installing and operating a system are determined and converted to a money amount and the ratio is calculated to reflect the relationship of costs and benefits. OR Cost benefit analysis [CBA] is tool with great potential for the decision makers so long as he or she recognizes the difficulty in determine the true costs and benefits of various alternatives. This tool can especially useful when trying deciding between alternative expenditure of money. BASIC APPROACHES OF COST BENEFIT ANALYSIS Two basic approaches for cost-benefit analysis (CBA) are Ratio approach Net benefit approach. Ratio approach: The ratio approach indicates the amount of benefits (or outcomes) that can be realized per unit expenditure on a technology vs. a comparator. In the ratio approach, a technology is cost beneficial vs. a comparator if the ratio of the change in costs to the change in benefits is less than one. Net benefit approach: The net benefits approach indicates the absolute amount of money saved or lost due to a use of a technology vs. a comparator. In the net benefits formulation, a technology is cost-beneficial vs. a comparator if the net change in benefits exceeds the net change in costs.
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2.
COST BENEFIT RATIO [CBR]
It is the numerical relationship between the value of the financial cost of a program and the value of benefits It is defined as the ratio of the Value of benefits of an alternative to the value of alternative cost. Z= present value of economic benefits Present value of economic cost. Cost benefit analysis is often used in the public sector where there is no net income to serve as a guideline. In order to determine the ratio, it is necessary to assign value to both the cost and the benefits in monetary terms. In practice, it is difficult to assign monetary values to health care outcomes. It is difficult to measure the value of life and even more difficulty in measuring the difference in health outcomes that do not involve life or death. Cost benefit analysis is designed to consider the social cost and benefits attributable to the project. The benefits are expressed in monetary terms to determine whether a given program is economically sound, and to select the best out of several programs. 3.COST-OF-ILLNESS ANALYSIS: A determination of the economic impact of an illness or condition (typically on a given population, region, or country) e.g., of smoking, arthritis or bedsores, including associated treatment costs 4.COST-MINIMIZATION ANALYSIS: A determination of the least costly among alternative interventions that are assumed to produce equivalent outcomes 5.COST-UTILITY ANALYSIS (CUA): A form of cost-effectiveness analysis that compares costs in monetary units with outcomes in terms of their utility, usually to the patient, measured, e.g., in QALYs 6.COST-CONSEQUENCE ANALYSIS: A form of cost-effectiveness analysis that presents costs and outcomes in discrete categories, without aggregating or weighting them
7.COST EFFECTIVENESS ANALYSIS [CEA]: A technique that measure the cost of alternatives that generate the same outcome OR Cost effectiveness analysis is the technique for choosing, from alternative courses of action, a preferred choice when objectives are not clear in such areas as sales, costs or profits. OR It is a desired effect of careful planning. OR It means getting the most for your money. OR The product is worth the price. 18
Cost effective methods are those search for the last costly way of achieving a defined result. Cost effective analysis are easier to make as that is clear. It helps the administrator in managing his health resources. The problem is to find the way of achieving the objective at lower cost A more cost effectiveness analysis [CEA] oriented approach would consider different approaches to save a life, and find out which one cost least, that would be the cost effective that generate similar outcomes. For ex: suppose a hospital has been treating a certain type of patient using a particular approach is cost effective, we must first establish that the clinical money than the old approach. If a new approach generates the exact outcome for less money then it is cost effective.
STEPS IN COST EFFECTIVENESS ANALYSIS: 1. Identify the program goal or client outcome to be achieved. 2. Identify at least 2 alternatives means of achieving the desired outcomes. 3. Collect baseline data on clients. 4. Determine the cost associated with each program activity. 5. Determine the activities of each group of clients will receive. 6. Determine the client changes after the activities are completed. Combine the cost, amount of activity and outcome information to express costs relatives to outcome of program goals. 7. Compare cost outcome information for each goal to present cost effectiveness analysis COST EFFECTIVENESS ANALYSIS BASICS A general misconception is that CEA is merely a means of finding the least expensive alternative or getting the most bang for the buck.In reality, CEA is a comparison tool; it will not always indicate a clear choice, but it will evaluate options quantitatively and objectively based on a defined model. CEA was designed to evaluate health care interventions, but the methodology can be used for non health economic applications as well. It can compare any resource allocation with measurable outcomes to any other resource allocation with measurable outcomes. CONDUCTING, EVALUATING, AND USING ANALYSES Increasing numbers of analyses are conducted in academia or research organizations and published in peer-reviewed journals. Government organizations use analyses to help shape public policy. Health insurers use CEAs to determine which kinds of health interventions to cover. COST-EFFECTIVENESS RATIO The cost-effectiveness ratio is simply the sum of all benefits divided by the sum of all costs. This is comparable to a return on investment calculation; however, the benefits are not measured in terms of just dollars, but in a ratio that incorporates both health outcomes and dollars. 19
Cost-Effectiveness Ratio =
(All benefits) (All costs)
WHY EMPLOYERS USE CEA? Supports objective decision making: Decision makers can consider options in a comparable and objective way that provides support for the final decision. Brings clarity to data sources and outcomes: CEA evaluates options in similar terms to avoid comparing apples to oranges. Allows for strategic review of organizations: CEA might justify some operational centers operating at a loss to increase overall return on investment, employee health, or both. Can be used in a host of operational and benefits areas including: o Screening coverage o Pharmacy o Strategic Planning o Labor Relations o Disease Management o Disability Management o Wellness and Prevention Programs Presents evidence that can help gain support for changes in benefits plans or employer-sponsored health programs. STRATEGIC TIPS FOR INTERPRETING A CEA Consider perspective. Which parties are incurring costs and which parties are receiving benefits? Many studies take a broad societal perspective; they are usually not written for an employer audience. Identify the strategies under comparison. Does the study compare different alternatives (treat using drug A vs. treat using drug B) or examine incremental changes in the same health intervention (screen every two years vs. screen every four years)? Be aware of the analytic horizon. When are costs incurred and when are benefits received? Most studies use a 3-5% annual discount rate to adjust both costs and benefits to a present value, but if a benefit is not received until 10 years after an intervention begins, this is important information to note. Analyze all stated assumptions. Are the assumptions built into the economic model clearly defined, and are they valid for employers? Examine the sensitivity analysis. How do differences in data inputs affect the outcome? Think how this relates to the health characteristics of your employee population. Understand all metrics. How did the author present the cost-effectiveness ratio? 20
Most studies measure the costs of increased quality of life ($/quality adjusted life year gained), disability prevented ($/disability adjusted life year prevented) or of life saved ($/life year gained). A study that measures quality adjusted life years is called a cost-utility analysis, a specific type of CEA.
COST EFFECTIVENESS IN IMPROVING HEALTH CARE Cost-effective care is that judged to provide good health value for expenditure. Health value refers to the benefits of a particular medical intervention, which might include longer life, better quality of life, or both. Expenditures should include not only the costs of a test or treatment itself, but the subsequent costs it might cause, including additional medical interventions, work disability, costs of longterm care, and so forth. Cost-effectiveness analysis is a method for assessing the gains in health relative to the costs of different health interventions. It is not the only criterion for deciding how to allocate resources, but it is an important one, because it directly relates the financial and scientific implications of different interventions. The basic calculation involves dividing the cost of an intervention in monetary units by the expected health gain measured in natural units such as number of lives saved. PRINCIPLES WHICH ARE BASIC TO COST EFFECTIVENESS IN HEALTH CARE: Government health care programs should be screened for cost effectiveness. Health education and physical fitness should be primary curricular items in our entire educational system from elementary through secondary schools. Healthy life-styles for adults should include continued health education, disease prevention and physical exercise. Health promotion and disease prevention must receive primary emphasis on all health care plans with payment for such medical care being equal to or greater than that provided for acute medical care. Major efforts must be made throughout the profession to promote and emphasize quality ambulatory care provided by those best trained to provide such care -- the family physician. There should be incentives provided to both physicians and patients to maximize value in health care: highest quality at lowest costs. Medical education should emphasize cost awareness and cost effectiveness at all levels of education -- undergraduate, graduate and continuing medical education programs. Patients must be educated regarding the necessity of their involvement in cost-effective medical care and in cost containment. This can be achieved through informational programs emphasizing personal responsibility for healthy life-styles and cost-effective medical care. The use of health insurance deductibles and co-payments are also useful tools in emphasizing cost containment but these should not be prohibitive in achieving access to quality health care.
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PURPOSE OF COST ANALYSIS 1. The administrator utilizes data provided by a cost study to interpret the needs of the nursing units and to gain financial support for the unit. 2. It can be used to show the portion of the requested funds being used for research programs. 3. It will show the relationship of the faculty salaries to the cost per student. 4. It assists the administrator in measuring change and provides the necessary data which can serve as a guide in modifying the program. 5. It gives the supporting data when the board of trustees, central administrators, legislators, foundations and other groups question the high cost of nursing education. 6. It provides valuable information for institutions questions of higher learning that wish to establish a new baccalaureate program. STEPS OF ANALYSIS: 1. A clear statement of objectives. 2. Identifying all alternative actions that can achieve the objectives. 3. Identifying all the costs and all benefits with each alternative. 4. Converting all costs and all benefits for each alternative to momentary value, and quantitive evaluation of costs and benefits of each. 5. Selection of the best cost- effective approach. THE ROLE OF THE ADMINISTRATOR IN COST ANALYSIS 1. Understanding methods of cost analysis and participating with cost study of nursing units and for the college. The administrator needs to know the cost of operating the nursing education unit in order to make wise education decisions. A school of nursing should operate economically and efficiently. 2. The administrator interprets the cost analysis to the faculty and others, and she gains support for the study. She interprets findings to the personnel at the college and at the health services agencies. 3. The administrator participates in the cost analysis committees: the cost analysis committee is composed of the finance officer, dean of the college, a nurse faculty member, the administrator of the school of nursing, representatives from the central administrator of the health service agencies and directors of nursing service for the various agencies involved. 4. The administrator encourages and leads to members of the overall study staff. CONCLUSION: Cost-Effectiveness in Health and Medicine is the product of over two years of comprehensive research and deliberation by a multi-disciplinary panel of economists, ethicists, psychometricians, and clinicians. This study published in the Journal of the American Medical Association shows that nicotine patch therapy, in conjunction with physician counseling, is a cost-effective approach to smoking cessation. This is an example of information in published CEAs that can support coverage decisions and justify health improvement programs. 22
5. COST ACCOUNTING Cost accounting is a process that supports the budget reporting system and agency efforts for cost containment. Cost accounting is a set of techniques for associating cost with the purpose for which in curred. In accounting the only facts recorded are those that can be pressed in monitory terms. Advantages of Cost accounting: 1) The accumulated data enable a head nurse or divisional nursing director to assess the cost of cost extra demand imposed on the nursing unit, such as abortion, oral surgery. 2) It enables a manager to identify the interaction between different expenditures. 3) Through Cost accounting a manager can determine whether hiring additional operating room or clinical care employees. Increase the unit expenditure for scrub clothes, sterile supplies and bed linen. 4) It enables the manager to identify popular services program that receive hidden founding in the form of voluntary time contributions by professionals from the other units. 5) In some health care agencies, in house clinical nurse experts who are assigned to various clinical specialty units, serve as volunteer teacher for in service programs. Disadvantages of Cost accounting: 1. It is difficult to associate some cost with particular program 2. A cost incurred at one point in time may facilitate service programs over an extended period. 3. It is the fact that it is difficult for a manager to justify the cost of a nursing care program. When quantifiable measures of all patients outcomes of not variable. Cost reduction: Cost reduction means spending less for goods and service. The amount of reduction depends on the size of the agency, previous efficiency, and skill of manager and cooperation of employees. Safety programs that reduce the costs of workers, compensation and safety programs that reduce the costs of workers compensation and absenteeism program that reduce sick time, absenteeism and turn over reduce costs. Factors influencing need for cost reduction The capital funding availability for hospitals is not as attractive as industry. No doubt, the financing institutions are ready to finance the hospitals today to the tune of several croups, but the hospital project can never be as financially available as an industrial project. Inability to generate finds through donation
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The tax benefits available to a donor for making contribution to the hospital are not at par with the tax benefits for donations to religious, educational, and other programs or institutions. Therefore, it is difficult to attract donations. Demographic factors Due to uncontrolled population there is an increased demand for services for longer periods. This is more critical for public hospitals, public sector industrial hospitals, and missionary hospitals. Of course, private sector would benefit. Inflation Due to higher inflation there is an erosion of purchasing power. Financial resources of the country are tight. The budgets of the public hospitals are not going, increased appreciably for few years. The administrators would have to manage with tight budget. As a result, there would be limited materials and equipment. Increased demand and expectations. Due to health education and awareness, there is an increased demand and expectations on the [part of the pubic and employees in industrial hospitals. Since there is greater possibility of treatment of chronic and degenerative diseases, open- heart surgeries, organ transplantations, dialysis treatment, there is great demand and expectations for treatment. Capital cost of building and materials The capital cost of construction of buildings and materials have increased considerably even the maintenance of the buildings require higher budget. Maintenance of equipment, materials and vehicles Cost of spare- part, serving of the equipment, diagnostic and therapeutic materials, maintenance of the vehicles are continually increasing. The above are some of the factors influencing the increased cost necessitating cost reduction. Area of cost reduction in hospitals There are 4 input variables in health care 1. physicians professionals technical inputs 2. patients and relatives of the patients as consumers 3. therapy- drugs, super equipment, ect- raw materials 4. Para-medical and administrative staff-support services
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6. CRITICAL PATHWAYS Clinical Pathways: multidisciplinary plans of best clinical practice. Many synonyms exist for the term Clinical Pathways including: Integrated Care Pathways, Multidisciplinary pathways of care, Pathways of Care, Care Maps, and Collaborative Care Pathways. Clinical Pathways were introduced in the early 1990s in the UK and the USA, and are being increasingly used throughout the developed world. Clinical Pathways are structured, multidisplinary plans of care designed to support the implementation of clinical guidelines and protocols. They are designed to support clinical management, clinical and non-clinical resource management, clinical audit and also financial management. They provide detailed guidance for each stage in the management of a patient (treatments, interventions etc. ....) with a specific condition over a given time period, and include progress and outcomes details. Clinical Pathways aim to improve, in particular, the continuity and co-ordination of care across different disciplines and sectors. Care Pathways can be viewed as algorithms in as much as they offer a flow chart format of the decisions to be made and the care to be provided for a given patient or patient group for a given condition in a step-wise sequence. Clinical Pathways have four main components (Hill, 1994, Hill 1998): 1. A timeline 2. The categories of care or activities and their interventions 3. Intermediate and long term outcome criteria 4. The variance record (to allow deviations to be documented and analysed). Clinical Pathways differ from practice guidelines, protocols and algorithms as they are utilised by a multidisciplinary team and have a focus on the quality and co-ordination of care. Critical pathways, also known as critical paths, clinical pathways, or care paths, are management plans that display goals for patients and provide the sequence and timing of actions necessary to achieve these goals with optimal efficiency. As competition in the healthcare industry has increased, managers have embraced critical pathways as a method to reduce variation in care, decrease resource utilization, and potentially improve healthcare quality. Cardiovascular medicine in particular is an area in which critical pathways have been embraced. This is due in part to the high volume and high cost associated with cardiovascular diseases and procedures. In addition, the relatively mature guideline process has also contributed to the growth in use of critical pathways in cardiology. Clinical guidelines :Although anchored in clinical guidelines, the critical pathway is a distinct tool that details processes of care and highlights inefficiencies regardless of whether there is evidence to warrant changes in those processes. Clinical guidelines, on the other hand, are consensus statements that are systematically developed to assist practitioners in making patient management decisions related to specific clinical circumstances. Although clinical guidelines can and should be used in pathway development, the majority of processes included in a pathway have not been rigorously tested and are generally not addressed in guidelines.
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Clinical protocols: Another term that should also be distinguished from critical pathways is clinical protocols. Protocols are treatment recommendations that are often based on guidelines. Like the critical pathway, the goal of the clinical protocol may be to decrease treatment variation. However, protocols are most often focused on guideline compliance rather than the identification of rate-limiting steps in the patient care process. In further contrast to critical pathways, protocols may or may not include a continuous monitoring and data-evaluation component. Critical pathway techniques were first developed for use in industry as a tool to identify and manage the rate-limiting steps in production processes. In industry, any variation in production process is suboptimal. Thus, by defining the processes and timing of these processes, managers could target areas that were critical, measure variation, and try to make improvements. Once steps were taken to improve the process, there would be a remeasurement. In time, variation would decrease, the time it took to complete the pathway would decrease, costs would decrease, and quality of production would improve. When applied to health care, the technique of critical pathways has obvious concerns. First, unlike in manufacturing, not all variation in patient care is negative. Individual patient factors may contribute to variation that cannot and should not be controlled by the system. For example, if postoperative extubation occurred within a prespecified time period based on a pathway, there would be early extubations with potential for harm. Also unlike in manufacturing, in which the products are standardized, patients are different and may not fit within a pathway. Second, there exists concern that streamlining care may have a negative impact on patient outcomes. For example, if a care pathway suggests a 2-day stay in the cardiac care unit, a provider may alter care against his or her best judgment to stay within the plan. Finally, physicians have objected to "cookbook medicine" and have felt an erosion of professional autonomy with the critical pathways. Without physician support of the pathway, it is unlikely to achieve any of the stated cost-saving or quality goals. Despite these obvious limitations, the use of critical pathways is being embraced in many systems. Although designed as a tool for both cost savings and improved quality of care, it is the former that has been emphasized by managers. Interest in critical pathways has increased because anecdotal reports of cost savings have been disseminated. These reports are best described as case studies and in general have not followed careful study designs. Implementation of the care pathways has not been tested in a scientific or controlled fashion No controlled study has shown a critical pathway to reduce length of stay, decrease resource use, or improve patient satisfaction. Most importantly, no controlled study has shown improvements in patient outcome. Lack of careful evaluation has not limited the development and implementation of critical pathways in multiple healthcare settings. It is important for cardiovascular practitioners to understand the goals, development, and implementation of critical pathways. In addition, physicians must take an active role in the development of critical pathways. By understanding the strengths and limitations of the critical pathway process, physicians and other practitioners can ensure appropriate use of these methods. In a review of critical 26
pathways, Pearson et al examined the goals of critical pathways, optimal pathway development, and implementation strategies Critical Pathway Development Select a Topic . Topic selection in general should concentrate on high-volume, high-cost diagnoses and procedures. Critical pathway development has focused on several cardiovascular diseases and procedures because of volume and costs. These include bypass surgery, diagnostic catheterization, coronary angioplasty, acute myocardial infarction, and unstable angina. These diagnoses and procedures tend to be more suitable for critical pathway development because of the predictable course of events that occur during the hospitalization. In addition, marked variation in care has been observed in these conditions, which makes the goal of decreased variation and reduction in resource utilization possible. Furthermore, there has been evidence of noncompliance with guideline recommendations. In this case, the pathways might improve guideline compliance and potentially improve quality of care. Select a Team . It is important to develop a multidisciplinary team for critical pathway development. Historically, critical pathway development has been a nursing initiative. Although this has been a successful model in some institutions, one fault of this process is lack of physician commitment to the pathway. Active physician participation and leadership is crucial to the development and implementation of the pathway. In addition, it is important to include representatives from all groups that would be affected by the pathway, for example, house staff, physical therapy personnel, and dietary personnel. The lack of involvement of physicians has been cited as a reason for failure of a pathway. Evaluate the Current Process of Care . In this step, data, rather than anecdotal reports, are key to understanding current variation. For systems with electronic medical records, this process may be more automated. For other systems, a careful review of medical records is necessary to identify the critical intermediate outcomes, rate-limiting steps, and high-cost areas on which to focus. Evaluate Medical Evidence and External Practices . After key rate-limiting steps have been identified, the critical pathway team must evaluate the literature to identify evidence of best practices. For most rate-limiting steps, there are few data available to define optimal processes of care. The critical pathway development team will often lack answers to specific questions such as appropriate observation period or length of stay. In the absence of evidence, comparison with other institutions, or "benchmarking," is the most reasonable method to use. Determine the Critical Pathway Format . The format of the pathway may vary widely. Important features include a task-time matrix in which specific tasks are specified along a timeline. There is a spectrum of pathways that range from a form that takes the place of the medical record to a simple checklist. A reduction in charting that may occur with more complicated pathways is a benefit. However, 27
if the pathway format is too difficult to follow, it will not be used. Critical pathways have become widely available in electronic format, where electronic charting and pathway compliance are obtained simultaneously. One disadvantage to this method is the absence of a standard medical record. This may result in duplication of efforts and possible noncompliance with the pathway. This is particularly true among physicians who are likely to be resistant to novel charting methods. For some systems, a simple checklist at the front of the paper chart may be an optimal method for implementing the pathway. These checklists would have areas to be filled in by different staff members active in patient care. Document and Analyze Variance . Variances are patient outcomes or staff actions that do not meet the expectation of the pathway. In general, variance in clinical pathways is a result of the omission of an action or the performance of an action at an inappropriate (often, a late) time period. Because the critical pathway is a series of time-associated actions, this analysis of variance can be overwhelmed by multiple data points. Computer-assisted pathway analysis can help with this issue. Another approach is for the pathway team to concentrate on a few critical items in the pathway that have been identified in advance, such as extubation time after cardiac surgery or length of stay in the intensive care unit. These are critical intermediate outcomes that may have a substantial number of important contributory factors. Arguably, the selection of areas to analyze and the analysis of variance are among the most important processes in the critical pathway. Identification of factors that contribute to variance and interventions to improve those factors are the key features in process improvement. Critical Path Analysis and PERT Charts Critical Path Analysis and PERT are powerful tools that help you to schedule and manage complex projects. They were developed in the 1950s to control large defense projects, and have been used routinely since then. As with Gantt Charts, Critical Path Analysis (CPA) or the Critical Path Method (CPM) helps you to plan all tasks that must be completed as part of a project. They act as the basis both for preparation of a schedule, and of resource planning. During management of a project, they allow you to monitor achievement of project goals. They help you to see where remedial action needs to be taken to get a project back on course. Within a project it is likely that you will display your final project plan as a Gantt Chart (using Microsoft Project or other software for projects of medium complexity or an excel spreadsheet for projects of low complexity).The benefit of using CPA within the planning process is to help you develop and test your plan to ensure that it is robust. Critical Path Analysis formally identifies tasks which must be completed on time for the whole project to be completed on time. It also identifies which tasks can be delayed if resource needs to be reallocated to catch up on missed or overrunning tasks. The disadvantage of CPA, if you use it as the technique by which your project plans are communicated and managed against, is that the relation of tasks to time is not as immediately obvious as with Gantt Charts. This can make them more difficult to understand. 28
A further benefit of Critical Path Analysis is that it helps you to identify the minimum length of time needed to complete a project. Where you need to run an accelerated project, it helps you to identify which project steps you should accelerate to complete the project within the available time. How to Use the Tool: As with Gantt Charts, the essential concept behind Critical Path Analysis is that you cannot start some activities until others are finished. These activities need to be completed in a sequence, with each stage being more-or-less completed before the next stage can begin. These are 'sequential' activities. Other activities are not dependent on completion of any other tasks. You can do these at any time before or after a particular stage is reached. These are non-dependent or 'parallel' tasks. Drawing a Critical Path Analysis Chart Use the following steps to draw a CPA Chart: Step 1. List all activities in the plan For each activity, show the earliest start date, estimated length of time it will take, and whether it is parallel or sequential. If tasks are sequential, show which stage they depend on. For the project example used here, you will end up with the same task list as explained in the article on Gantt Charts (we will use the same example as with Gantt Charts to compare the two techniques). The chart is repeated in Figure 1 below: Figure 1. Task List: Planning a custom-written computer project Task A. High level analysis B. Selection of hardware platform Earliest start Week 0 Week 1 Length 1 week 1 day 2 weeks 2 weeks 2 weeks 2 weeks 3 weeks Type Sequential Sequential Parallel Sequential Sequential Sequential Sequential A B A D D E Dependent on...
C. Installation and commissioning of Week 1.2 hardware D. Detailed analysis of core modules Week 1 E. Detailed analysis of supporting Week 3 modules F. Programming of core modules G. Programming modules of Week 3
supporting Week 5
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H. Quality assurance of core modules Week 5 I. Quality assurance of supporting Week 8 modules J.Core module training K. Development and accounting reporting L. Development and management reporting QA QA Week 6 of Week 5 of Week 5
1 week 1 week 1 day 1 week 1 week 1 week 1 week
Sequential Sequential Parallel Parallel Parallel Sequential Sequential
F G C,H E E L I, J, K, M
M. Development of Management Week 6 Information System N. Detailed training Week 9
Step 2. Plot the activities as a circle and arrow diagram Critical Path Analyses are presented using circle and arrow diagrams. In these, circles show events within the project, such as the start and finish of tasks. The number shown in the left hand half of the circle allows you to identify each one easily. Circles are sometimes known as nodes. An arrow running between two event circles shows the activity needed to complete that task. A description of the task is written underneath the arrow. The length of the task is shown above it. By convention, all arrows run left to right. Arrows are also sometimes called arcs. An example of a very simple diagram is shown below:
This shows the start event (circle 1), and the completion of the 'High Level Analysis' task (circle 2). The arrow between them shows the activity of carrying out the High Level Analysis. This activity should take 1 week. Where one activity cannot start until another has been completed, we start the arrow for the dependent activity at the completion event circle of the previous activity. An example of this is shown below:
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Here the activities of 'Select Hardware' and 'Core Module Analysis' cannot be started until 'High Level Analysis' has been completed. This diagram also brings out a number of other important points:
Within Critical Path Analysis, we refer to activities by the numbers in the circles at each end. For example, the task 'Core Module Analysis' would be called activity 2 to 3. 'Select Hardware' would be activity 2 to 9. Activities are not drawn to scale. In the diagram above, activities are 1 week long, 2 weeks long, and 1 day long. Arrows in this case are all the same length. In the example above, you can see a second number in the top, right hand quadrant of each circle. This shows the earliest start time for the following activity. It is conventional to start at 0. Here units are whole weeks.
A different case is shown below:
Here activity 6 to 7 cannot start until the other four activities (11 to 6, 5 to 6, 4 to 6, and 8 to 6) have been completed.
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Click the link below for the full circle and arrow diagram for the computer project we are using as an example. Figure 5: Full Critical Path Diagram This shows all the activities that will take place as part of the project. Notice that each event circle also has a figure in the bottom, right hand quadrant. This shows the latest finish time that's permissible for the preceeding activity if the project is to be completed in the minimum time possible. You can calculate this by starting at the last event and working backwards.The latest finish time of the preceeding event and the earliest start time of the following even will be the same for ciircles on the critical path. You can see that event M can start any time between weeks 6 and 8. The timing of this event is not critical. Events 1 to 2, 2 to 3, 3 to 4, 4 to 5, 5 to 6 and 6 to 7 must be started and completed on time if the project is to be completed in 10 weeks. This is the 'critical path' these activities must be very closely managed to ensure that activities are completed on time. If jobs on the critical path slip, immediate action should be taken to get the project back on schedule. Otherwise completion of the whole project will slip. 'Crash Action' It is the need to complete a project earlier than the plan Critical Path Analysis says is possible. In this case one need to re-plan the project. Here, one has a number of options and would need to assess the impact of each on the projects cost, quality and time required to complete it. For example, one could increase resource available for each project activity to bring down time spent on each but the impact of some of this would be insignificant and a more efficient way of doing this would be to look only at activities on the critical path. As an example, it may be necessary to complete the computer project in Figure 5 in 8 weeks rather than 10 weeks. In this case one could look at using two analysts in activities 2 to 3 and 3 to 4. This would shorten the project by two weeks, but may raise the project cost doubling resources at any stage may only improve productivity by, say, 50% as additional time may need to be spent getting the team members up to speed on what is required, coordinating tasks split between them, integrating their contributions etc. In some situations, shortening the original critical path of a project can lead to a different series of activities becoming the critical path. For example, if activity 4 to 5 were reduced to 1 week, activities 4 to 8 and 8 to 6 would come onto the critical path. As with Gantt Charts, in practice project managers use software tools like Microsoft Project to create CPA Charts. Not only do these make them easier to draw, they also make modification of plans easier and provide facilities for monitoring progress against plans.
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PERT (Program Evaluation and Review Technique) PERT is a variation on Critical Path Analysis that takes a slightly more skeptical view of time estimates made for each project stage. To use it, estimate the shortest possible time each activity will take, the most likely length of time, and the longest time that might be taken if the activity takes longer than expected. Use the formula below to calculate the time to use for each project stage: shortest time + 4 x likely time + longest time - 6 This helps to bias time estimates away from the unrealistically short time-scales normally assumed. Importance Critical Path Analysis is an effective and powerful method of assessing:

What tasks must be carried out. Where parallel activity can be performed. The shortest time in which you can complete a project. Resources needed to execute a project. The sequence of activities, scheduling and timings involved. Task priorities. The most efficient way of shortening time on urgent projects.
An effective Critical Path Analysis can make the difference between success and failure on complex projects. It can be very useful for assessing the importance of problems faced during the implementation of the plan. PERT is a variant of Critical Path Analysis that takes a more skeptical view of the time needed to complete each project stage. CPM - Critical Path Method In 1957, DuPont developed a project management method designed to address the challenge of shutting down chemical plants for maintenance and then restarting the plants once the maintenance had been completed. Given the complexity of the process, they developed the Critical Path Method (CPM) for managing such projects. CPM provides the following benefits:

Provides a graphical view of the project. Predicts the time required to complete the project. Shows which activities are critical to maintaining the schedule and which are not.
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CPM models the activities and events of a project as a network. Activities are depicted as nodes on the network and events that signify the beginning or ending of activities are depicted as arcs or lines between the nodes. The following is an example of a CPM network diagram: CPM Diagram
Steps in CPM Project Planning 1. 2. 3. 4. 5. 6. Specify the individual activities. Determine the sequence of those activities. Draw a network diagram. Estimate the completion time for each activity. Identify the critical path (longest path through the network) Update the CPM diagram as the project progresses.
1. Specify the Individual Activities From the work breakdown structure, a listing can be made of all the activities in the project. This listing can be used as the basis for adding sequence and duration information in later steps. 2. Determine the Sequence of the Activities Some activities are dependent on the completion of others. A listing of the immediate predecessors of each activity is useful for constructing the CPM network diagram. 3. Draw the Network Diagram Once the activities and their sequencing have been defined, the CPM diagram can be drawn. CPM originally was developed as an activity on node (AON) network, but some project planners prefer to specify the activities on the arcs. 34
4. Estimate Activity Completion Time The time required to complete each activity can be estimated using past experience or the estimates of knowledgeable persons. CPM is a deterministic model that does not take into account variation in the completion time, so only one number is used for an activity's time estimate. 5. Identify the Critical Path The critical path is the longest-duration path through the network. The significance of the critical path is that the activities that lie on it cannot be delayed without delaying the project. Because of its impact on the entire project, critical path analysis is an important aspect of project planning. The critical path can be identified by determining the following four parameters for each activity:

ES - earliest start time: the earliest time at which the activity can start given that its precedent activities must be completed first. EF - earliest finish time, equal to the earliest start time for the activity plus the time required to complete the activity. LF - latest finish time: the latest time at which the activity can be completed without delaying the project. LS - latest start time, equal to the latest finish time minus the time required to complete the activity.
The slack time for an activity is the time between its earliest and latest start time, or between its earliest and latest finish time. Slack is the amount of time that an activity can be delayed past its earliest start or earliest finish without delaying the project. The critical path is the path through the project network in which none of the activities have slack, that is, the path for which ES=LS and EF=LF for all activities in the path. A delay in the critical path delays the project. Similarly, to accelerate the project it is necessary to reduce the total time required for the activities in the critical path. 6. Update CPM Diagram As the project progresses, the actual task completion times will be known and the network diagram can be updated to include this information. A new critical path may emerge, and structural changes may be made in the network if project requirements change. CPM Limitations CPM was developed for complex but fairly routine projects with minimal uncertainty in the project completion times. For less routine projects there is more uncertainty in the completion times, and this uncertainty limits the usefulness of the deterministic CPM model. An 35
alternative to CPM is the PERT project planning model, which allows a range of durations to be specified for each activity. Benefits

Support the introduction of evidence-based medicine and use of clinical guidelines Support clinical effectiveness, risk management and clinical audit Improve multidisciplinary communication, teamwork and care planning Can support continuity and co-ordination of care across different clinical disciplines and sectors; Provide explicit and well-defined standards for care; Help reduce variations in patient care (by promoting standardisation); Help improve clinical outcomes; Help improve and even reduce patient documentation Support training; Optimise the management of resources; Can help ensure quality of care and provide a means of continuous quality improvement; Support the implementation of continuous clinical audit in clinical practice Support the use of guidelines in clinical practice; Help empower patients; Help manage clinical risk; Help improve communications between different care sectors; Disseminate accepted standards of care; Provide a baseline for future initiatives; Not prescriptive: don't override clinical judgement; Expected to help reduce risk; Expected to help reduce costs by shortening hospital stays
Issues with Critical Pathways There are many issues in critical pathway development and implementation that are of concern to practitioners who care for patients with cardiovascular disease. The first issue is that critical pathways address processes in the "ideal" patient and in some cases do not address issues in the majority of patients who enter the path. Identification of appropriate patients to enter the pathway is an important issue in implementation. In general, critical pathways are more applicable to patients with uncomplicated illnesses who are undergoing procedures or surgery. For patients treated with medical conditions such as acute coronary syndromes, it is difficult to define "appropriate" treatment for the majority of patients. Therefore, critical pathways will tend to identify a great deal of variance in the care of these patients that may or may not be wasteful or potentially harmful. The goal of placing most patients within pathways may not benefit the individual patient. A second issue is how to evaluate critical pathways as an effective tool in improving patient care. As we have mentioned, little controlled research has been performed on the effectiveness of pathways. One reason for this is that at any one medical center, "pathway" 36
care cannot be easily differentiated from "usual" care because of contamination from the pathway intervention. Randomized trials with the unit of randomization at the medical center would be the optimal evaluation method. Finally, it is important that physicians and practitioners be key players in any pathway development and implementation. There is a real danger when critical pathways are brought in from external sources and implemented on the basis of administrative attempts to reduce costs. Issues - potential problems and barriers to the introduction of ICPs

May appear to discourage personalized care Risk increasing litigation Don't respond well to unexpected changes in a patient's condition Suit standard conditions better than unusual or unpredictable ones Require commitment from staff and establishment of an adequate organizational structure Problems of introduction of new technology May take time to be accepted in the workplace Need to ensure variance and outcomes are properly recorded, audited and acted upon
Conclusions Critical pathways are being implemented in a broad range of patients with cardiovascular disease. Although cost savings can and should be evaluated with the critical pathway, the goal of improving guideline compliance and overall quality of care should be the primary focus. Additional rigorous research into the cost of pathway development and implementation, as well as the outcomes of critical pathway use, is essential before further dissemination of this tool. Clinical protocols can and should be used to decrease variation in care, improve guideline compliance, and potentially improve overall quality of care in patients with cardiovascular disease. Practitioners and administrators should work together to incorporate similar and compatible features of clinical protocols and critical pathways. This may result in improved quality and reduced costs. Issues for discussion
The differences between clinical practice guidelines and care pathways Paper-based ICPs versus electronic ICPs
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7. HEALTH CARE REFORMS Health care reform is a general rubric used for discussing major health policy creation or changesfor the most part, governmental policy that affects health care delivery in a given place. Health care reform typically attempts to: Broaden the population that receives health care coverage through either public sector insurance programs or private sector insurance companies. Expand the array of health care providers consumers may choose among Improve the access to health care specialists Improve the quality of health care Decrease the cost of health care Health care reforms in India The Ministry of Health and Family Welfare is the Indian government ministry charged with health policy in India. It is also responsible for all government programs relating to family planning in India. The Minister of Health and Family Welfare holds cabinet rank as a member of the Council of Ministers. The current minister is Shri. Ghulam Nabi Azad, who is assisted by a Minister of States for Health and Family Welfare, Shri. Dinesh Trivedi & Shri. S. Gandhiselvan. The ministry is composed of three departments: 1 Department of Health 2 Department of Family Welfare 3 Department of AYUSH 1. Department of Health The Department of Health deals with health care, including awareness campaigns, immunization campaigns, preventive medicine, and public health. Bodies under the administrative control of this department are: 1) National AIDS Control Programme (AIDS) 2) National Cancer Control Programme (cancer) 3) National Filaria Control Programme (filariasis) 4) National Iodine Deficiency Disorders Control Programme (iodine deficiency) 5) National Leprosy Eradication Programme (leprosy) 6) National Mental Health Programme (mental health) 7) National Programme for Control of Blindness (blindness) 8) National Programme for Prevention and Control of Deafness (deafness) 9) National Tobacco Control Programme (tobacco control) 10) National Vector Borne Disease Control Programme (NVBDCP) (vector-born disease) 11) Pilot Programme on Prevention and Control of Diabetes, CVD and Stroke (diabetes, cardiovascular disease, stroke) 12) Revised National TB Control Programme (tuberculosis) 13) Universal Immunization Programme 14) Medical Council of India 38
15) Dental Council of India 16) Pharmacy Council of India 17) Indian Nursing Council 18) All India Institute of Speech and Hearing (AIISH), Mysore 19) All India Institute of Physical Medicine and Rehabilitation (AIIPMR), Mumbai 20) Hospital Services Consultancy Corporation Limited (HSCC) 2. Department of Family Welfare The Department of Family Welfare (FW) is responsible for aspects relating to family welfare, especially in reproductive health, maternal health, pediatrics, information, education and communications; cooperation with NGOs and international aid groups; and rural health services. The Department of Family Welfare is responsible for: 18 Population Research Centres (PRCs) at six universities and six other institutions across 17 states National Institute of Health and Family Welfare (NIHFW), South Delhi International Institute for Population Sciences (IIPS), Mumbai Central Drug Research Institute (CDRI), Lucknow Indian Council of Medical Research (ICMR), New Delhi - founded in 1991, it is one of the oldest medical research bodies in the world 3. Department of AYUSH The Department of Ayurveda, Yoga and Naturopathy, Unani, Siddha and Homoeopathy (AYUSH) deals with ayurveda (Indian traditional medicine), and other yoga, naturopathy, unani, siddha, and homoeopathy, and other alternative medicine systems. The department was established in March 1995 as the Department of Indian Systems of Medicines and Homoeopathy (ISM&H).The department is charged with upholding educational standards in the Indian Systems of Medicines and Homoeopathy colleges, strengthening research, promoting the cultivation of medicinal plants used, and working on Pharmacopoeia standards. Bodies under the control of the Department of AYUSH are: Various research councils 1) Central Council for Research in Ayurveda and Siddha (CCRAS) 2) Central Council for Research in Unani Medicine (CCRUM) 3) Central Council for Research in Homoeopathy (CCRH) 4) Central Council for Research in Yoga and Naturopathy (CCRYN) 5) Several educational institutions: 6) National Institute of Ayurveda, Jaipur (NIA) 7) National Institute of Siddha, Chennai (NIS) 8) National Institute of Homoeopathy, Kolkata (NIH) 9) National Institute of Naturopathy, Pune (NIN) 10) National Institute of Unani Medicine, Bangalore (NIUM) 11) Institute of Post Graduate Teaching and Research in Ayurveda, Jamnagar,Gujarat (IPGTR) 12) Rashtriya Ayurveda Vidyapeeth, New Delhi (RAV) 39
13) Morarji Desai National Institute of Yoga, New Delhi (MDNIY) 14) Indian Medicine Pharmaceutical Corporation Limited (IMPCL), Mohan, Uttaranchal (a public sector undertaking) 15) Professional councils 16) Central Council of Homoeopathy (CCH) 17) Central Council of Indian Medicine (CCIM) Healthcare in India India has a universal health care system run by the local (state or territorial) governments. Government hospitals, some of which are among the best hospitals in India, provide treatment at taxpayer expense. Most essential drugs are offered free of charge in these hospitals. However, the fact that the government sector is understaffed, underfinanced and that these hospitals maintain very poor standards of hygiene forces many people to visit private medical practitioners. The charges for basic in-hospital treatment and investigations are much less compared to the private sector. The cost for these subsidies comes from annual allocations from the central and state governments. For example, an outpatient card at AIIMS (one of the best hospitals in India) costs a one-time fee of 10 rupees (around 20 cents U.S.) and thereafter outpatient medical advice is free. In-hospital treatment costs depend on financial condition of the patient and facilities utilized, but are usually much less than the private sector. For instance, a patient is waived treatment costs if their income is below the poverty line. Another patient may seek an air-conditioned room for an additional fee. Primary health care is provided by city and district hospitals and rural primary health centres (PHCs). These hospitals provide treatment free of cost. Primary care is focused on immunization, prevention of malnutrition, pregnancy, child birth, postnatal care, and treatment of common illnesses.[citation needed] Patients who receive specialized care or have complicated illnesses are referred to secondary (often located in district and taluk headquarters) and tertiary care hospitals (located in district and state headquarters or those that are teaching hospitals). Now organizations like Hindustan Latex Family Planning Promotional Trust and other private organizations have started creating hospitals and clinics in India, which also provide free or subsidized health care and subsidized insurance plans. Health care economics Funding models Universal health care in most countries has been achieved by a mixed model of funding. General taxation revenue is the primary source of funding, but in many countries it is supplemented by specific levies (which may be charged to the individual and/or an employer) or with the option of private payments (either direct or via optional insurance) for services beyond that covered by the public system. Almost all European systems are financed through a mix of public and private contributions. The majority of universal health care systems are funded primarily by tax revenue (e.g. Portugal, Spain, Denmark and Sweden). Some nations, such as Germany, France and Japan employ a multi-payer system in which health care is funded by private and public contributions. However, much of the non-government funding is by defined 40
contributions by employers and employees to regulated non-profit sickness funds. These contributions are compulsory and vary according to a person's salary, and are effectively a form of hypothecated taxation. A distinction is also made between municipal and national healthcare funding. For example, one model is that the bulk of the healthcare is funded by the municipality, speciality healthcare is provided and possibly funded by a larger entity, such as a municipal cooperation board or the state, and the medications are paid by a state agency. Universal health care systems are modestly redistributive. Progressivity of health care financing has limited implications for overall income inequality. Single payer The term single-payer health care is used in the United States to describe a funding mechanism meeting the costs of medical care from a single fund. Although the fund holder is usually the government, some forms of single-payer employ a public-private system. Public Some countries (notably the United Kingdom, Italy, Spain and the Nordic countries) choose to fund health care directly from taxation alone. Other countries with insurance-based systems effectively meet the cost of insuring those unable to insure themselves via social security arrangements funded from taxation, either by directly paying their medical bills or by paying for insurance premiums for those affected. Compulsory insurance This is usually enforced via legislation requiring residents to purchase insurance, though sometimes, in effect, the government provides the insurance. Sometimes there may be a choice of multiple public and private funds providing a standard service (e.g. as in Germany) or sometimes just a single public fund (as in Canada). The U.S. Patient Protection and Affordable Care Act is a law based on compulsory insurance. In some European countries where there is private insurance and universal health care, such as Germany, Belgium, and The Netherlands, the problem of adverse selection ,vercome using a risk compensation pool to equalize, as far as possible, the risks between funds. Thus a fund with a predominantly healthy, younger population has to pay into a compensation pool and a fund with an older and predominantly less healthy population would receive funds from the pool. In this way, sickness funds compete on price and there is no advantage to eliminate people with higher risks because they are compensated for by means of risk-adjusted capitation payments. Funds are not allowed to pick and choose their policyholders or deny coverage, but then mainly compete on price and service. In some countries the basic coverage level is set by the government and cannot be modified. Ireland at one time had a "community rating" system through VHI, effectively a singlepayer or common risk pool. The government later opened VHI to competition but without a compensation pool. This resulted in foreign insurance companies entering the Irish market and offering cheap health insurance to relatively healthy segments of the market which then made higher profits at VHI's expense. The government later re-introduced community rating through a pooling arrangement and at least one main major insurance company, BUPA, then withdrew from the Irish market. 41
Private insurance
In some countries with universal coverage, private insurance often excludes many health conditions which are expensive and which the state health care system can provide. For example in the UK, one of the largest private health care providers is BUPA which has a long list of general exclusions even in its highest coverage policy. In the USA (which tried to transition towards universal health care, but is being challenged through the court systems as unconstitutional, because of the mandatory purchasing requirement) dialysis treatment for end stage renal failure is generally paid for by government and not by the insurance industry. Persons with privatized Medicare (Medicare Advantage) are the exception and must get their dialysis paid through their insurance company, but persons with end stage renal failure generally cannot buy Medicare Advantage plans. Among the potential solutions posited by economists are single payer systems as well as other methods of ensuring that health insurance is universal, such as by requiring all citizens to purchase insurance and limiting the ability of insurance companies to deny insurance to individuals or vary price between individuals. Indian healthcare reforms In India, reforms can develop on sound principles on the basis of the learning of all available systems, our strengths and needs. To make the common man healthy in the Indian scenario, we need a different approach. 37% of Indian population is undernourished. They have difficulty in meeting even basic needs. 55 percent of the population have a diet which is calorie sufficient but nutrient deficient whereas eight percent of the population is over-nourished. Hence, there is a total imbalance of nutrition which leads to anaemia, TB and many other diseases which increases the disease burden of India. Statistics tells us that arthritis, hypertension, diabetes, CVD, cancer patients and elderly patients are major part of our disease burden. Besides acute diseases, almost all of them trace their origin to (a lack of) nutrition. As Indian population is getting increasingly health conscious, almost 64 percent of out-of-pocket expenditure in India constitutes healthcare expenditure as compared to 18 percent globally. This population can be called as 'Healthy Boomers'. They need to be properly directed towards maintaining their health, in the same way as they have career and financial plans. All nations have a significant role of Health Insurance in healthcare. In India, both the patient and the payer is almost same. Here, a sharing model between Health Insurance and patient can be adopted. 70 to 75 percent of the burden can be still borne by patient or medical consumer, depending on the nature of disease. Therefore, I am of the opinion that this sharing ratio should even be reversed as the severity of the disease increases, for example in the case of cancer, where the institution should bear 70 percent of the expenses otherwise the patient will die of the cost before the disease kills him.
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65 percent of Indian population lives in rural areas while only two percent qualified medical doctors are available in these areas. Indian healthcare today is urban centric. It needs to be reformed through medical infrastructure inclusive of doctors, nurses, paramedicos, etc. Indian healthcare system should start from preventive care through nutrition. Reforms must provide impetus to lift the population which is at the bottom of the pyramid. 'Health is Wealth' is an old paradigm of India, as people were in 'scarcity thinking' mode, as they were completely dependent on their livelihood to provide for their family's health and well being. Resources were earlier scarce and people were driven to planning. This mentality has given way to the 'abundant mentality' as today's generation has not seen these scaricity of resources. Demographics are changing as well, and today 60 percent of population does not have the responsibilities of a family to look after. For them this paradigm needs to be inculcated through education. This new paradigm should originate from nutrition to exercises to preventive healthcare to healthcare. It should be proactive rather than reactive in terms of its reforms. As quickly as possible, health must become a priority issue for the Government of India. Though the Department of Pharmaceuticals today comes under the Ministry of Chemicals and Fertilizers Food, it deals with issues concerning our health like Food Safety & Standards (FSS), Ayush and related bodies. Therefore, it should be appropriately part of Ministry of Health and Family Welfare or in any other suitable ministry. Government has taken up health issues like HIV, TB and tobacco through massive government programs. Overall, India needs to reform its healthcare system through policies, medical infrastructure, education and realization of right nutrition to lifestyle management. Acute diseases over time will be at reactive end of the reforms. Reference
1. 2. 3. 4. 5. 6. 7. 8.
http://en.wikipedia.org/wiki/Health_care_reform http://en.wikipedia.org/wiki/Ministry_of_Health_and_Family_Welfare_(India) http://en.wikipedia.org/wiki/Universal_health_care http://www.expresspharmaonline.com/20100131/2010businessagenda06.shtml http://en.wikipedia.org/wiki/Critical_path_method http://circ.ahajournals.org/cgi/content/full/101/4/461 http://www.openclinical.org/clinicalpathways.html http://www.mindtools.com/critpath.html
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8. HEALTH ECONOMICS INTRODUCTION: Health economics lies at the interface of economics and medicine and applies to the discipline of economics to the topic of health. A seminal 1963 article by Kenneth Arrow, often credited with giving rise to the health economics as a discipline, drew conceptual distinctions between health and other goals. Factors that distinguish health economics from other areas include extensive government intervention, intractable uncertainty in several dimensions, asymmetric information, and externalities DEFINITION: Health economics is a branch of economics concerned with issues related to scarcity in the allocation of health and health care. In broad terms, health economists study the functioning of the health care system and the private and social causes of health-affecting behaviors such as smoking. 1) A social system that studies the supply and demand of health care resources and the effect of health services on a population. 2) The study of how scarce resources are allocated among alternative uses for the care of sickness and the promotion, maintenance and improvement of health, including the study of how healthcare and health-related services, their costs and benefits, and health itself are distributed among individuals and groups in society. AIM OF ECONOMICS: The aim of economics is to ensure that the chosen activities have benefits that outweigh their opportunity costs or the most beneficial activities are chosen within the resources available. SCOPE: The scope of health economics is neatly encapsulated by Alan Williams' "plumbing diagram" dividing the discipline into eight distinct topics:

What influences health? (other than health care) What is health and what is its value The demand for health care The supply of health care Micro-economic evaluation at treatment level Market equilibrium Evaluation at whole system level; and, Planning, budgeting and monitoring mechanisms.
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FIELDS INCORPORATED WITH HEALTH ECONOMICS: Beyond health: Pure economics. Finance and insurance. Industrial organization. Labor economics. Public policy. Sociology Within the health arena: Health services research Medicine Medical ethics Psychology Public health/ epidemiology
IMPORTANCE TO LOOK AT ECONOMICS AT HEALTH: Health resources are finite. A choice must be made which resource to use for which activity. Economics is concerned with efficiency. Equity or fair distribution of resources. It provides a framework which aims at maximizing benefits within available resources. FOCUS OF HEALTH ECONOMICS: The health economics mainly concentrates on how to extract maximum benefits from health industry with the least cost combination. Health economics explains the infrastructure as a means of health care industry. It applies theories, techniques, models and other relevant tools to health services. It means health economics focuses on the use of application of material things like medicines, surgical instruments, lab equipments, drugs, vaccinations, family planning tools. KEY SOURCES AND TOOLS FOR ACCESSING INFORMATION FOR HEALTH ECONOMICS: The sources of information will be considered under the following categories: a) Journals. b) Bibliographic databases c) Value added information d) Literature e) Research works f) Statistical data g) Internet sources. AREAS OF HEALTH ECONOMICS: The study of health economics include the following areas: 1) Costs of health care: 45
2)
3)
4)
5)
6) 7)
8)
Cost refers to expenses incurred to produce or create anything which satisfies human wants. Health problems: The study of health economics also concentrates on health as an important economic indicator of economic development. Demand for health care: Demand refers to desire accompanied by ability to pay and willingness to pay for a product or service in the market. Supply analysis in health care: Supply refers to anything material or non material which is offered for sale at a particular level of price and at a given period of time. Health care services market: Market is an economic environment where buyers and sellers of goods and services interact for purchase and sale for mutual benefits. Financing for health care industry: Finance here refers to money invested in health care services. Health plans and outlays: One of the primary motives of every country is to give primary importance to health services to make citizens healthy both physically and mentally. Optimum of utilization of resources: The optimum allocation of resources is an important element of health economics.
Economic Evaluation: A large focus of health economics is the microeconomic evaluation of individual treatments. In the UK, the National Institute for Health and Clinical Excellence (NICE) appraises certain new and existing pharmaceuticals and devices using economic evaluation. Definition: Economic evaluation is the comparison of two or more alternative courses of action in terms of both their costs and consequences (Drummond et al.). Types of Economic Evaluation: Economists usually distinguish several types of economic evaluation, differing in how consequences are measured:
Cost-minimization analysis: In cost minimization analysis (CMA), the effectiveness of the comparators in question must be proven to be equivalent. The 'cost-effective' comparator is simply the one which costs less (as it achieves the same outcome). Cost benefit analysis: In cost-benefit analysis (CBA), costs and benefits are both valued in cash terms.
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Cost-effectiveness analysis: Cost effectiveness analysis (CEA) measures outcomes in 'natural units', such as mmHg, symptom free days, life years gained. Cost-utility analysis: Cost-utility analysis (CUA) measures outcomes in a composite metric of both length and quality of life, the Quality-adjusted life year (QALY). Cost of illness study: This is not a true economic evaluation as it does not compare the costs and outcomes of alternative courses of action. Instead, it attempts to measure all the costs associated with a particular disease or condition. These will include direct costs (where money actually changes hands, e.g. health service use, patient co-payments and out of pocket expenses), indirect costs (the value of lost productivity from time off work due to illness), and intangible costs (the 'disvalue' to an individual of pain and suffering).
SOURCES OF HEALTH FINANCE IN INDIA: 1) Commercial banks. a) Public sector banks. State bank of India. b) Private Banks. 2) Private foreign banks. 3) Cooperative sector. 4) Reserve bank of India. MACHINERY FOR ECONOMIC PLANNING IN INDIA: The Planning Commission of India, as National Planning Authority has been constituted in the year 1950 under the chairmanship of the former Prime Minister of India, Jawaharlal Nehru. It consists of Prime Minister as chairman, deputy chairman and members include finance minister, Railway Minister and Minister For Human Resource Development, and others. Function:To estimate the National Resources and to prepare plans for wise allocation of those to achieve targeted growth in the economy within a specific period of time. SUMMARY: Topics related to various aspects of health economics include the meaning and measurement of health status, the production of health and health care, the demand for health and health services, health economic evaluation, health insurance, the analysis of health care markets, health care financing, and hospital economics.
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9. HEALTH INSURANCE INTRODUCTION: Starting in the 1930s, insurance companies gradually began to pay a greater share of medical fees. The basic framework of insurance coverage is that of shared risk of having high cost health care needs. Individuals pay for coverage whether or not they incur health care costs; when an insured individual requires health care, the insurance pays for that care. Thus the individual has a stable health care cost without the risk of incurring high costs that are difficult to meet from ordinary income and the insurance company stays financially solvent because more money is coming in than is going out. Historically, health insurance was for hospital care and related services only. Outpatient visits, immunizations, costs of drugs, and other such benefits were not covered by insurance policies. DEFINITION: 1) Promise of reimbursement in the case of illness; paid to people or companies so concerned about hazards that they have made prepayments to an insurance company. 2) Health insurance, like other forms of insurance, is a form of collectivism by means of which people collectively pool their risk, in this case the risk of incurring medical expenses. By estimating the overall risk of healthcare expenses, a routine finance structure (such as a monthly premium or annual tax) can be developed, ensuring that money is available to pay for the healthcare benefits specified in the insurance agreement. The benefit is administered by a central organization such as a government agency, private business, or not-for-profit entity. HISTORY AND EVOLUTION: The concept of health insurance was proposed in 1694 by Hugh the Elder Chamberlen. In the late 19th century, "accident insurance" began to be available, which operated much like modern disability insurance. Accident insurance was first offered in the United States by the Franklin Health Assurance Company of Massachusetts. This firm, founded in 1850, offered insurance against injuries arising from railroad and steamboat accidents. The first employer-sponsored group disability policy was issued in 1911. Before the development of medical expense insurance, patients were expected to pay all other health care costs out of their own pockets, under what is known as the fee-forservice business model. During the middle to late 20th century, traditional disability insurance evolved into modern health insurance programs. Today, most comprehensive private health insurance programs cover the cost of routine, preventive, and emergency health care procedures, and most prescription drugs, but this is not always the case. Hospital and medical expense policies were introduced during the first half of the 20th century. During the 1920s, individual hospitals began offering services to individuals on a pre-paid basis, eventually leading to the development of Blue Cross organizations. The 48
predecessors of today's Health Maintenance Organizations (HMOs) originated beginning in 1929, through the 1930s and on during World War II. How health insurance works: A health insurance policy is a contract between an insurance company and an individual or his sponsor (e.g. an employer). The contract can be renewable annually or monthly. The type and amount of health care costs that will be covered by the health insurance company are specified in advance, in the member contract or "Evidence of Coverage" booklet. The individual insured person's obligations may take several forms:

Premium: The amount the policy-holder or his sponsor (e.g. an employer) pays to the health plan each month to purchase health coverage. Deductible: The amount that the insured must pay out-of-pocket before the health insurer pays its share. Coinsurance: Instead of, or in addition to, paying a fixed amount up front (a copayment), the co-insurance is a percentage of the total cost that insured person may also pay. For example, the member might have to pay 20% of the cost of a surgery over and above a co-payment, while the insurance company pays the other 80. Exclusions: Not all services are covered. The insured person is generally expected to pay the full cost of non-covered services out of their own pocket. Coverage limits: Some health insurance policies only pay for health care up to a certain amount. The insured person may be expected to pay any charges in excess of the health plan's maximum payment for a specific service. Capitation: An amount paid by an insurer to a health care provider, for which the provider agrees to treat all members of the insurer. In-Network Provider: (U.S. term) A health care provider on a list of providers preselected by the insurer. Explanation of Benefits: A document sent by an insurer to a patient explaining what was covered for a medical service, and how they arrived at the payment amount and patient responsibility amount.
Types of health insurance: Accidental death and dismemberment insurance Dental insurance Disability insurance Total permanent disability insurance Long term care insurance Vision insurance Disadvantage of this system: 1) Consumers had no incentive to reduce their use of services; they paid the same regardless of their needs or use of the system. People sought to have care delivered on an inpatient basis to obtain reimbursement. 2) Individuals often neglected preventive health care that had to be paid for out-ofpocket. 49
3) As the cost of health care has increased, insurance premiums also have increased greatly. 4) An additional public concern is that health insurance is unobtainable for individuals with existing health problems and often economically beyond the means of those who are not insured as part of an employee group The Health Insurance Portability and Accountability Act (HIPAA) of 1996 [HIPAA] : It was enacted by the U.S. Congress in 1996. It was originally sponsored by Sen. Edward Kennedy and Sen. Nancy Kassebaum . Title I of HIPAA protects health insurance coverage for workers and their families when they change or lose their jobs. Title II of HIPAA, known as the Administrative Simplification (AS) provisions, requires the establishment of national standards for electronic health care transactions and national identifiers for providers, health insurance plans, and employers. It also addresses the security and privacy of health data. HEALTH INSURANCE IN INDIA: There is no universal health insurance in India. Health insurance is at present limited to industrial workers and their families. The Central Government employees are also covered by the health insurance under, under the banner Central Govt. Health Scheme. 1) Employees State Insurance Scheme. (ESI) The ESI scheme, introduced by an Act of Parliament in 1948(amended in 1975, 1984 and 1989), is a unique piece of social legislation in India. It has introduced for the first time in India the principle of contribution by the employer and employee. The Act covers employees drawing wages not exceeding Rs.10, 000 per month. Mission Statement: To provide for certain benefits to Employees in case of sickness, maternity and employment injury and to make provisions for related matters. Scope : The Act extends to the whole of India. The ESI Act of 1948 covered all power- using factories other than seasonal factories wherein 20 or more persons were employed (excluding mines, railways and defence establishment).the provisions of the ESI (Amendment) Act of 1975 were extended to the following new classes of establishments: 1. Small power-using factories employing 10 to19 persons, and non-power-using factories employing 20 or more persons. 2. Shops; 3. Hotels and restaurants; 4. Cinemas and theatres; 5. Road-motor transport establishments; 6. Newspaper establishments. With effect from 1.10.2006.the Act covers all employees manual, clerical, supervisory and technical are getting unto Rs.10, 000 per month. The provisions of the Act can be extended to any other agricultural or commercial establishment.
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Administration The administration of the ESI Scheme under the Act is entrusted to an autonomous body called the ESI Corporation. It is comprised of the following members: 1. Minister of labour - chairperson. 2. The secretary - Minister of labour - vice chairperson. 3. Representatives of central Govt - 5 members. 4. Representatives from the states - one from each state. 5. Representatives from union territories - one member from each UT. 6. Representatives of Employees - 5 members. 7. Representatives of Employers - 5 members. 8. Representatives of medical profession - 2 members. 9. Representatives of parliament - 3 members. 10. Director General of the ESI - member. The ESI Corporation is an autonomous body. It formulates policies and coordinates their proper implementation. The corporation meets at least twice in the year. The ESI Corporation has a Medical Benefit council which is headed by Director General of Health Services. The other members are: 1. 2. 3. 4. 5. 6. Deputy Director General of Health Services. Medical Commissioner ESI Corporation. One member from each state. Employees Representatives -3. Employees Representatives -3. Medical profession A few members (at least one woman).
The Corporation has appointed Regional Boards in the States, local committees and Reginal and local Medical Benefits councils with the power to administer the scheme in the States. The head office in New Delhi, the corporation has 23 regional offices and 12 subregional offices at Vijaywada,Vadodara,Surat,Hubli,Pune,Nagpur, Coimbatore, Madurai Tirunelveli,Noida,Varanasi and Barrackpore, and 844 local offices and cash offices all over the country for administration of the scheme. It also has appointed inspector to According to1984 amendments it is extended to worker of all categories i.e.Manual clerical, technical or supervisory earning unto Rs.3000/-.the act covers the following benefits: FINANCE : The ESI scheme is financially supported jointly by the contributions of employer, employees, ESI Corporation, state governments and the central government. The pattern of financial support is as under: 1. The employer pays 4.75 percent of total wages. 2. The employer contributes 1.75 percent of his/her wage. 3. The state Governments shares 1/8th of the total expenditure on the medical care. 4. The ESI Corporation shares 7/8th of the total expenditure on medical care. As far the central Government is concerned it supports 2/3 of the administrative expenditure. 51
Benefits The section 46 of the Act envisages following six social security benefits :(a) Medical Benefit: Medical benefits consist of full medical care including hospilitation, free of cost, to the injured persons in case of sickness, employment injury and maternity. The services comprise 1. Out patient care 2. Supply of drugs and dressings 3. Specialist services in all branches of medicine 4. Pathological and radiological investigations 5. Domiciliary services 6. Antenatal, natal and postnatal 7. Immunization services 8. Family planning services 9. Emergency services 10. Ambulance services 11. Health education 12. In-patient treatment. If specialized treatment is necessary, patient are sent for institutional treatment even outside their state at the expense of the ESI Corporation. Medical care is provided either directly through the agency of ESI hospitals and dispensaries, or indirectly through a panel of private medical practioners (panel system) appointed as insurance medical practioners. Direct pattern: i. In areas having a concentration of 1,000 or more employees family unites, service dispensaries are established with full-time medical and Para medical personnel. On an average, a doctor will attend to about 80 cases in the out-patient department per day, and makes one home visit a day. ii. In area where the employees are less than 750, part time ESI dispensaries are established. iii. If the residential concentration of employees is scattered over a long distance, mobile dispensaries are established. INDIRECT PATTERN: This is known as panel system. Registered medical practitioners designated as insurance medical practitioners are appointed to provide medical care. Medical care is also extended to families of workers where requisite arrangements could be made. A start has been made by providing restricted medical care,i.e., only out-patient cares. Where facilities are available expanded medical carei.e, full medical care short of hospitalization is given. 52
Other medical facilities: i. ii. iii. Dentures, spectacles and hearing aids are provided free to patients who are incapacitated due to employment injury. Artificial limbs are provided free to insured persons who lose their limbs in employment injury or otherwise. Special appliances such as hernia belts, walking callipers, surgical boots, spinals braces and jackets are provided as prescribed by specialists.
b. Sickness benefit: It consists of periodical cash payment to an insured person in case of sickness, if his sickness is duly certified by an insurance medical practitiner.The benefit is payable for a maximum period of 91days,in any continuous period of 365 days, the daily rate being about 50% of the average daily wages. A person receiving the sickness benefit is required to remain under medical treatment provided under the act.
Extended sickness benefit:
In addition to 91 days of sickness benefit insured persons suffering from certain long-term disease are entitled to extended sickness benefit as show below, for a maximum period of two years. 34 diseases for which extended sickness benefit with effect from 1.1.2000 is payable, in case where the insured person has been in continuous employment for 2 years: The insured person is protected from dismissal or discharge from service by the employer during the period of sickness.
Enhanced sickness benefit is payable to insured women for 14 days for tubectomy and for 7 days in case of vasectomy in respect of male IPs. The amount payable is double the standard sickness benefit rate, that is, equal to full wages.
(b) Maternity Benefit(MB): The benefit is payable in cash to an insured women for confinement/miscarriage or sickness arising out of pregnancy/confinement or premature birth of child or miscarriage. The duration of benefit is 12 weeks, for miscarriage 6weeks and for sickness arising out of confinement etc.30 days. The benefit is allowed at about full wages (c) Disablement Benefit: Disablement benefit is payable to insured employees suffering from physical disablement due to employment injury or occupation disease. 1. Temporary disablement benefit(TDB): Temporary disablement benefit at 70% of the wages is payable till temporary disablement lasts and is duly certified by authorized insurance medical officer. 2. Permanent disablement benefit(PDB) : 53
Temporary disablement benefit at 70% of the wages is payable till temporary disablement lasts and is duly certified by authorized insurance medical officer. (d) Dependants Benefit(DB): In case of death, as a result of employment injury, the dependants of an insured person are eligible for periodical payments. Pension at the rate of 70 percent of wages is payable, shared by dependants in a fixed ratio, on monthly basis in accordance with the prescribed share. An eligible son or daughter is entitled to dependants benefit up to the age of 18; the benefit is withdrawn if the daughter marries earlier. f) Other benefits i. Funeral expenses - An amount of Rs. 5000/- is payable to the dependents or to the person who performs last rites. ii. Vocational rehabilitation - In case of disabled insured persons less than 45 years of age with 40% or more disablement. iii. Free supply of physical aids and appliances such as crutches, wheelchairs, spectacles and other such physical aids. iv. Preventive health care services such as immunization, family welfare services, HIV/AIDS detection, treatment etc. v. Medical bonus Rs250 is paid to an insured woman or in respect of the wife of an insured person in case she does not avail hospital facilities of the scheme for child delivery. Benefits to employers: a. Exemption from the applicability of Workmens compensation Act1923. b. Exemption from maternity benefit Act 1961. c. Exemption from payment of medical allowance to employees and their dependants or arranging for their medical care. d. Rebate under the income tax Act on contribution deposited in the ESI account. (g) Rajiv Gandhi Shramik Kalyan Yojana - This scheme of Unemployment allowance was introduced w.e.f. 01-04-2005. An Insured Person who become unemployed after being insured three or more years, due to closure of factory/establishment, retrenchment or permanent invalidity are entitled to :
Unemployment Allowance equal to 50% of wage for a maximum period of upto one year. Medical care for self and family from ESI Hospitals/Dispensaries during the period IP receives unemployment allowance. Vocational Training provided for upgrading skills - Expenditure on fee/travelling allowance borne by ESIC. 54
3) CENTRAL GOVERNMENT HEALTH SCHEME (CGHS) Established in 1954, the CGHS covers employees and retirees of the Central Government, and certain autonomous, semi autonomous and semi-government organizations. It also covers Members of Parliament, retired central government servants, widows receiving family pensions, accredited journalists and members of the general public in some specified areas. The families of the employees are also covered under the scheme. Benefits under the scheme include medical care at all levels and home visits/care as well as free medicines and diagnostic services. These services are provided through public facilities (including CGHSexclusive allopathic, ayurvedic, Homeopathic and unani dispensaries) with some specialized treatment (with reimbursement ceilings) being permissible at private facilities. Of the total expenditure, about a third is spent on wages and salaries of the CGHS staff. The scheme is on the cooperative efforts and contribution basis from the employees and employer for their mutual benefits. The services are given through a network of dispensaries, government hospitals, and identified private specialised hospitals in various systems of medicine. The CGHS provides services are: Emergency treatment, Outdoor services, Indoor services, Domiciliary visits, Specialists consultation, Antenatal, natal and postnatal services Family welfare services. Supplies optical and dental aids at reasonable rates. Laboratory and x-ray investigation Paediatric services including immunization The ESI and CGHS cover two large groups wage earners in the country. They are wellorganized health insurance schemes, and are providing reasonable medical care plus some essential preventive and promotive health services. Experience in other countries has shown that health insurance is logical step towards nationalization of health services. OTHER AGENCIES: Defence medical services: It is own organization for medical care defence personnel under the banner Armed Forces Medical Services. The services provided are integrated and comprehensive embracing preventive, promotive and curative services. Health care of Railway Employees: The Railway provides comprehensive health care services through the agency of Railway Hospital, Health Unite and clinics. Environmental sanitation is taken care of by Health Inspectors in big stations .A chief Health Inspector supervises the divisions work. Health check up of employees is provided at the time of entry into service, and thereafter at yearly intervals. There is lady medical officer, health visitors and midwives who look after the MCH and school health program services. Specialists services are also available at the divisional hospitals. 55
Private agencies: In a mixed economy such as Indias private practice of medicine provides a large share of the health services available. It is rapid expansion in the number of qualified allopathic physicians from about 50,000 at the time of independence to about 7.67 lakhs in 2005 and the doctor population ratio for the country as a whole is 1:1428.the private sector of the health care services is not organized. Some statutory bodies like the medical council of India and the Indian medical Association regulate some of the functions and activities of the large body of private registered medical practitioners. 4) Community health insurance in India: (CHI) CHI is seen as an innovative mechanism meant for financing health care expenditure of the people. Types of CHI: 3. Provider model: NGOs act both as insurer and provider of health care services. 4. Insurance model: NGOs is the insurer and care is purchased from a private provider. 5. Intermediary model: NGOs is neither the insurer nor care provider. It acts as an intermediary between the target population and the insurance provider. Rashtriya Swasthya Bima Yojana: (RSBY) It is the 3rd health insurance scheme from the Govt of India. The earlier ones are Universal health Insurance Scheme and the NRHM. The RSBY is supposed to become operational from 2008-2009 and all 600 districts of the country to be covered by 2012. Objective: To provide health security for the Below Poverty Line (BPL) workers in the unorganized sector and their families through an insurance that cover for hospital expenses. Provider: public and private sector. Claims and Reimbursement: through smart cards Maximum Benefits: Rs. 30,000 per family Transportation cost: Rs. 100/trip/hospitalization. Post hospital transportation expenses (5 days): Rs. 1000 minimum Implementing agency: An insurance company. Community: All BPL families both rural and urban. Premium: 75% of the premium for the basic package will be paid by the Government of India and 25% by the State government. Implementation of the scheme: By the state government.
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CONCLUSION: Although insurance companies originally focused on paying for health care, they now are involved in establishing standards for care, evaluating care, and negotiating charges. They are active participants in all areas of health care and, because of the economic power they wield,have great influence. Insurance companies determine whom they will pay and what procedures they will reimburse. Thus, insurance companies can and do limit health care choices. BIBLIOGRAPHY: 1) Harish Basavaih Nursing Health Economics, 1st edition 2009, Jaypee Publications. Pp. 20-28, 64-72. 2) Park.K, Preventive And Social Medicine, 19th edition, Banarsidas Bhanot Publishers, Jabalpur. Pp: 758 3) Definition of health economics. Peters business and economic issues. 4) BNS Rao, Sociology for Nurses, 6th edition, 2004, Gajana Publishers, pp.171-176. 5) Mosby's Medical Dictionary, 8th edition. 2009, Elsevier. 6) http. // Wikipedia. Health economics. 7) Kightlinger, R. (1999). Sloppy records: The kiss of death for a malpractice defense. Medical Economics 76(8): 109113. 8) Porter-OGrady, T. (1987). Shared governance and new organizational models. Nursing Economics 5(6):281286. 9) Department of Health and Human Services (DHHS), Health Insurance and Portability Act, Available at http://cms.hhs.gov/hipaa/. Accessed August 4, 2002. 10) Janice Rider Ellis, Celia Love Hartley, Nursing in Todays World, 8th edition, pp. 4853, 111-120, 140-143. 11) Nahomi Clement, Community Based Health Insurance, Nightingale Nursing Times; 5(5):28-29:2009.
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11. BUDGETTING FOR VARIOUS UNNITS AND LEVELS A. FOR HOSPITAL INTRODUCTION The term budget is derived from a French word baguette means purse. Budget is generally a list of all planned expenses and revenues. It is a plan for saving and spending. A budget is an important concept in microeconomics, which uses a budget line to illustrate the trade-offs between two or more goods. The budget is an annual plan intended to guide effective use of human and material recourses, products or services and to manage the environment to improve productivity. The budget is a powerful tool because it serves as a guide for nursing care activities and allocation of recourses, supplies, support services and facilities. DEFINITION According to TN Chhabra a budget is an estimation of future needs arranged according to orderly basis covering some or all activities of an enterprise for a definite period of time According to Dimock Budget is a balance estimated expenditure and receipts for a given period of time. In the hands of the administrator the budget is the record of the past performance, a method of current control and projection of future pans. NURSING BUDGET Nursing budget is defined as a systematic plan that is an informed best estimate by nurse administrators of revenues and nursing expenses. HOSPITAL BUDGET Hospital budgeting is the process of estimating proposed expenditures and the means of financing these expenditure. IMPORTANCE OF BUDGET Budget is a numerical description of expected income and planned expenditure for an organization for a specified period of time. It is a concrete, picture of the total operation of an enterprise/ organization/ institution in monetary term, i.e., finance The following point serves the importance of budget: - Budget is needed for planning for future course of action and to have a control over all activities in the organization - Budget facilities co coordinating operation of various departments and sections for realizing organizational objectives. - Budget serves as a guide for action in the organization - Budget helps one to weigh the values and to make decision when necessary on whether one is of a greater value in the programme than the other. 58
BUDGET-HOSPITAL Different types of approaches are used in preparing the budget for a hospital. The basic reason for preparing a budget is to enable the hospital to effectively meet its financial requirements. An effective budget is a summary of the carefully conceived financial plans of all departments. Therefore, it should be clear to the administration as to what the hospitals financial requirements are going to be. FINANCIAL REQUIREMENTS OF HOSPITALS For any hospital, funds are required for the following: 1. Capital funding For preservation, upgrading, and replacement of physical facilities and equipment For new technology For expansion 2. Operating needs For working capital and operating expenses salaries, materials and supplies, maintenance, utilities etc. 3. Reserves For emergency needs THE BASIC INPUTS An effective budget presupposes the following1. Clear understanding of the hospitals financial and service goals. 2. A hospital organization with clearly defined responsibility for each dept. 3. A system of accounting designed to provide a measure of performance 4. Active participation of staff members in the preparation of the budgets. TYPES OF BUDGET IN HOSPITAL The budgetary plan results from the accounting plan, and includes: The capital budget The cash budget The operating budget
The capital budget Capital budget is the estimated fund requirement for capital items needed for growth, for providing new facilities, and for replacement of worn out equipment, machinery, and furniture.
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The decision on capital budgeting is primarily based on: i. Needs of patients and existing alternatives available ii. Upgradation of technology iii. Effects of additional equipment on income and expenditure iv. Availability of funds There will always be competing demands from various departments vis--vis the common requirements for the hospital as a whole, and funds are not generally available for meeting all the demands. The request of funds for capital assets are generally met from general funds if there is a surplus, by raising funds from outside, or obtaining capital funds from agencies. Therefore, it is desirable to identify the sources of funds in each item in the capital budget. The cash budget Because enough cash must be available to meet financial obligation on day-to-day basis or they arise, there is a need to maintain the right flow of cash. Cash budget is the budget that records the forecasted cash inflows from various sources and also records the forecasted demands for cash. It translates the expense and revenue budget into statement of cash inflow and outflow. Steady inflow of cash comes from settling the patients accounts at the time of discharge. However, If hospital is unable to collect cash for service rendered at the time of discharge, accounts receivable are to be created. Cash budget takes in to consideration projections for cash receipts, disbursement and balances for a given future period of time. It enables management to predict the timing and cash surpluses. The cash budget is usually broken down by monthly or quarterly periods. While forecasting cash inflow, seasonal fluctuation based on past experience should be taken note of. Keeping a safety margin, it would be worth investing surplus funds if any, in term deposits- the period of investment depending upon requirement of liquid cash. The operating budget A satisfactory budget is based on knowledge of past performance and experience, extended to future needs and requirements. Accurate statistical information is a guide to future needs and requirements. Internal as well as external factors influencing the operation of the hospital have to be studied. Any change in workload due to activities of other neighboring hospitals or population trends will affect revenues. Internal constraints, policy decisions, paucity of funds to maintain modernization and similar factors must be identified. Even with good quality data, the prediction of revenues is somewhat unpredictable although expenditure forecasts may be more realistic. Forecast of operating expenditure Operating expenditure is incurred on salaries, supplies, general utilities, maintenance and some overheads. Salaries and wages: Manpower requirement are determined by workload. Staff to workload ratios must be reviewed yearly. Salaries and wages account for 50 to 70 percent of the total expenditure. Additional staff requirements, if any, have to be grouped separately and
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justification for the same must be indicated. In additional to salaries, provision will have to be made for provident fund, gratuity or other personnel benefits schemes. Materials and supplies: Food, drugs, dressings, and other consumables are directly related to workload or volume of service. Utilities: These cover expenditure items in such as electrical, power, petrol, diesel, and other fuels, water, telephones, and other services. AC plant, laundry, kitchen, CSSD, and incinerators accounts for a high expenditure on utilities. Maintenance: Expenditure on routine maintenance of plant and equipments are generally well-predicted. Expenditure on breakdown maintenance should be curtailed as much as possible by preventive maintenance of planned and machinery, and by maintenance contacts for costly medical equipments. Forecasting of operating revenues Forecasts of operating revenues is somewhat speculative even with good historical and recent data. Operating revenue income is directly related to the volume of services provided. The largest part of the revenue is non-government hospitals is from patient services. Operating revenue generates from: 1. Direct patient care Inpatient services- medical, surgical, OBG, Pediatrics, cardiology etc. Outpatient consultations 2. Special professional services OT, labor room, ICU Physiotherapy etc 3. Supportive professional services X-ray and imaging, pathology laboratory, EEG EMG 4. Hotel service Room Food Income from other sources comprises of interest income from investments and income from donations and grants, rent and recoveries.
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BUDGET PROCESS OR STEPS IN BUDGETTING
ASSESSMENT
EVALUATION
PLANNING
IMPLEMENTATION
ASSESSMENT Assessment is the first step involved in the budgeting process. It consists of need identification, a composite of unit needs in terms of manpower, equipment and operating expenses should be identified during this phase. Requisites for Budget Preparation Sound forecasting Adequate conceived accounting system Adequate cost accounting system Fixed line of authority Formation of budget committee Statistical information Support of top management Length of budget period How to Make a Hospital Budget Making a hospital budget is only second to medical delivery systems in for a hospital. In fact, if a budget is not properly written, the hospital may be unable to deliver medical services at all. So many expenses and sources of revenue must be taken into consideration, so the budget process takes an expert to get through it successfully. Let's find out how to start. 62
Instructions Determine hospital revenue. Revenue can come from patient payments, tax dollars, donations, insurance credits. Be sure to deduct a percentage of the patient bills that will remain uncollected, the charity work expected by the hospital and the pro bono work it does. Figure out expenses. Start with the physical facility. How much does it cost to keep up the building or buildings. What is the maintenance cost of each department, engineering, air-conditioning, heat, water, other utilities. Know what equipment costs, how much must be replaced per patient day, and if any can be recycled. Include the non-medical cost of each bed in the hospital. Include advertising. Know the cost of personnel, all employees and ancillary staff, including consultants, outsourced contracts, perhaps laundry or nurse staffing services. For all employees of the hospital, from janitorial to hospitalists, figure the fringe benefits the hospital must pay for each. Add all medical equipment costs, ongoing and expected expansion or replacement of new diagnostic equipment. Know the medical costs of each bed. How many staff hours are spent on each bed, occupied or not. Use this figure as an average to get a cost per patient year. Add to that the non medical costs per bed. Include every possible cost that keeps that bed in the hospital. Don't forget replacement costs per annum for any and all patient needs. Don't forget parking garages, lots, landscaping, groundskeeping or window washing. Include all insurance for the facility and personnel. Write in an emergency expense fund. Disasters occur and the hospital must be prepared for them when they arrive. PLANNING A budget plan may be developed in many ways. A budgeting cycle that is set for 12 months is called a fiscal year budget. Most budgets are developed for one year period. But a perpetual budget may be done on a continual basis each month so that 12 months of future budget are always available. Tips on Hospital Budget Planning Budget planning is a dirty word in most hospitals, but it must be done each year. The process is usually an iterative one that requires full consensus between administration and hospital operations. The following provides tips on ways to reduce the frustrations and improve the effectiveness of the hospital budget planning process. 1. Paradigm of Shift: Plan the entire budget at once. One reason budget planning can be difficult is a splintered approach. Developing a budget in silos will undoubtedly create problems as each department is pitted against the other in the fight for funds. If 63
planners look at overall volumes and net revenues in conjunction with labor and non labor costs, the entire hospital can be assessed as a whole. Each department is given due consideration and decisions are made on the basis of objective rather than subjective arguments. 2. Be Flexible: Traditional budgeting can be obtuse and inflexible. Using volume forecasts to drive the budget provides a basis for both material and labor forecasts. Planners should look at the budget from a holistic perspective. Forecasting revenues and expenses per unit of service. This also gives each department more control over the budget process and empowers each to create arguments for funds based on future patient levels and services. 3. Benchmarking: Use volume benchmarks to help determine optimal revenue and expense levels. Benchmarks can come from competing hospitals, prior years' budgets or best-practice departments. See "Resources" for a listing. Predicting volumes is one of the biggest challenges hospital budget planners face; however, in a variable budget, volumes are the primary drivers of revenues and expenses. Only fixed expenses such as rents or lease payments are unaffected by volume. 4. Accountability: Hold staff accountable for the budget. Develop a system of reinforcement that includes both positive and negative feedback. One way to reinforce the budget while making the process easier is to budget more than once a year. Ideally budgeting should be an all-year process, with multiyear checkpoints for accountability. The monthly and quarterly closes make perfect checkpoints. From an operations and marketing viewpoint, this allows planners to budget more effectively over a longer period of time. Instead of just looking at the next year, planners can look at budgeting over a five-year period, which is better for capital-intensive units. The steps of planning budget for nursing unit are as follows; Assistance of her/ his subordinates Nursing administrator requires the assistance of nursing superintendents and nursing supervisors to present the needs of the coming year within the specified data and confer with those who presented such need. Review of the budget Nursing administrator should review the budget appropriation and actual expenditure of the current year. Preparing requirements He/ she should prepare requirements with the assistance of their subordinate officials for the coming year from the supplied information by them. Summary of new needs He/ she should prepare a summary of new needs and requirements both personnel and material with the proper data supports of the requirements. Submitting to institutional administrator Budget should be submitted to the administrator of the institute/ hospital for review, decision and to incorporate into the master budget required for the hospital. In any change made by either the administrator or the committee on budget, report should be furnished to her to be used in the control of expenditure. 64
A copy of the nursing department appropriation is sent to the director after adaptation of the budget these statements generally proved the budget for the period and difference between the budget appropriation and actual expenditure. These reports should be kept reviewed by the director and her associates and if expenditure exceeds the appropriation, the cause should be determined. IMPLEMENTATION In implementation ongoing monitoring and analysis occur to avoid inadequate or excess funds at the end of a fiscal year. In most health care institutions monthly computerized statements outline each department projected budgets and any deviations from that budget. Each unit manager is accountable for the budget deviations in their unit. If a major change is indicated, the entire budgeting process must be repeated. EVALUATION The budget must be reviewed periodically and modified as needed throughout the fiscal year. STEPS IN PREPARATION OF NURSING BUDGET Review the goals of the hospital Review the objectives of the existing programmes Prepare a budget proposal Revise the existing programme with the revised proposal Compute the expense for each programme Adopt the alternative approach for realizing the proposed plan Compare the proposal to identify the effective one Prepare a budget request which details a fiscal plan for the preferred programme Present the need of required staffs Review the budget appropriation and actual expenditure for the current year conjunction with current hospital statistics Prepare a new budget is to cover in terms of nursing service required Determine the percentage of salaries in various department of nursing based on the time allocated 65
Estimate the requirement for the coming year Prepare the summary of new needs to support the request Submit the report to the head of the department BUDGET MANUAL Since the budget is formulated at the instance of the top management, and its compliance ensured by the subordinates, there has to be a formal communication channel between the two. This could be in the form of oral or written instruction or directives. The Budget Officer initiates the work relating to preparation of Budget Manual. Heads of departments provide the details. The top management approves the first draft and subsequent changes. The policies and procedures are continuously updated and revalidated. If this is not done, the manual will have several obsolete procedures. It will lose focus. A Budget Manual is tailored to fit the needs of each hospital or group of hospitals, where it is to be used. The content of a typical budget manual is outlined below: General statement of hospital objectives and budget procedure Identification of persons involved in the exercise and definition of their authority, duties and responsibilities. Routine of departmental budget preparation, their review and approval. Time schedule Budget revision- formation and implementation Budget report Review of performance BUDGET ADMINISTRATION The method that an organization uses to create the budget will depend upon the type and quality of information sources, the availability motivated and knowledgeable staff, and the importance that the organization places on budgeting function. The budget exercise starts with appointment of budget officer and constitution of a budget committee. Hospitals may not aim at profit but they should be clear as to what portion of the total cost that will not be paid by the hospital patients and which hospital management will have to meet out of grants, donations and from other sources. On receipt of these, manager of each responsibility centre initiates action within his functional area to develop a long term strategic plan. The presentation of his plan is followed by discussions with the members of the hospital executive committee. It provides an opportunity to the executive committee members to discuss departmental plans with respective managers and amongst themselves. A best possible plan combining the talents of entire group thus emerges. This approach enhances communication, co-ordination, and harmony of various operational plans and efforts. The exercise is not complete unless actual performance is compared with the target set in the budget, the reasons for variations between the two are analyzed and corrective action where taken.
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Budget committee The budget committee generally consists of a representative cross section of the major functional areas or divisions within the institution, with the designated budget director usually serving as the chairperson. Budget committees frequently include, among others those who hold the following positions: Director of Nursing Director of Human Resources Director of Material Management Director of Engineering and Plant Operations Chief of Medical Staff Chief Executive Officer, Chief Operating Officer, and/or chief Financial Officer Director of Nursing: This position is responsible for the major function of the most health care institution and also accounts for one of the largest, proportion of the institutions and revenues. Director of Human Resources: This position is responsible for administering the institutions salary and wage program, including its hiring and firing policies. Since in most health care institutions salaries and wages constitute well over 50% of the organizations total operating expenses, the director of human resources is a valuable member of the budget committee. Director of Material Management: This position represents the other half of the operating expense equation, the non-salary-and-wage expenses. The director of material management provides knowledge of inflation trends; new market products; purchase and trade discounts; fixed asset requirements; and the requirements for receiving, storing, processing, pricing and distributing the institutions operating supplies. Director of Engineering and Plant Operations: This position is responsible for the institutions buildings and equipment, including repair and maintenance. The director of engineering and plant operations can provide a wealth of information about such things, as well as experience in new construction, remodeling, utilities efficiency, and other areas of concern. Chief of Medical Staff: This positions represents the other half of the patient care equation, the medical staff. It is imperative that the physicians be represented in the budgetary planning and control process. They are not only the institutions major consumers, but they can be its best marketers and salespersons . the medical staff, who are on or near the cutting edge of the medical technology and therapy, can assist in identifying new procedures, treatments, and other related services that can benefit the institution and the community it serves. Chief Executive Officer, Chief Operating Officer, and/or chief Financial Officer: All three frequently serves as ex officio members of the budget committee. Their attendance at meeting and active interest in the budget committees activities add credibility to the budget process and help to keep top management aware of the budget process, its direction, and the anticipated results. Budget officer He assists monitoring performance comparing actual results with the budget. The responsibilities of a budget officer can be conveniently combined with those of Management 67
Accountant. He works under the guidance of a budget committee. He acts as a co-ordinator when it is being prepared. He provides appropriate background information for the previous 2-3 years about income, expenses and statistical data about departmental performance by cost control variables-number of procedures, department wise and grade wise manpower, etc. capacity details and production norms are also indicated. He subsequently assists in monitoring performance comparing actual results with budget. The responsibilities of budget officer can be conveniently combined with those of Management Accountant. Budget calendar It indicates specific dates for preparing individual parts of the budget, discussing them with departmental heads concerned, for review and revision and getting them approved. This ensures each segment receives adequate attention and the whole exercise is completed by due date. The work should not interfere with normal routine of those involved in the budget exercise. Budget period The budget period indicates the time span covered by a budget. It is generally one year, coinciding with the financial year. The process cycle time is relatively short and there are no substantial seasonal variations, which could affect month- to- month activity level. The annual budget should be integrated with long range plan. This could cover three to five years. Capital Expenditure also covers a three to five years period since it takes considerable time to conceive requirements of fixed assets and their acquisition. The first year of Capital Expenditure Budget should run concurrently with the annual budget. Budget revision Since a budget serves as a datum against which the actual performance is compared, ordinarily the budget is allowed to run its course for the entire period for which it is conceived. A mid-year review is undertaken and if there are major changes in basic parameters and suitable alterations are made in the budget projections for latter part of the year. Unless warranted, exhaustive changes are not made in the original budget. MECHANICS OF BUDGET PREPERATION: INCOME The sources incomes are charges for hospital services Bed charges The beds are generally classified under four categories; A, B, C and D. this classification is done more to segregate patients according to their ability to pay. Number of beds available under each category is predetermined. Facilities offered by each of these categories- such as space per bed, number of beds in a room, separate bed for patients companion within the room, quality of linen and furniture, provision of TV and air conditioning, nurse or ward boy in attendance-are different. There may be little differentiation as regards medical attention and food supply. One can compute category- wise cost based rates considering these factors. These rates can be made subjected o cross subsidy to match ability to pay. Category-wise occupancy records are maintained. The ultimate objective is to ensure targets income from beds should be generated from expected capacity utilization at revised rate. 68
Other hospital services Income from other hospital services such as OT, X-ray and pathology tests for the budget year could be similarly computed. However, unlike in respect of beds, service offered by a department is identical to all patients. The fees charged for a service of that department, often, depends upon the class of bed occupied by them. Forecasting income using different rates for identical services become difficult. One can, therefore, compute the income for the budget year using average rate for the previous year. At the most, the departmental output could be classified for four or five categories, for which statistics are readily available and there is substantial cost difference between them. Persons in charge are encouraged to forecast the activity of their respective departments and corresponding income during the budget year. Other receipts The amount could be targeted at the previous years level. Some hospital authorities leave their deficit from operations uncovered open ended hoping to offset the same through donations. These are generally received from one or more business persons or collected by the leaders of the community with which the hospital is associated. Businesses look upon these donations as business transactions if they are able to secure tax concessions thereon. Receipts of donations could be planned. They could be identified with certain individuals on the management board who have been instrumental in getting such donations in the past. There could be special collection drives, holding charity film shows, etc. With limits to what one could charge to patients, income from non patient services is receiving greater attentions Donations: Nonprofit healthcare institutions depend to a considerable extent on donations from persons and organizations. These donations could be in the form of physical assets (land , building, equipment and instrument, labor and material). These must be brought into the hospital books at their current market or disposable value. The same treatment will apply when items donated consists of shares, bonds and other financial instruments. The donors could lay down restriction regarding their usage. This must be spelt out in the balance sheet. Grants: Grants are funds provided by a government body or department to an institution, for example a hospital, to be used for a specific purpose, activity or facility. Grants or irrevocable rights to grant are recognized as revenue in the period in which they are receiving. This may be at the time the grant is authorized, but, in practice, most units wait until the cash is received. Grants could be in the nature of reimbursement of expenses incurred on specific activities or given without any preconditions. When the grants are made for specific activities, care should be taken to provide matching expenses. The time lag between incurring the expenditure and subsequent reimbursement should be considered when formulating cash budget. Interest / Dividend Income: Income from these sources is linked to investments provided in the balance sheet such as fluctuations (a) in exchange rates on capital funds and (b) rate of interest / dividend likely to prevail during the course of the year. If the investment is made from reserves, income there from forms part of the general revenues of the period and could be used for meeting any expenses that need be incurred for running the hospital. If the 69
investments are in the respect of earmarked funds, the budget should provide expenses that need be incurred to meet the objectives of the investment or should be added to the funds earmarked for the project. The finance Manager is expected to manage these funds. Negative Income/Deductions from Income: To keep up with their images as a service organization and also to secure tax concessions, hospitals offer concessions ranging from absolutely free service to marginal reduction in rates charged. Often, these concessions are offered on ad hoc basis. In one hospital, members of its Governing Body made visited the hospital daily, and during their daily rounds, they entertained requests from patients for reduction in bills amounts on pecuniary grounds. According to the hospital authorities, the reduction in income due to concessions was not substantial. No one knew the exact quantum since the bills were accounted at their net amounts. An observer felt that the quantum of reduction in income could be very large if one were to go by the length of the queue in front of their office. Besides, the founding donors were also entitled to sanction reduction in bill amounts. A study revealed that the annual cost of concessions offered to some of the donors was much more than their original donation. Most of the hospitals offer free medical service to its employees. This concession tends to result in an open-ended liability and leading to IR issue. Some hospitals cover their employees under some health insurance scheme to avoid these pitfalls. Some tend to set a ceiling for each employee and show the amount as a part of employee benefits rather than reduction in revenues. Deductions from Income: The budget should provide income at full rates. Deductions should be shown separately grouped under indoor and outdoor patients and analyzed under: (a) Charities, source of funding, community if this is a relevant factor; (b) Staff, (c) Special schemes, and (d) Bad debts. The objective of the exercise is to ensure the concessions offered are need based and do not result in disproportionate reduction in income not visualized by the management. Hospitals agree to charge special rates to employees of some commercial and industrial organizations or members of some health care schemes as a part of marketing effort. The cost of this concession should be assessed and provided in the budget as a marketing cost. Payment to Doctors: A percentage of fees charged on some hospital services or a fixed amount is paid to outside consultants and, sometimes, even to the medical staff on its own payroll. Some show the total amount charged to the patients as income and the payment to doctors as an expense. This presentation is better than showing the hospital income net of such payments, whereby there is no reference to such transactions in the final Income and Expenditure Statement of the Hospital. EXPENSES Formats of expenses could take the following forms: (1) Involving cash outflow, (2) use up of resources such as inventory or, (3) creation of liabilities (or their combination). For their inclusion in forthcoming annual budget, they should benefit the organizations current operations and not extend to future periods. Major items of expenses and their incidence in 70
some hospitals are listed below. The figures indicate percentage of total cost. Expenses should be accounted on mercantile basis. Pattern of Expenses The pattern of expenses could vary by hospitals: Types, sizes, location and other distinctive factors. Expenses In % Materials 22.5 Employees expenses 27.3 Dietary services 3.0 Utilities electricity and water 10.5 Engineering and property maintenance 11.0 Other hospital expenses 7.0 Administration including consultancy fees 11.0 Depreciation 4.0 Interest paid 3.7 Total 100
Materials budget Expenses on medicines, injections, operation theatre material, X-ray plates, reagents used in pathology laboratory, and such other material used while treating a patient in various departments, directly or indirectly, could be termed as direct material. The value of this type of materials varies with level of activity. Over a period, standards or norms are developed in terms of specifications and quantities for each material for different lines of treatment, operations or procedure. If such norms are available, requirements of various categories of material could be computed by multiplying per unit requirements with activity level expressed in terms of numbers thus: Activity Medical supplies Radiology Obstetrics Operating theatre Catering Pharmacy In turns of number Cost per patient day Cost per film Cost per delivery Cost per operation/type of operation Cost per patient/meal Cost per patient/day
The Materials Budget could be used to: 1. Estimate expenditure on material purchases and provide information required for income and expenditure, balance sheet and cash flow budgets. The information is used for deciding insurance cover, determine space and manpower requirements. 2. Plan level of inventories. 3. Schedule purchases in required quantities, to be secured from appropriate sources when required time. 71
4. Assess quantum of losses through deterioration, leakages and over aging. Many hospitals make patients buy medicines and medical supplies for use during patients stay in the hospital. These purchases are in standard packs, which may not be fully used on such patients. The surplus stock is used on indigent patients. It is not a good practice. The surplus material could get mixed with general stocks of the hospital. This practice should be given due recognition when computing materials budget. Purchase Budget Purchase budget provides for two additional inputs over direct materials cost: 1. Items, other than those used on patients , such as general stores, linen, stationary, engineering stores and sometimes, even equipment. 2. Variations in opening and closing inventory. If the current inventory were disproportionately higher than immediate requirements, the purchases would be less than actual consumption. Each department estimates its material requirements, indicating the basis of how the figures have been arrived. The Purchase Manager acts as a coordinator, and formulates the Purchase Budget combing the requirements of all departments. Actual purchase activity could be centralized. Personnel Budget Personal budget is prepared keeping in mind the requirements for manpower planning and incidentally for estimating employees cost for the budget year. Employees expense is the second most important item of cost in terms of incidence, next only to expenditure on materials. Budgeting employees expenses can be a part of manpower planning exercise. Major component of employees cost could be payment to honoraries, consultants and expenditure on fringe benefits. The expenditure incurred on unionized staff, though significant in terms of numbers, is not very large. One has to add cost of services, which are outsourced, such as security, housekeeping and routine maintenance, to the employees cost to arrive at the total labor cost. Most of the hospitals complain of high employees cost but the rarely care to analyze the composition of this vital item of cost. Hospital staff could be categorized under: Management-medical and administrative Medical Nursing Paramedical Engineering and technical Administrative and clerical Unskilled Fringe Benefits Fringe benefits could be broadly categorized under: 1. Retirement benefits: These include Provident Fund, Gratuity, and Pension. These are predetermined by the Companys policy. These can be estimated as a percentage of regular pay. 72
2. Cash benefits: Such as Bonus, leave Travel Concession, House Rent, etc. These are related to the grade in which an employee is placed. 3. Others: Such as subsidized lunch, transportation, medical, training, uniforms, etc. These can be estimated under the guidance of Personnel Department. There is no ideal ratio between the numbers of employees in each category. The total number could be anything from 2 to 5 per bed depending upon facilities provided hospital services that attract the most of the patients, in-house facilities, and physical structure of the building and management policies. Since the objective of Personnel Budget include manpower planning, it is necessary to draw an organization chart, establish an optimum level of employee strength in terms of numbers, categories, and specialization, based 1. Number of working days and shifts per day each department works 2. Standard manpower considering available infrastructure. 3. Number of days an employee is present during the year. 4. Previous record of average absenteeism percentage. 5. Industry norms for employees productivity, e.g. number of beds per nurse or attendant. 6. Existing strength. 7. Provision for wastage, training, and acquisition of new equipment. Nursing staff requirement is generally estimated based on the Nurses; Bed ratio for different area of the hospital- higher ratios for ICUs and lowers for general category beds. Another better method is to estimating is based on calculating nursing hours requirements for 24 hours for various types of patients- Intensive care, Surgical, Medical, and paediatrics, patients chronic diseases ward (tuberculosis patients) patients etc. will require different nursing hours per day. In hospital, areas working 24 hours 7 days week schedule are identified and the staff requirements suitably provided. In OT nurses requirements will be based on number of OT tables and categories of operations. In OPD nursing requirement will be based on number of patients attending per day. There is variability for both the number of patients with regards the day and season. Overtime Overtime payments are necessary for emergency work and unplanned absenteeism. Some employees often create situations that need overtime payments artificially to generate additional income for themselves on a regular basis each month and their colleagues. It creates bad morale amongst other employees who are not similarly placed to take secure overtime payments. The budget makes provision for over time departments-wise or in total. The managements generally feel that under normal circumstances, there should be no overtime. In some hospitals, overtime hours are offset by compensatory offs for equivalent time period. Other Operating Expenses Energy Costs Sources of energy used by hospitals are: electricity, gas, coal and steam. It is necessary to estimate energy cost departmentally for control purpose as well as to arrive at 73
realistic departmental costs. Generally, there are separate meters for extendes space and group of machines. One could estimate the power consumption on the basis of area, horsepower rating or manufacturers specification. Maintenance/ Plant engineering Maintenance is undertaken to keep or restore assets of the organization in a condition to render an acceptable level of performance. In a multispecialty hospital medical equipment maintenance involves the following areas. 1. The classification of equipment 2. The maintenance expenditure 3. Routine preventive maintenance 4. Critical and Defect analysis Marketing Expenditure on marketing is determined by the management at its discretion. It could be related to the expenditure during the previous years, a percentage planned income or based on marketing effort likely to be made during the year. The top management decides on how much to spend on marketing and the manner in which it is to be incurred. The amount allocated depends upon the perceived need and availability of the funds. Marketing is mainly used to create awareness amongst the community and to increase utilization of hospital facilities which are underutilized. Administration Administration expenses cover expenditure on rent, rates and taxes, travel, communication, professional fees, medical books and journals, and participation of seminars and conferences. The hospital should be adequately insured against loss of property on account of fire, accident, riots, and possible claims from patients against negligence. BUDGET CONTROL Budgets by themselves will achieve little unless they are supported by budgetary control procedures. Budgetary control mechanisms ensures the actual results are in line with what was planned and agreed up on, and if there are deviations, identify the reasons and to the extent possible make individual accountable for them It can be achieved through: Keeping a constant watch on over the budget in action Periodically reviewing of actuals with the budget Analyzing deviations in actual performance Taking remedial action where indicated Revising the budget if conditions warrant The ultimate financial statements that result from budgeting from and from the operations of the hospital are the income and expenditure statement and balance sheet, which reflect the financial performance of the hospital for the period and at the end of the period, respectively.
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Income and Expenditure Statement Income and expenditure statement reflects the results of the hospitals operations for a stated period. Only broad classification of accounts is done. Details are furnished in separate schedules. At times, functional indicators like income and expenditure statement per inpatient day, income per outpatient etc. can also be given. Usually, outpatient and inpatient income and expenditure are separately accounted. The income and expenditure of various departments are worked out departmentwise. This is essential for the purpose of evaluating financial performance of each department, and in determination of costs of providing each service. Balance Sheet A balance sheet represents financial position as on a specific date. It is statement of assets and liabilities. It reflects what the hospital owns and what it owes to others. Only total figures are given against each classification of the main accounts. Detailed schedules can be annexed if required. A hospitals assets and liability consist of Assets 1. Fixed assets: These are physical assets for long term intended use Building- Wards, departments, hostels, residential accommodation Lands and grounds Plant and equipment- Boilers, sterilizers, AC plant, lifts, central oxygen and suction, mechanical laundry etc Furniture-Hospital furniture and general purpose furniture Diagnostic and therapeutic equipment and machines Vehicles 2. Current assets: They consist of the following Cash in hand and bank Deposits and investments Accounts receivable Other receivables Inventory of supplies and materials in stock 3. Other assets: These consist of certain specific purpose funds(like emergency fund, endowment fund, training fund etc) Liabilities 1. Current liabilities Salaries and wages payable Taxes, interest burden Accounts payable 2. Long term liabilities Mortgages Long term loans
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DEPARTMENTAL BUDGET One needs to know how much expenditure on a department is incurred and what its service units cost. This information helps the management to fix rates for service rendered by the department and assess its financial viability and performance. An appropriately prepared budget will enable the management to monitor the performance of each department in terms of activity, income, costs, and anticipate needs for additional facilities and equipment, infusion of capital funds and changes in management strategy. As a part of Cost Accounting system, departmental costs are computed periodically. These can be matched with forecasts contained in the budget to facilitate effective control over operations. Some department budgets are described below: Research To be identified as a research centre, a hospital has to register with the Government. The budget for Research is an appropriation budget. The budget sets limits on the overall expenditure taking into consideration needs and availability of funds. External funding agencies could also give assignments to their specialization. The budget covers expenses on employees, rent, fees, books and periodicals, and seminar fees. The budget could be reviewed in terms of: 1. Receipts of promised funds 2. Progress made on the project, and 3. Benefits derived Dietary Services The responsibilities of the Dietary Services Department include procurement, storage, processing and delivery of food to patients in compliance with physicians orders and public health regulations. Additional responsibilities include teaching nutrition and right eating habits, and determing patients preferences. If hospital cafeteria is part of the set up, one has to attend to the requirements of the staff and the public. Previously most of the patients and staff brought food from their residence. Now most of them depend upon food served by the hospital. Some hospitals prohibit food from outside. The scale of operation has also increased. Heavy investment is made in this section on storage and food preparation to avoid deterioration and ensure consistent quality. In view of the importance attached to food preparation and distribution, and handling of labor, preference is being given to persons with hotel qualifications and experience to head the department. Whatever may be the arrangement for the supply of diet to patients, a trained and experienced dietician should be appointed to define and monitor the different therapeutic diets suggested to patients. The cost of food served to patients could be Included in bed charges and not included in the bill as a separate items. Maximum number of complaints against hospital services is on account of food, particularly, from patients who have been in the hospital for long. It is also an area from where maximum leakages and wastages occur. Maintenance of quality standards and physical and monetary controls are difficult to enforce. More and more hospitals are contracting this service to outside parties.
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Laundry services Normally, hospitals do not charge the patients separately for the laundry services. It forms part of bed charges or service charge recovered from patients. It is essential that someone being held accountable for its quality of service and cost. A hospital could wash patients uniforms and bed linen, staff uniforms and other clothes in house through its own regular staff using its own equipment or get them washed from an outside laundry. In a hospital, the clothes are separated between coloured and white and again sorted out under (a) soiled, (b) infected, (c) fouled and (d) infected and fouled. If the dirty linen is separately washed according to degree of soil, washing is simplified, time is saved, economy is affected, and the results are better. The in-house laundry could provide hygienic, cleaner and prompter service. It could be operated as a separate profit centre. Nursing training school Many larger hospitals conduct their own nursing training schools to provide them with a constant supply of trained nurses. Assuming it is a two year course, the number of trainee nurses any time would be 60-80, with 30-40students in each batch. They have to be provided with residential accommodation close to the hospital. Capital cost would cover cost of space, audiovisual equipment, furniture and fixtures for holding 2 classes simultaneously, library, office and hall. Nursing school runs as per the guidelines Of Nursing Council of India. It offers 3 years General Nursing (Diploma) Course. There is elaborate requirement of physical facilities, staff, various lab items, books hostel facilities as per Nursing Council guidelines. Running cost of the training school would cover stipend paid to the students, cost of uniforms, and linen in the hostel, washing charges, library books and free food. Teaching faculty will consist of a Principal, with assistance from the budget officer, prepares the budget. BENEFITS Orderliness in planning process: The main budget is supported by several departmental and functional budgets, with quantitative details and financial values, activity details and use of resources, income, and costs. There is a provision for continuous review of performance. In the process a kind of orderliness is introduced. The managerial personal are made to think in terms specific rather than in general terms. It guards against undue optimism and unplanned expenditure. Decentralization of responsibility: Buck-passing is avoided. Through departmental budgets, authority is delegated downwards along with accountability for performance. The top management is left free to concentrate more on important issues. Performance appraisal: The budget provides norms for evaluation. For want of norms, previous years results are used to forecast current years performance. The budget provides the details of total capacity, likely actual activity level and what it means in terms of use of resources, matching income and expenses. Whilst specifying these, relationship between input and output is based on current performance. These could be termed as norms and used as guides to measure performance. Since the departmental staff is involved in devising the norms they unlikely to be opposed there being used for measuring performance. 77
Communication: Every hospital has some sort of communication system. Budgetary Control system makes reporting purposeful, comprehensive, reliable and regular. In a manner, the exercise serves as an important instrument of communication. The key personal are informed about the organizational goals and policies, changes in the environment and the organization within which the budget is framed and what is expected from the individual manager. The sense of participation ensures their commitment to achievement of organizational goals. Co-ordination: Inter departmental problems get discussed at various budget meetings. Medical administrators and key staff members attend these meetings from finance, engineering and personnel departments. Creation of database: The exercise results accumulation of substantial data at one place. For example, it could identify departments, which need investment or where there is a surplus labor. Further, the data provided in the budget detail sheets could be utilized to establish trends for projecting future growth. PROBLEMS IN BUDGETING Reasons why a budget may not deliver the desired benefits are: Lack specific goals and objectives Lack of training and motivation. It is often perceived by the key personnel as a pressure technique imposed by the top management, and not as a planning device. They may not deliberate stand aloof or non cooperate. Departmental goals may be at variance with the co operate goals. At highest level the management may like to deliver best possible health care. At the operating level one has to take care of constraints imposed by budgets, number and quality of staff. Allocation of funds managers may find it hard to allocate funds fairly and in the businesses best interests Short term vs. Long term planning budgets usually only look at an annual plan therefore may fail to take a longer term view
NURSE ADMINISTRATOS ROLE IN BUDGETTING 1. Budget required for the nursing department should be co-operative activity of the nursing superintendent and her associates including the supervisors 2. Participation in planning budget 3. It is prepared under the direction and supervision of the administrator or financial officer designated by him 4. The administrator supplies special forms to guide the budget. 5. Consult and take assistance of her/his subordinates in determining the needs of the unit for ensuring year on the basis of information received. 6. Request sufficient funds to suggest a sound programme such as to provide for developing programme provision, expansion of programme, to attract and hold qualified staff to provide for expansion of physical facilities, supplies, equipment, for improving instruction and also to carry out adequate functions of the institution. 7. Submit budget request with justification with proposed expenditure. The administrator defines her/ his budget so that nursing unit will have enough money to conduct programme effectively. Money must be available to allow experimentation also. 78
8. When the budget is allotted, the administrator should support the budget. He/ she should interpret the subordinates, any changes that may affect instruction services for the adopted budget. She/ he secures for the adapted budget. Once the budget is adapted, it is the responsibility of the administrator to see that expenditure should not exceed the appropriation made 9. Since the nurse administrator also is responsible for budget, she/ he should cover the routine budget control. 10. The budget request may be broken down to the different units e.g. Salaries, supplies, equipments and other purchase requirements. CONCLUSION Budgeting is a tool of administration, which help to make the functioning of an organization very effectively. Viewing budgeting as a two-part process--budget setting and budget managing--and implementing best practice principles within each part can help hospitals generate better year-end financial results that can be invested in teaching, research, and patient care, and improve financial viability. Nurse Managers are responsible for a significant portion of institutions financial recourses. These sources can be invested very wisely for the provision of quality health care by the manager who is knowledgeable about the budgeting can effectively articulate the need for recourses. BIBLIOGRAPHY 1. G.R Kulkarni, Financial Management for Hospital Administration, Jaypee Brothers Publication,New Delhi, Page No-:41-91 2. B.M Sakharkhar, Principles of Hospital Administration, 2nd edition, Jaypee Brothers Publication,New Delhi, Page No:171-176. 3. Linda Roussel, Management And Leadership for Nurse Administrators,4th Edition, Jones And Bartlet Publishers, Boston, Page No:272-302 4. B.T.Basavantappa,Text Book Of Nursing Administration, Jaypee Brothers Publication,New Delhi 5. Catherine.E.Loveridge, Nursing Management In New Paradigm,Aspen Publication,Maryland 6. Bessie.L.Marquis, Leadership Roles And Management Functions In Nursing, Lippincott Publication ,Philadelphia 7. http://www.ehow.com/how_4471831_make-hospital-budget.html#ixzz1E1ObwVQZ 8. http://allbusiness.com/accounting/budegt 9. www.budgetmap.com
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B. EDUACATION INSTITUTION INTRODUCTION: The word "Budget1' is derived from the old English word "budgettee" means sack or pouch which the chancellors of the exchequer used to take out of His" papers for laying before the parliament, for the financial scheme. Now the term refers to the financial papers. MEANING OF BUDGET: Budgeting, though primarily recognized as a device for controlling, becomes a major part of the planning process in any organization. "Budget" is a concrete precise picture of the total operation of an enterprise in monetary terms. DEFINITION Budget is the heart of administration management. Budget served as a powerful tool of co-ordination and an effective device of eliminating duplication and wastage. According to T.N. Chhabra, a budget is an estimation of future needs arranged according to orderly basis. Some or all activities of an enterprise for a definite period of time". BUDGET- A TOOL FOR EFFECTIVE ADMINISTRATION When budget becomes really an effective tool of administrative management, the executive must have adequate powers. Facilities and discretion in budgetary matters with following principles. Executive programme : Budget should go hand in hand with programming under the direct supervision of Chief executive. Executive responsibility: The Chief executive must see that the departmental programmes fulfill the intent of the legislature and due economy is observed in the execution of the programme. Reporting : Budgetary process like preparation of estimates, legislature action and the budget execution must be based on full financial and operating reports coming from all levels of administration. Adequate tool : Chief executive must have an adequately equipped budget office attached to him and authority to earmark monthly or quarterly allotment of appropriation. Multiple procedure : The methods of budgeting may vary according to the nature of operation. Executive direction: Appropriation should be made for broadly defined function of the department. 80
Flexibility in timing: Budget should have provisions to accommodate necessary changes in the light of changing economic situations. Two-way budget organization: Traffic between central office and the agency offices responsible for budgeting and programming should move in two-way rather than one-way street. BUDGET- A TOOL FOR LEGISLATIVE CONTROL The budget is the most important tool of legislature control over the public purse. Control over public purse enables the legislature to control the executive, and the history of this control may be broadly identified with the evolution of democracy itself. This control was originally restricted to the raising of revenues only, but in course of time, it spreads out and included control over expenditure as well.
BUDGET PROPOSAL / PLANNING In India, usually annual budget estimates for coming financial year are prepared in the month of September / October of the current year. It is to be submitted by the 'directorate of medical, health and F.W on October 25th to the State Government so the budget preparation is started at the district level. Every head of the hospitals are required to prepare budget estimates in respect of medicines, diet, equipment, surgical dressings, even etc are to he worked out. Recurrent budget. The Planning should include : Forecasting : Sound forecasting may be related to making decisions on purchases, expansion, advertising servicing, working capital needs etc. Accounting : Well conceived accounting system must be needed to compare the budget information with actual accomplishment. The cost information tells us howmuch it will cost to produce or give services. Lines of authority: Budget preparations, operation and supervision need / require clearly defined lines of authority. Budget committee: Budget needs budget committee in an organization. 1. To receive and approve all forecast departmental budgets, provide reports showing comparison of actual and budget income and expenditure 2. To request for special studies of deviations from the budget and consider revision of budget to meet changed conditions.
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BUDGET PROPOSAL FOR NURSING EDUCATION INSTITUTION: The administration of school or college of nursing requires a budget and this budget will probably allocated directed but as in most hospital schools of nursing and alleges, it will be included in the total budget of the hospital with a certain amount remarked for the school or college. In general, the items which arc budgeted for the average government schools of nursing in India are: 1. 2. 3. 4. 5. 6. 7. 8. Salaries for professional, Clerical and Domestic staffs and drives Stipends for the students. New equipments and supplies. Hires and oilier house hold supplies. Office supplies include stationery and postage. Maintenance of transport and cost of petrol. Maintenance of library or setting up a new library. Contingency fund for educational tours, professional activities, capping and graduation ceremonies, prizes, entertainments etc.
PREPRATION OF BUDGET STATEMENT IN NURSING EDUCATION The nurse Administrator or head of a budgetary unit is responsible for the preparation of the annual budget of the school of nursing. In conference with the president and other budgetary unit heads. The administration gets on over all view of the budget. So that is requirements are reviewed and activates submitted in time for inclusions. In the proposal for the next financial year, when the budget allotted the amount should be made known the staff. So that they may establish priorities among items on which of is proposed to be spent purchases should be made, accounts maintained in accordance with the financial practices of the institution.
Item
Income or expenditure
Actual last year
Current Year Budget Actual
Budget Next year Proposal Approval
1. 2. 3. 4.
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STEPS IN BUDGETING FOR COLLEGE OF NURSING: 1. Request the professors of various departments and librarian 10 present their needs for the coining year by a specified dale, and confer with these who have presented such need. 2. Review the budget appropriation and actual expenditure for the current year in conjunction with statical data. 3. Ascertain whether any changes are contemplated. 4. Prepare the programme which the new budget is 10 cover. 5. Determine the percentage of salaries of personnel. eg. Principal. Vice Principal. Professors, Lecturers, Librarian, Clerk, Peon, etc. 6. Estimate the requirement for the coming year from the information supplied as the expenditure for supplies, equipments and repairs to date. 7. Prepare a summary of new needs, both personal and material with data to support the request. Implementation of Budget: Where the budget or money has been given to college, utilize it as per planning. Eg. Giving salary, purchasing equipment, library books, programmes, etc. We evaluate that how much money has been spent and how much remaining So that we can plan for the next budget. Budgeting Expenditure: - Salaries and wages - Material - Utilities - Service and maintenance - Expenditure an academic activities - Research activities - Miscellaneous Sports activities Welfare of students - Library Budget Model: Based on steps of budget preparation a new budget model prepared for school and Colleges. Students strength 50 members. Subject Particulars For purchase of Sports goods 65% Tournament 30% Others 5% Total - 100% Regular subscription of newspaper, Amount in rupees 2340.00 1080.00 180.00 3600.00 1800.00 83
Sports Fees
Library Fees
Medical examination fees
Vocational education books
Audio visual aids
Laboratory fees
magazines 50% For purchase of books 30% For binding old books/new 10% For repair charts 5% For repair furnitures 5% Total 100% For honorium to doctors 50% For first aid 20% For assistance to doctors 10% ` Total For purchase of materials 60% For books purchase 10% For registration with the commission fees 20% Total Type of model 60% Repairing old A.V. aids 20% Maintenance 20% Total Solutions 40% Test tube / equipments 40% Maintenance 20% Total
1080 360.00 180.00 180.00 3600.00 450.00 180.00 90.00 720..00 1080.00 180.00 1800.00 3600.00 2800.00 800.00 800.00 4400.00 1000.00 1000.00 800.00 200.00
THE RESPONSIBILITIES OF PRINCIPAL / NURSING ADMINISTRATION IN BUDGET INCLUDES THE FOLLOWING 1. Participation in planning budget. 2. Consult and take assistance of his / her subordinates in determining the needs of the unit for ensuing year on the basis of information received. 3. Request sufficient funds to suggest a sound Programme such as to provide for developing programme provision, expansion of programme, to attract and hold qualified staff to provide for expansion of physical facilities, supplies, equipment, (or improving instruction (School and College) and also to carry out adequate functions of the institution. 4. Submit budget request with justification with proposed expenditure. The administrator defines her / his budget so that nursing unit will have enough money to conduct programme effectively. Money must be available to allow experimentation also 5. When the budget is allotted, the administrator should support the budget. He / she should interpret the subordinates, any changes that may affect instruction services for the adopted budget. She / he secures for the adopted budget. Once the budget is adapted, If is the responsibility of the administrator to see that expenditure should not exceed the appropriate made 84
6. Since the Nurse Administrator who is responsible for budget, she / he should cover the routine budget control CONCLUSION Budget is quantitative statement usually in monetary terms, of the expectations of a defined area of the organization over a specified period of a time in order to manage financial performance. The organization may use sophisticated and complex forecasting methods, including statistical techniques to assist in making projections related to the budgetary period. Management normally uses the past as the common starting point for projecting the future. BIBLIOGRAPHY 1. Eleanor J Sullivan, Philip J Decker. Effective leadership and management in nursing. 4th edition published by Addison wesely. Page no.91-104. 2. B T Basavanthappa. Nursing administration. Jaypee publications. 1st edition. Page no.152161. 3. T Ramaswami. Principles of management. 1st edition. Himalaya publishing house. Page no. 361-394. 4. Google .com 5. Budget planning guidelines. Com 6. Pubmed.com
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Mr. Channabasappa. K.

TYPES OF COST ANALYSIS

COST BENEFIT RATIO [CBR]

(All benefits) (All costs)

1 week 1 week 1 day 1 week 1 week 1 week 1 week

Sequential Sequential Parallel Parallel Parallel Sequential Sequential

M. Development of Management Week 6 Information System N. Detailed training Week 9

A different case is shown below:

Extended sickness benefit:

BUDGET PROCESS OR STEPS IN BUDGETTING

Actual last year

Current Year Budget Actual

Budget Next year Proposal Approval

Medical examination fees

Vocational education books

Audio visual aids

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