Week 4: Staffing Ratios

Staffing is one of the largest expenditures for healthcare organizations. It stands to reason that for some organizations a mandatory staffing ratio could negatively impact their financial bottom line. Sometimes ratios can be different within an organization based on acuity of patients or type of unit. Explore your own organization staffing ratio policy. What is/are the ratio(s) and how they are determined? What variables affect the ratios? Have they been mandated by state legislation or organizational policy? How is your operational budget (unit or department) affected by the staffing ratio assigned to it?

Scholarly references to support your response are required.

Week 4: Introduction

Table of Contents

Welcome to Week 4

This week, we turn our attention to the operational budget. Developing and maintaining the operating budget is a crucial responsibility for the nurse manager or executive. As you learn the specific elements contained within this budget type, you will apply basic financial principles to the process of developing key components of the operating budget.

Outcomes

2

Apply evidence based financial knowledge and skills within the context of holistic care principles and caring health environments. (PO 1, 2, 5) {AACN Essentials: II,III, V, VIII} {ANCC-NE-DOP: I,III}

Weekly Objectives

  • Apply operational budget principles to development of staffing and supply budgets. (CO 2,3) (ANCC-NE-DOP I. B. 4)
  • Account for variances in selected operating budgets. (CO 2,3) (ANCC-NE-DOP I. B.6)

3

Articulate the relationship between managerial and financial decision making and its implication within a culturally diverse healthcare organization and patient population. (PO 1,3) {AACN Essentials: I,II} {ANCC-NE-DOP: I, II, III}

Weekly Objectives

  • Apply operational budget principles to development of staffing and supply budgets. (CO 2,3) (ANCC-NE-DOP I. B. 4)
  • Account for variances in selected operating budgets. (CO 2,3) (ANCC-NE-DOP I. B.6)

Week 4: Reading

  • DueSep 30 by 10pm
  • PointsNone

Required Readings

Leger, J. M., & Dunham-Taylor, J. (2018). Financial management for nurse managers: Merging the heart with the dollar (4th ed.). Burlington, MA: Jones & Bartlett.

  • Chapter 6: Budget Development and Evaluation
  • Chapter 7: Budget Variances

Marquis, B. L., & Huston, C. J. (2017). Leadership roles and management functions in nursing: Theory and application (9th ed.). Philadelphia, PA: Wolters Kluwer Health.

  • Chapter 17: Staffing Needs and Scheduling Policies
    • Complying with Staffing Mandates
    • Workload Measurement

Rundio, A. (2016). The nurse manager’s guide to budgeting and finance (2nd ed.). Indianapolis, IN: Sigma Theta Tau International.

  • Chapter 4: Building Operational Budgets
  • Chapter 7: Budget Variances
  • Chapter 8: Budget Reports

Required Articles

Reiter, K. L., Harless, D. W., Pink, G. H., & Mark, B. A. (2012). Minimum nurse staffing legislation and the financial performance of California hospitals. Health Services Research, 47(3 Pt 1), 1030–1050. Retrieved from https://chamberlainuniversity.idm.oclc.org/login?url=http://search.ebscohost.com/login.aspx?direct=true&db=mdc&AN=22150627&site=eds-live&scope=site

Schreuders, L. W., Geelhoed, E., Bremner, A., Finn, J., & Twigg, D. (2017). Feasibility of using payroll data to estimate hospital nurse staffing. Collegian, 24(4), 345–350. Retrieved from https://www-sciencedirect-com.chamberlainuniversity.idm.oclc.org/science/article/pii/S1322769616300580?_rdoc=1&_fmt=high&_origin=gateway&_docanchor=&md5=b8429449ccfc9c30159a5f9aeaa92ffb

Welton, J. M. (2015). Hospital nursing workforce costs, wages, occupational mix, and resource utilization. Journal of Nursing Administration, 45(10), S10. Retrieved from https://chamberlainuniversity.idm.oclc.org/login?url=http://ovidsp.ovid.com.chamberlainuniversity.idm.oclc.org/ovidweb.cgi?T=JS&CSC=Y&NEWS=N&PAGE=fulltext&AN=00005110-201107000-00006&LSLINK=80&D=ovft

Week 4: Lesson

Table of Contents

Operational Budgets

Introduction

A major responsibility of the nurse manager or nurse executive is managing the operational budget. This week’s lesson focuses on applying basic financial principles to develop the operational budget. The two major components of the operational budget, employee and nonemployee expenses, will be explored in depth and applied. In addition, how variances can impact the operational budget will be examined.

Hi and welcome to week four. This week’s lecture is gonna be divided into two parts, the first part will be the long one and I need you to just really try to concentrate and pay attention. So last week we went over the basic background of budgeting. We discussed types of budgets at a very high level and we go to the budgeting process.

This week we are going to delve into operational budgets and more extensively the two most expensive things in any healthcare organization, people and supplies. Nothing brings about more discussion among staff nurses than the topic of people or to be more specific, staffing. At least once a day I hear someone say that staffing was bad, or staffing was unsafe, or why don’t we have more staff? With this week’s lecture I hope to provide a better understanding of staffing. Provide you the why, and give you some food-for-thought to challenge your peers when at work, and this topic comes to fruition. Once we cover the people component, we will go into the next thing that is very expensive, supplies. All of those things we utilize to care for patients. From the gauze pants, to medications, to the spinal implants. These items all assist us in caring for those we serve, but they are also costly. So let’s dive right in. [BLANK_AUDIO]

So developing the operational budget for staffing, like some of the other budgets relies on historical information and forecasting future needs. The steps and terms involved in creating a staffing budget include the average daily census or ADC, the average patient days or APD, the average length of stay, ALOS, hours of care per patient day, HPPD, hours of nursing care per patient day, NHPPD.

Understanding these components and these terms is essential for the nurse leader when developing a budget. So what is the average daily census? In short, it is the average number of beds occupied every day on a unit or in an organization by patients at a given point in time, which is usually midnight. So to figure the ADC, you take the number of patient days and divide it by the number of days in the year. So if your organization has 85,000 patient days and you were looking at a full years worth of data, the ADC is 232 for this organization. So how about for a given nursing unit? And the next thing is gonna be in real time calculations. So bare with me a second as we try to figure out how to do that. [BLANK_AUDIO]

So, if we have an orthopedic unit, 7,350 patient days, and there are 365 days in a year. Their ADC, [BLANK_AUDIO] Is gonna equal what? Have you done the calculations? Well, it’s gonna be 20.1.

So, on average, this organization or orthopedic unit which has 7,350 patient days divided by 365 days in a year, has 20.1 heads in a bed at midnight. So what does the average daily census tell us? It is a point in time, usually midnight, and a snapshot of the number of patients in the hospital or on a unit at a given time.

But the ADC drives many components of the budget such as the number of staff needed or the occupancy rate. So, if we’re gonna figure occupancy rate, let’s say that this orthopedic unit which has an ADC of 20.  [BLANK_AUDIO] No, sorry about that. [BLANK_AUDIO] Of, [BLANK_AUDIO] 20, [BLANK_AUDIO] .1, but they have 26 beds on the unit.  [BLANK_AUDIO] What do you think their ADC is or the percentage of beds that on average are occupied on a given night? Well, that is a 77% occupancy rate.

So, if a hotel was filled to 77% of its occupancy rate, what might you see? So, what about your healthcare organization? If your orthopeadic unit is filled to 77% of its occupancy rate. What does that tell you? What should you be looking at? Just things and food for thought when you’re thinking about your budget.

So patient days. So patient days are the average monthly patient days is how many patients at midnight are sleeping in a bed at the hospital. So to figure this out, you’re gonna take your ADC, multiply it by the number of days that year. Well that doesn’t change, that’s 365, and divide it by 12 months. And that is gonna give us for the orthopedic unit that we’ve been talking about, 611 monthly patient days. [BLANK_AUDIO]

So next, when you’re doing a staffing budget or you’re looking at budgeting, you need to look at units of service or nursing workload. Nurses often think of workload as the number of patients they care for in a given shift or the patient to nurse ratio. In budgeting, workload is typically measured as units of service, number of patients, patient days, deliveries, procedures, surgeries, visits or treatments. Each cost center must determine the measure that is most appropriate for it’s unit of service.

For example, labor and delivery, normally, their unit of service is the number of deliveries. If you are a surgery center where you do operations, then your normal unit of measure is procedures. So what do think it is for an impatient nursing unit? Probably the number of patients or the patient days.

So, on this slide of these 12 patients, what do you think each patient requires? One of the patients could require a treatment lasting 15 minutes. One another patient may require a treatment lasting two hours. This is why it is essential to specify a unit of service to accurately predict the nursing workload or the volume of work that is to be performed by the caregiver. This is better presented as nursing hours per patient day, NHPPD, or hours per patient day, HPPD. So if you’re gonna really be true to yourself, do all of your patients require the same amount of care? Do they all take up the same number of nursing hours? [BLANK_AUDIO] You really have to think about that.

If you have a patient who’s getting three units of blood, what you need to provide to them maybe very different than the walkie-talkie patient next door. So those are some of the things that we have to take into consideration when we’re looking at staffing and FTEs. Hours per patient day, this is the number of nursing staff hours needed to provide care to a patient in a 24-hour period. Nursing hours per patient day is usually a benchmark based on the type of unit you are staffing. And this benchmark is usually set by the CNO in collaboration with the CFO. So a med/surg unit may be between 10.9 and 12.8 hours per patient day. For a critical care unit, maybe between 14.4 and 21 hours of care per patient day. [BLANK_AUDIO]

So if the nursing hours per patient day are 11 and on that orthopedic unit that we were talking about, they had 7,350 patient days. What that means in terms of hours of nursing care a year is 80,850 hours of nursing hours per patient day. If you divide that by 365 days for the year, that’s 222 hours of nursing hours per patient day. Because that 80,850 represents needed care hours, sometimes we need to relate this to productive hours rather than paid hours. Organizational policy will usually determine the amount of non-productive time that is paid to an individual. So let’s talk for a second about productive versus non-productive.

If you are a nurse on a unit caring for patients and you are actively providing care, meaning you’re staffing the unit. The hours you’re there are productive, but if you’re a nurse who is at a conference and you’re getting paid for being at that conference. The hours that you’re getting paid are not productive because you’re not actually providing hands-on care. So it’s essential to understand the differences between productive care and non-productive care.  [BLANK_AUDIO]

So next, we need to consider staffing requirements for the number of expected hours. So in this case, we came up with 80,850 hours of care that we’re required. So how do we determine the number of staff that are needed to provide that care? Some of the staff work full time, others part time.  A way is needed to distinguish between those who are full-time workers and those who are not.

The approach that has been developed is to distinguish between positions and full-time equivalent employees. So you may be an individual working at an organization, but you don’t work full-time. So you may be a half of an FTE. A position is define as one person working for the organization for any number of hours per week to perform specific jobs functions. One person who works that number of hours is considered to be full-time.

If you work 36 to 40 hours a week, you’re consider full-time. Thus, one employee working full-time is one FTE. But so are two employees each working half-time. They occupied two FTEs, two positions, but generate only one FTE a work. I know it’s confusing, but it’s often important to understand that. So, the development of the budget, especially the staffing budget, relies on historical information and forecasting of future needs. The same exists for developing the staffing budget.

To determine what the needs are, several items must be looked at and considered. First is to determine the number of FTE equivalents, a specific unit, clinic, floor, requires to meet their patient care needs. So what is an FTE? An FTE is a unit of measurement that represents one person who works full time or multiple people who equal a 1.0 FTE. An FTE is the calculation number that is derived from the premise of an employee working 8 hours a day, 5 days a week, 52 weeks a year, or 2,080 hours per hour per year.

So some FTE examples. So I’m an individual who works 32 hours a week, but a full-time FTE gets paid 40 hours. So I’ll be a 0.8 FTE. So what’s left, 0.2? So are you that 0.2 FTE? This is how organizations work towards more than one individual filling a position. It’s common and essential to covering all shifts and meeting the needs of the organization. [BLANK_AUDIO]

Next we have a table that demonstrates different FTE compliments. So, you can have anything from 0.0 to 1.0 FTE. And if the work week is based on 40 hours, this is the normal number of hours per week that individual will work and the normal hours per year that individual will work. So let’s go back to the orthopedic unit.

We need to determine how many FTEs they need. So if they have 80,850 total hours of care and there are 2,080 hours in one FTE equivalent, that equals 38.9 FTEs. But 38.9 isn’t the final answer. We have to take into consideration benefit time.  Benefit time is that time that you’re off. That you get paid for not being at work. Vacations, holidays, sick, bereavement, education, and so on and so on. Some organizations also include orientation and continuing education as non-productive time, remember the time that you’re not actually providing care to a patient. So before completing the FTE calculations the non-productive FTE’s need to be determined.

Non-productive FTEs is isually determined by each individual organization or hospital policy. For the sake of calculation, let’s say 10% non-productive time. So if we take the total hours of care on the orthopedic unit and times that by 1.10, that gives us 88,935 hours of patient care, divide that by 2080 which is one full time equivalent, that equals 42.8 FTEs that are needed to staff the unit. Do you staff a unit with all RN’s? Not most of the time. So ones the FTEs are determined the nurse leader needs to look at what they want they want their skill mix to be. Their RNs, LPNs, NAs, secretaries. They need to decide what percent of each type of employee is needed. You have to consider if you use LPNs in your organization. So just for this calculation, we will propose that we’re gonna use 70% RNs, 25% NAs, and 5% secretaries. And if we go back to the number of FTEs that we said the orthopedic unit will have, that’ll be 30 RNs, 10.7 NAs, and 2.2 secretaries. [BLANK_AUDIO]

So, let’s do the math. If we’re gonna say that we have a total of 42.8 FTEs, 70% of those are RNs. We’re gonna have 10.5 on 7:00 to 3:00, 10.5 on 3:00 to 11:00 And usually on nights you don’t need the same amount of staff. So you’re going to have nine RNs. And this chart pretty much goes to show how we come up with the compliment of 42.8 FTEs but looking at the skill mix, so that we can have all levels of care for our patients. So in closing, as a nurse leader, this is essential that you understand the how and the why of the expense budget and you can speak to this budget whether it is under or over and what your projections were?

I as a nurse executive must sit with my administrative team monthly and look at the overall budget from my organization. The CFO presents the budget in its most detailed form. I as the nurse leader then break this report down into each of my areas. But most specially the procedural areas knowing that the why behind the case volumes are increased or decreased also needs to be reflected in my FTEs.

Being able to speak intelligently to my peers and examine what might be able to do as an organization to improve our finances and decrease our expenses is essential.So hopefully you’ll be able to be the CFO of your department and apply these principles and add them to your leadership toolbox.

Thanks for a great part one of lecture four. I’ll see you in part two

Hi and welcome to lecture 4 part 2. Now that we have covered budgeting for the people component, it is time to get into the other aspect of the operating budget. So, four categories often exist in the realm of other operating expenses. These include direct expenses, indirect expenses, fixed costs and variable costs. There are different types of costs within part of the expense budget and these fit in to two categories.

Direct expenses which are directly related to the care of patient and often includes medical supplies, medications, minor equipment, anything that touches the patient directly and indirect expenses. Those expenses that are not directly related to patient care. Office supplies, travel and education for the staff, dues and subscriptions. Overhead for office space or rent on an organization, or leasing of equipment. Those types of things that don’t directly touch the patient. These expenses or costs can often be fixed or variable.

Often, overhead represents indirect costs, which are charged to the unit or department from other departments. Some overhead, such as the cost of laundry, is at least partly controllable by the unit. The more laundry used by a department, the higher the overhead charge for laundry. Other elements of overhead are completely outside the unit managers’ control, such as administrative salaries and building depreciation charges. The rest of the non-employee expenses maybe for either fixed or variable costs.

Fixed costs are those unit costs that don’t change based on volume. So rent, insurance, taxes, depreciation. Variable cost on the other hand are those costs that often fluctuate and change based on volume or senses. Examples of these are medical supplies, salaries for the hourly employees, food for the patients, medications or drugs. And the cost of these should be determined based on the expected number and mix of patients. That is why determining your ADC and occupancy rate is so important when you go on to the second component of your budget.

Forecasting, forecasting involves the use of historical and actual data for predicting expenses that will be incurred for caring for your patients. With this process, the nurse leader utilizes looking back and looking forwards, to predict what they believe the coming years expenses and volumes will be. Can you think of some drawbacks or advantages?

Have you experienced some times where you wished that your manager had sat and thought about five years prior? And that in every February, you have an influx of patients and your ADC that is normally budgeted at 17 rises to 26, but you don’t have the staff to account for it. Or was there a point in time where you had a little spike in senses? And your manager looked to that and increased staffing. And now the staff were getting called off and having to use management PTO. Because there isn’t the senses or the volume of patients to use the number of staff that are actually scheduled.

Forecasting is an art and a science and is very important for the nurse leader to utilize when doing their budget. Variance analysis, so each month the nurse leader needs to examine their budget expenses and compare it to their actual expenses. When a difference exists either to the negative or to the positive, an accounting of this variance needs to be completed.

For example, look back at flu season in your emergency department, if the projected medical supply expense was $300,000 and the RN expense was $280,000 and the budgeted number of visits was $3,000. But this past January, the actual medical supply expense was $340,000 which is $40,000 above the budgeted. The actual RN salary expense was 320 which is 40,000 above the budgeted and the actual number of patients visits were 3,125 so you saw a 125 more patients over budget. How would you as the nurse leader, explain this variance. Well, you would first look at what the budgeted ratio of patients to expenses were. And the actual ratio of patients to expenses.

So, in the original budget it was budgeted that you would spend $100 per patient in medical supplies. In actuality, you spent $108.89 per patient in medical supplies. RN salaries were up compared to the budget, but so were the number of patients.You could easily explain away some of this variance by the increase in the number of patient visits. Were these patients sicker or their acuity higher? Did they use more supplies? Did you do more flu tests?

This is how a nurse leader would go about explaining their variances by interpreting the information or data that they have and comparing it to what actually happened. It’s really important that we explain certain things to our nurse leaders and that they come to the staff and ask what happened. Because often, the front-line staff member really knows what went on and the nurse leader is trying to put it all together, fix the puzzle. And this is why explaining budget is important to that front line staff. So, this concludes the lecture for week four. I know there was a lot of information for you to digest.

Please remember, budgeting for your unit within your healthcare organization is a lot like budgeting for your home. Don’t panic, take a deep breath.Let it all sink in and try to enjoy the experience. I’ll see you guys next week in lecture five. Thanks so much, see you later.

Summary

In this week’s lesson, you’ve learned about developing the operational budget and the various variables needed when calculating staff and supply/equipment needs. Now it’s your turn to apply what you learned through the lesson and readings to scenarios in the discussions and the assignment on staffing and variances.

 

 
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