N542 Module 3 assignment: nursing unit operating budget, a full sample

Building the Operating Budget for a 28-Bed Medical Unit: From Hours per Patient Day to Dollars

Student Name

Master of Science in Nursing Program, Aspen University

N542: Health Care Finance and Economics

Instructor Name

Month Day, Year

Building the Operating Budget for a 28-Bed Medical Unit: From Hours per Patient Day to Dollars

An operating budget is a unit's plan for the coming year expressed in numbers: how many patients it expects, how many staff hours those patients need, what those hours and supplies will cost, and how the total compares with what the hospital can afford. For a nursing unit, most of the budget is labor, so the budget is really a staffing plan with prices attached. Finkler et al. (2013) describe the process as starting from volume, moving to workload, then to staff and finally to cost, and that is the order this paper follows.

The paper builds the next fiscal year's operating budget for a composite community hospital's 28-bed adult medical unit. It states the assumptions, calculates patient days, converts nursing hours into full-time equivalent positions, prices salaries and benefits, adds supply and other costs, and closes with the risks a manager should explain when presenting the budget.

Volume: Patient Days

Volume drives everything else. Over the past two years the unit's occupancy averaged 89%, which on 28 beds is an average daily census of about 25 patients. No major changes in admissions are expected, so the budget assumes an average daily census of 25 across 365 days, or 9,125 patient days. If a new hospitalist group or a change in the emergency department's admission patterns raised the census, the budget would need to be revised, and that possibility is noted in the risks below.

Workload: Hours per Patient Day

The unit's staffing standard is 8.8 nursing hours per patient day for direct care, made up of 6.0 registered nurse hours and 2.8 nursing assistant hours. The standard was set by the hospital's staffing committee using the unit's patient acuity and benchmarks from similar medical units, and it includes the charge nurse. At a census of 25, it provides 150 registered nurse hours a day, about 12.5 twelve-hour shifts, which works out to roughly six nurses on each shift and a ratio near one nurse to four patients.

The standard is a safety decision as much as a financial one. Needleman et al. (2011) followed 197,961 admissions at one academic center and linked mortality to exposure to understaffed shifts: every shift in which registered nurse hours fell eight or more short of the target raised the hazard of death (hazard ratio 1.02 per shift), and high-turnover shifts added further risk. Cross-sectional data point the same way: across 168 Pennsylvania hospitals, each extra patient in a nurse's assignment went with roughly 7% higher odds that a surgical patient would die within 30 days (Aiken et al., 2002). A budget that funds hours below the standard shifts cost onto patients.

Staff: Full-Time Equivalents

Hours become positions in two steps. First, required productive hours equal patient days multiplied by hours per patient day: 9,125 multiplied by 6.0 gives 54,750 registered nurse hours, and 9,125 multiplied by 2.8 gives 25,550 nursing assistant hours. Second, those hours are divided by the productive hours one full-time employee actually works. A full-time equivalent is paid for 2,080 hours a year, but about 12% of paid time at this hospital is nonproductive, covering vacation, holidays, sick time, education and orientation. Each full-time equivalent therefore provides about 1,830 productive hours.

Dividing gives 29.9 registered nurse and 14.0 nursing assistant full-time equivalents for direct care. Indirect positions are budgeted separately because they do not vary with census: one nurse manager, two assistant nurse managers and 4.2 full-time equivalents of unit secretaries to cover the desk 24 hours a day.

Cost: Salaries, Benefits, Supplies and Other Expenses

Salaries are priced from paid hours, not productive hours, because the hospital pays for vacation and education time. The blended hourly rate for registered nurses, including shift differentials and the charge nurse premium, is $46.00; for nursing assistants it is $20.00; and unit secretaries earn $19.00. The nurse manager's salary is $125,000 and each assistant manager's is $105,000. Benefits, including health insurance, retirement contributions and payroll taxes, are budgeted at 30% of salaries, the hospital's current rate.

Supplies are budgeted per patient day, since they vary with volume. The unit used about $38 of medical and surgical supplies per patient day last year, or $346,750 at the projected census. Other expenses, including linen, minor equipment, printing and continuing education, run about $14 per patient day, or $127,750.

Presenting the Budget: Assumptions and Risks

The total operating expense of about $5.6 million, or $614 per patient day, rests on four assumptions a manager should state openly. The first is the census. If average daily census rose to 27, direct care hours and supplies would rise by about 8%, and the unit would need about 2.4 more registered nurse full-time equivalents to hold the standard. The second is nonproductive time. A year with many new graduates in orientation would push nonproductive time above 12%, raising paid hours for the same care. The third is wage rates. The budget assumes no agency or traveling nurses and no premium overtime; even a few months of agency coverage would add substantially to salaries. The fourth is benefits, whose rate is set by the hospital and may change with insurance renewals.

The budget also carries an opportunity. The unit's length of stay and readmission rates affect revenue more than any line in the expense budget. If discharge planning improvements shortened stays, the same beds could serve more patients each year, which would help the hospital even if the expense budget stayed the same. A manager who presents both sides of that picture is more persuasive than one who defends only the expense lines.

Conclusion

The operating budget for the 28-bed medical unit follows the sequence from patient days to hours, positions and dollars. At an average census of 25 and a standard of 8.8 nursing hours per patient day, the unit needs 29.9 registered nurse and 14.0 nursing assistant full-time equivalents plus fixed leadership and clerical positions, for a total of about $5.6 million. Because labor is nearly 90% of that total, the budget is fundamentally a decision about staffing, and the evidence linking staffing shortfalls to patient deaths is the strongest argument for funding it fully.

References

Aiken, L. H., Clarke, S. P., Sloane, D. M., Sochalski, J., & Silber, J. H. (2002). Hospital nurse staffing and patient mortality, nurse burnout, and job dissatisfaction. JAMA, 288(16), 1987-1993. https://doi.org/10.1001/jama.288.16.1987

Finkler, S. A., Jones, C. B., & Kovner, C. T. (2013). Financial management for nurse managers and executives (4th ed.). Elsevier Saunders.

Needleman, J., Buerhaus, P., Pankratz, V. S., Leibson, C. L., Stevens, S. R., & Harris, M. (2011). Nurse staffing and inpatient hospital mortality. New England Journal of Medicine, 364(11), 1037-1045. https://doi.org/10.1056/NEJMsa1001025