The first step in cost-variance analysis is developing a budget; this is an assumption of all cost in the hospital (Miller & Ryan, 1995). The second step is to collect information on accurate cost accounting (Miller & Ryan, 1995). It can be challenging for healthcare organizations to develop a budget or cost-variance analysis because of the complexity of the healthcare economy. Using the hospital of phoenix budgeted costs were compared to actual utilization. Several variances exist in all categories.
Developing an accurate budget is one strategy to manage a budget within the forecast. Collected data and accounting resources can help management to formulate an accurate budget. Other strategies can come from surveying all parts of the hospital to get the opinions of staff in all areas on how to keep costs in budget or simply minimize cost. The involvement of all staff will create an urgency for budget compliance and involvement will make employees feel as though the task is more personal. Benchmarking progress through out the year is important. Changes and evaluations can be made to areas that are not with in the targeted budget. This will help by making changes before the variance becomes any higher and may decrease the overall variance.
The budget report showed variance overage among; inpatient revenue, outpatient revenue, office supplies, purchased services, equipment maintenance & repair, depreciation expense, and operating margin before contractuals. The inpatient and out patient revenue had variances that were over the projected budget. However, as a result of the decrease in patient services the operational expenses of salaries, benefits, medical supplies, and pharmaceuticals were reported under the projected budget amount. The decrease in patient services could have been for a number of reasons. Repairs and maintenance on equipment was under budgeted for. Lack of functioning equipment may have been one reason for the decrease in patient services.
If needed equipment is not available a patient must be sent to a facility with the proper equipment and services. This takes away from the hospitals revenue as well as its statistics. To determine other reason why there was a decline in patient revenue would require more information. The overage of money spent on office supplies cannot be accounted for. There was a lower than expected patient load therefore the cost for office supplies should have been lower than expect as the medical supplies proved to be. There needs to be a unit based investigation to see where the additional expenses on office supplies are coming from.
To improve the variance with in the predicted budget and the actual spending benchmarking should be used. There are three approaches to benchmarking; competitive, cooperative, and collaborative (Finkler, 2007). Competitive benchmarking would find specific information about individual areas. This would be a good way to track supply usage and also staffing on individual units or areas of the hospital. Cooperative benchmarking is a process in which information from other organizations is used to improve this hospitals budget (Finkler, 2007).
This could help the hospital improve the overall budget analysis and plan ways to save within the facility. The third benchmarking approach is collaborative benchmarking which refers to finding information in particular areas of the hospital and using it to benefit all areas of the organization (Finkler, 2007). Information from the pharmaceuticals area could be used to improve other areas such as the variance with office supplies.
Finkler, S. (2007). Financial Management for Nurse Managers and Executives (3rd ed.). Saunders Elsevier Inc. St. Louis, MO. Retrieved on February 29, 2013 from: University of Phoenix Materials.
Miller, T. R., & Ryan, J. B. (1995). Analyzing cost variance in capitated contracts. Healthcare Financail Management, 49(2), 22-3. Retrived from http://search.proquest.com/docview/196372371?accountid=35812 Nelson, B. (1994). Improving cash flow through benchmarking. Healthcare Financial Management, 48(9), 74-8. Retrieved from http://search.proquest.com/docview/196364264?accountid=35812