The health care facility wants to include two specially trained navigators to minimize the readmission rates in the hospital. These navigators will assist the patients to get early testing and diagnosis for cancer and other chronic ailments. The hospital gets Medicare reimbursements only if patients do not seek readmission within 30 days after discharge. The management expects the navigators to reduce the readmission rate from the current rate of 15% to 13% in the first year and to 10% thereafter. Therefore, the reduced readmission rate will enable the hospital to generate additional revenue from Medicare reimbursements.
The budget assumes that the hospital will employ two navigators and two nursing assistants. These new hires will work full time for the first three years and will not have additional staff. The navigators will make at least 100 home visits per month using the hybrid car hired by the hospital. All expenses in the company will increase by 5% per year in line with the expected inflation rate in the period. The excess of Medicare savings over expenses will be the annual incremental cash flow for the hospital.
The budget expresses the most likely outcome in the coming three years. However, the readmission rates could increase due to the increased disease burden among the elderly. Notably, unexpected occurrences such as pandemics and adverse weather patterns could worsen existing medical conditions, which would raise the readmission rate to unacceptably high levels. Such increases in Medicare reimbursement following the hiring of these navigators will plunge the program into monthly and annual losses. Conversely, the navigators could perform better than expected resulting in a lower readmission rate. This performance would result in more than anticipated income from Medicare reimbursements. Nonetheless, the budget used the most likely outcome based on historical estimates of navigator performance in other hospitals.
I have strong confidence in the estimated performance both in the first twelve months and two years thereafter. I expect the hospital to report the projected or better performance in the budget period. However, some expenses could increase beyond the budgeted levels over the next three years. In addition, the Medicare scheme could reduce the number of days before readmission to keep up with high standards of medical practice. Reducing the number of days to less than 30 will reduce the hospital’s reimbursements significantly. Nevertheless, the chances of these occurrences are slim and the budget will most likely remain at its most likely level.
The budget is flexible as it is adjusted for the expected fluctuations in volume. However, most of the budgeted costs such as salaries and transport expenses are fixed. The fixed costs do not change in response to higher Medicare reimbursements or higher number of home visits. Still, using a flexible budget will enable the hospital to identify the potential risks and make reasonable forecasts of the likely state of finances at the firm (Warren et al., 2016). In addition, this budget has more flexible resource allocation that facilitates cost control and other measures aimed at mitigating unexpected increases in operating expenses.
The only expected deviations from the budget include potential purchases of equipment that could be needed to ease the work of the navigators. In addition, the hospital could incur additional salary and training expenses if one or both navigators leave for other organizations. In such cases, the hospital will have to hire and train the new employees at additional cost. It would also face a higher readmission rate due to lack of navigators.
Reference
Warren, C, Reeve, J.M., & Duchac, J. (2016). Managerial accounting. Cengage Learning.