HOSPITAL BUDGETING: CAPITAL EXPENDITURE BUDGETS

CALIFORNIA STATE UNIVERSITY, NORTHRIDGE

HOSPITAL BUDGETING: CAPITAL

EXPENDITURE BUDGETS

A project submitted in partial satisfaction of the requirements for the degree of Master of Science in

Health Science, Health Administration

by

Ralph Goddard .Pollock --

June 1979

The project of Ralph Goddard Pollock is approved:

Goteti

Michael D. Sheean, M.B.A.

California State University, Northridge

ii

Dedicated with love

to my wife Rory for her love, understand

ing, and continued support.

to my mother whose love and encouragement

were never-ending.

to memories of close and dear relatives

whose devotion and dedication toward humanity

I will always remember.

iii

ACKNOWLEDGEMENTS

Sincere appreciation is extended to the many individ

uals who shared ideas and offered assistance, encourage

ment and support during the writing of my project.

Special thanks is extended to Dr. Janet Reagan, Com

mittee Chairman, whose interest, creativity and support

provided the initial direct and development of my project.

Many thanks to Dr. Krishnamurty and Dr. Sheean for

their continued guidance, support and helpful suggestions.

Last of all, my deepest appreciation to my wife Rory

and my mother for their continued support and patience

throughout the preparation of this project.

iv

TABLE OF CONTENTS

Page

DEDICATION ...

ACKNOWLEDGEMENTS

ABSTRACT

iii

iv

vii

Chapter

1

2

3 -

4

5

INTRODUCTION

BACKGROUND TOTAL BUDGETING PROGRAM •••. STATEMENT OF PROBLEM •.•..•••• SIGNIFICANCE OF PROBLEM •••.••

REVIEW OF LITERATURE

METHODS AND PROCEDURES

CAPITAL EXPENDITURE BUDGETING

ELEMENTS OF A STANDARD CAPITAL EXPENDITURE BUDGETING SYSTEM

Planning . • . . Coordinating . . Conununication . Cost Containment

DEVELOPING A HOSPITAL CAPITAL

1

1 2 4 6

7

10

12

12

12 12 13 13

EXPENDITURE BUDGETING SYSTEM 14

Scope of the Capital Expenditure Budget . • . . . . . . . . 14

Budget Calendar . . . . . . 15 Budget Hanual . . . . . . . . . 15 Budget Package . . . . . . . . . . . 16 Hospital Personnel and Departments

Involved . . . . . . . . . . . 16

CEDARS-SINAI MEDICAL CENTER . 18

v

,, '

Chapter

6

7

ORGANIZATION GOALS

RESULTS

CEDARS-SINAl MEDICAL CENTER'S PRESENT CAPITAL EXPENDITURE BUDGET

Page

18 19

21

PROCEDURE • • • • • • • • • • 21

Background 21

DESCRIPTION OF THE PRESENT PROCESS AT CEDARS-SINAl MEDICAL CENTER • • . 22

Structure of the Institution 22 Summary of Present System . . 26

CEDARS-SINAl MEDICAL CENTER'S CAPITAL EXPENDITURE BUDGET VS. A STANDARD CAPITAL EXPENDITURE BUDGET 28

Planning . . . . . . . . 28 Coordinating . . . . . . . . . . . . 29 Communicating . . . . . . 29 Cost Containment . . . . . . . . . . 30 Scope of the Capital Equipment

Budget . . . . . . . . . . . . . . 30 Budget Orientation Meetings . . . 31 Identifying the Capital Expenditure

Needs . . . . . . . . . . . . . 32 Analyzing the Capital Expenditure

Requests and Verification Process . . . . . . . . • . . . . 33

CONCLUSIONS 34

BIBLIOGRAPHY . . . . . . 37

Appendices

A SAMPLE BUDGET CALENDAR . . . . . . . 39

B ORGANIZATIONAL CHART . . . . . . . . . . . . 42

c CAPITAL EXPENDITURE BUDGET PACKAGE . 44

D ACTUAL CAPITAL EXPENDITURE SUMMARY SHEETS . . . . . . . . . . . . . 57

E FLOW CHART OF THE BUDGET PROCESS 62

vi

ABSTRACT

HOSPITAL BUDGETING: CAPITAL

EXPENDITURE BUDGETS

by

Ralph Goddard Pollock

Master of Science in Health Science,

Health Administration

This project presents a study of capital expenditure

budgeting procedures in the health care industry. Capital

expenditure budgeting philosophy in general will be dis

cussed and a few of the current problems and corresponding

solutions contained in current health care literature will

be addressed. This project also outlines the format for

establishing a capital expenditure budget for hospitals,

as well as describing and comparing the specific capital

expenditure budgeting system at Cedars-Sinai Medical Cen

ter to a standard capital expenditure budgeting system.

vii

Chapter 1

INTRODUCTION

BACKGROUND

In the early years of the twentieth century, hospitals

were not considered profit-making businesses and therefore

were not concerned with budgets due to philantropic contri

butions and other means of obtaining needed funds. In more

recent years, however, it has become apparent to increas

ingly large numbers of people that hospitals have many

problems which are identical with those of profit-making

businesses, even though hospitals still generally have

"better patient care'' as a primary objective. Hospitals

are faced with a hard dilemma--how to maintain high

standards of care while sustaining increased cost for

facilities, equipment, supplies, and service and simultane

ously experiencing increasingly severe constraints on

revenues. Hospitals also must deal with rising public

expectations of the availability and the quality of care

and of the delivery of modern medical services. This

milieu has created for hospitals an unprecedented need for

more rigorous financial planning.

With the passage of Public Law 92-603, section 234

(1972 Social Security Amendment), every hospital is

1

required to have an overall financial plan and budget.

Such a budget should be prepared under the direction of the

governing body of the hospital by a committee consisting of

representatives of the governing body, administrative staff

and the medical staff of the hospital. The overall plan

and budget is to be reviewed and updated at least annually

by the committee. P.L. 92-603 states that a hospital must

prepare and maintain:

1. An annual operating budget which records all anticipated income and expenses related to items which would, under generally accepted accounting principles, be considered income and expense items except that there will not be required, in connection with any budget, an item-by-item identification of the components of each type of anticipated expenditure of income.

2. A capital expenditure plan for at least a three-year period, including the year to which the operating budget is applicable. The plan should include and identify in detail each anticipated ~xpenditure in excess of $100,000 related to the acquisition of land; the improvement of land; buildings and equipment, and the replacement, modernization and expansion of buildings and equipment which would, under generally accepted accounting principles, be considered capital items. In addition, hospitals are required to review and update the capital expenditure plan at least annually (P.L. 92-603, Section 234-Z-2).

TOTAL BUDGETING PROGRAM

A budget is a comprehensive financial plan, expressed

in quantitative terms, through which all expenditures and

revenues from all sources may be forecast and controlled.

A budget is both a definite statement of corporate policy

2

from an external perspective and a potent management tool

from an internal perspective (Berman and Weeks,l976). The

tools of budgeting are highly useful to hospital adminis-

trators and department heads managing the scarce resources

of qualified personnel and money.

The total budget program contains three major budgets:

l. The operating budget.

2. The cash budget.

3. The plant and equipment or capital expenditure budget (American Hospital Association, 19 71) .

The operating budget is a term used to designate three

separate parts of the overall budget plan:

l. The statistical budget.

2. The expense budget.

3. The revenue budget.

The term statistical budget ~s not commonly used by

many authors, but according to the American Hospital

Association, and for this project, it will be viewed as an

essential part of the operating budget. Frequently the

term operating budget is used as a synonym for expense

budget. The hospital administration must be concerned with

hospital expenses, revenues generated from hospital ser-

vices and the volume of services to be provided. The

operating budget is usually a projection for a 12-month

period.

The cash budget is an estimate of future cash inflows

3

and outflows. It consists of the beginning cash balance,

estimates of cash. receipts and disbursements and estimated

ending balances for appropriate time intervals. The total

forecast period covered should correspond to that of the

operating budget. The cash budget should be prepared by

estimating cash collections from all sources and matching

these collections with the cash disbursements necessary to

meet obligations promptly as they come due. This budget is

of prime importance for cash planning and control.

The capital expenditure budget consists of estimates

of the costs and determination of sources of funds for

replacements, improvements, and additions in the plant and

equipment. This budget also should schedule the retirement

of fixed assets, including an estimate of salvage proceeds.

A minimum span of three years is required, but it is

preferable to cover the entire pe~iod of the long-range

plan.

A properly executed budgetary plan is one of the use

ful tools of management and can lead to improved financial

results and a sound financial position. In actuality, a

hospital's budget is its primary statement of operating

policy and an essential part of the management process.

STATEMENT OF PROBLEM

Since the advent of Medicare and more recently, the

furor over increasing costs of health care, the need to

4

substantiate and justify hospital costs is becoming more

pressing every day. A complete budgetary system is essen

tial for all hospitals.

Until recently, many hospitals attempted to operate

without a complete budget system. Others attempted to pre

pare estimates of needs without consulting the persons most

necessary to a successful budget process--department heads

and service heads. In many instances, departmental budgets

were prepared by the controller without participation by

department personnel. In these cases, it was almost impos

sible to gain the interest, enthusiasm and support of the

people most necessary to ensure proper execution of the

budget. For example, Charles Pendola (1964) surveyed the

budgeting methods three hospitals used to cope with the

problem of rising costs. Of the three hospitals studied,

only one (St. Simon Hospital) exh~bited an effective bud

getary system.

In addition, according to Public Law 92-603, as well

as other sources like the American Hospital Association and

the Hospital Financial Management Association, budgets are

absolute necessities for those institutions participating

in Medicare.

This project will examine the importance and necessity

for hospitals to establish a capital expenditure budget, as

part of a complete budget system. It will also describe

and compare the specific capital expenditure budgeting

5

system at Cedars-Sinai Medical Center (CSMC) to a standard

capital expenditure budgeting system.

SIGNIFICANCE OF PROBLEM

Rapidly rising costs coupled with the failure to ade

quately satisfy a broad range of consumer needs has

resulted in public criticism and governmental regulation of

the hospital industry. Today, the hospital is confronted

by ever-increasing demands for both traditional and new

services. Simultaneously, the resources necessary to

satisfy these growing community and medical staff demands

are becoming scarce and more costly. In the past, the

hospital industry has consumed large amounts of labor,

technology and capital. The supply of these resources can

no longer keep pace with the demands for them. As a result,

prices have risen steadily. Effective use of resources and

efficient operations are essential to assure the fiscal

viability of the institution and the maximum value for

patient care expenditures. A capital expenditure budget

is both a necessary and useful tool to assist in the allo

cation of capital resources. As the cost and scarcity of

capital funds continues to climb at an unprecedented rate,

the value of increasingly sophisticated capital budgeting

systems becomes evident (Neal, 1976).

6

Chapter 2

REVIEW OF LITERATURE

Since hospital budgeting as a tool of hospital manage

ment is a fairly new process, some of the pertinent litera

ture will now be examined. Unfortunately, there are very

few articles and books written on capital expenditure bud

geting directly relating to health care organizations.

Therefore, it is the purpose of this chapter to summarize

and highlight a few of the major works reviewed during the

investigation.

R. Neal Gilbert (1976) in his article "Four-Step

Capital Budgeting," presented a four-stage approach to

capital budgeting. This approach-ensures that the capital

resources of the health care industry are allocated in the

most efficient and effective manner possible--eonsistent

with the delivery of high-quality health care and in con

formity with the specifications of Section 234 of Public

Law 92-603. The four stages are the description, verifica

tion, evaluation and decision processes. Mr. Gilbert felt

a capital budget is both a necessary and useful tool to

assist in the allocation of capital resources. He further

points out that, as the cost and scarcity of capital funds

continue to rise, the value of increasingly sophisticated

7

capital budgeting systems becomes evident.

William Gotcher and Denis Raihall (1973) , in their

article ''Establish Priorities, Price Guidelines and Respon

sibilities to Make an Efficient Capital Budget," felt that

the principle objective of a capital budgeting policy in a

health care organization is to provide the best possible

service to the patient, while improving the welfare of the

total organization, in the form of financial returns,

improved services and improved conditions. The authors

pointed out that the total capital expenditure requests

from various departments must be considered and ranked

according to appropriate priorities.

Richard Wacht (1978) , in his article "A Capital Budget

Planning Model for Non-Profit Hospitals," discussed the

need to plan, coordinate and control capital expenditure

programs in hospitals. He described a model which is an

essential element in the capital budgeting process for

non-profit institutions. The model is a potentially useful

tool for planning and control. Its ultimate objective is

to assure hospital administrators to plan incremental

institutional expansion, including the construction of new

facilities and their subsequent operation on a financially

viable basis.

Much of the material presented in these articles did

not deal specifically with the methods by which hospitals

develop, analyze and fund their specific capital expenditure

8

requirements. The material presented was arranged to

acquaint the reader with a brief perspective about capital

expenditure budgeting in health care organizations, within

which specific discussions in subsequent chapters concern

ing a standard capital expenditure budgeting system and the

capital expenditure budgeting system at CSMC will be dis

cussed.

9

Chapter 3

METHODS AND PROCEDURES

The primary methods and procedures for collecting

information on capital expenditure budgets were obtained

from an extensive literature review, as well as actual

participation and observation of the process at Cedars-

Sinai Medical Center.

1. From literature review:

a. Journals and reference books, current articles and books on hospital budgeting, capital expenditure budgets, as well as budgets in general will be examined.

b. Publications supplied from the California Hospital Association and American Hospital Association.

2. From Cedars-Sinai Medical Center:

a. Interviews with one of the financial analysts in the Budget and Reimbursement Department at Cedars-Sinai Medical Center. Eight interviews were held over a period of three months, during which time the actual capital expenditure budget at Cedars-Sinai Medical Center was being prepared.

b. Review of pertinent documents, including Cedars-Sinai Medical Center's capital expenditure budget package.

c. Observations and active participation for a three-month period in the actual budgetary process will be provided under

10

the supervision of the 7th and 8th floor Assistant Administrator.

d. Actual participation in one of the budget workshops.

11 ' '

Planning

Chapter 4

CAPITAL EXPENDITURE BUDGETING

ELEMENTS OF A STANDARD CAPITAL EXPENDITURE BUDGETING SYSTEM

A formalized capital expenditure budgeting system

provides a format for determining the capital demands of

all departments within the hospital and gives precedence to

those demands which meet a predetermined set of criteria.

A capital expenditure budgeting system aids planning by

encouraging department heads to think about capital needs

on a recurring basis. The departments, once given the

departmental and institutional goals, are asked to list

those capital expenditures which are necessary to support

their programs. The data from the capital request forms

can be abstracted and stored for future use in planning

operational and investment activity.

A standard capital expenditure budgeting system is an

integrated planning process which should be used for both

long- and short-range (annual) capital investments.

Coordinating

By having all departments within a health care insti-

tution submit their capital requests to one appropriating

12

body at the same time helps in coordinating all the capital

expenditure demands of the entire institution. The appro

priate mechanism then functions so as to coordinate the

capital requests of all departments with each other and

with the available sources of capital funds. For example,

once the capital budgets for each department have been pre

pared, usually the Budget Committee will review the esti

mates in terms of the plans established and coordinate the

various parts from all interacting departments. The Budget

Director is then generally responsible for the coordination

of all budget activities, including processing and summar

izing the detailed estimates into the master budget docu

ments.

Communication

All department heads must be kept informed of antici

pated changes in services and programs in advance of the

actual change. Better communication channels help

encourage understanding of goals and objectives, both on

the department level and administrative level.

Cost Containment

A standard capital expenditure budgeting system helps

encourage department heads to justify their capital demands

in terms of improving the health of the community that the

hospital serves and in promoting cost consciousness through

out the organization. The department heads may reconsider

13

requesting capital demands that are not really justified.

By becoming more aware of their needs, they also help to

reduce duplication of equipment.

DEVELOPING A HOSPITAL CAPITAL EXPENDITURE BUDGETING SYSTEM

Scope of the Capital Expenditure Budget

In the early development of a hospital capital expen-

diture budgeting system, it is necessary to determine the

scope of capital activities which will be subject to the

annual budgeting process. Decisions as to whether the

budget will cover only annual or long-range capital expen-

ditures must be included in the budgeting process. Deter-

minations as to whether the budget will cover only depart-

mental renovations, expansion or equipment must also be

determined.

The time span may range from.one to three years with

annual revision and extension. Due to current government

regulations, hospitals are required to develop a three-year

plan for capital expenditures.

All capital activities should be subject to a capital

expenditure budgeting process. There are basically three

groups of capital expenditures:

1. Small capital expenditures, i.e., typewriters, office furniture, etc., should be subject to an annual departmental capital allocation process with primary control at the assistant administrator level.

14

2. Intermediate capital expenditures for equipment and minor plant renovations should be subject to an annual capital budgeting process, with primary control at the assistant administrator level.

3. Large capital expenditures for major construction and hospital expansion programs should be subject to a sophisticated planning mechanism consisting of detailed review and evaluation by the Long Range Planning Committee, the Finance Committee, the Management Committee and other committees. In addition, expenditures of this nature may be subject to additional review by the local Hospital Council and Health Planning Agency.

Budget Calendar

A budget calendar should be prepared which puts the

entire capital expenditure budgeting process on a fixed

time table. The budget calendar should specify which

steps in the capital expenditure budgeting process should

be completed at which time. A sample budget calendar has

been included in Appendix A.

Budget Manual

The contents of the budget manual should include the

scope and purpose of the budget program and the authority,

duties and responsibilities of department heads for the

preparation procedures. A budget manual includes detailed

instructions and forms for the preparation and submission

of budget schedules. It should also outline the procedures

for preparation, review and revision of the budget, as well

as the period covered and the procedures for approval. The

budget manual should be distributed to each department at

15

the beginning of the capital expenditure budgeting process.

Budget Package

The budget package should be prepared by the account-

ing department or financial analysis department. It should

be distributed to all participants in the budgeting system

at the start of the budgeting process and should contain:

1. The budget calendar.

2. The budget manual.

3. A statement of the hospital's goals and objectives for the year.

4. The capital asset planning forms, institutional statistics and data necessary for making accurate forecasts of capital activity.

5. Institutional assumptions, volume statistics, revenue forecasts and manpower forecasts.

6. A list of all departments and personnel available to assist the requesting department in the preparation of the capital asset planning form.

At the start of the budgeting period, the budget

officer should distribute the entire budget package. The

budget package may be distributed in one general meeting

of all department heads, sent through the mail to each

department or handed out at a series of budget workshops

for all department heads.

Hospital Personnel and Departments Involved

Department heads are responsible for requesting fund-

ing for equipment and physical facilities to maintain or

16

expand their own departments. The expansion or renovation

of an entire hospital wing or similar activities are plan-

ned for by an upper administrative (management) group.

Capital expenditure planning must be carried out both on

the department level and management level.

Department heads are the primary participants in the

annual capital expenditure budgeting procedure, but review

and involvement by other individuals and departments is

also required. The following is a list of some of the

participants in the capital expenditure budgeting process:

1. Department chairmen, directors and managers.

2. Assistant administrators.

3. A capital appropriations committee that reviews capital requests and whose members include representatives from administration, the clinical staff, the director of the physical facilities department, the controller's office and the governing body.

4. A medical review committee that aids the capital appropriations committee with advice. The medical review committee includes representatives from the clinical departments.

5. Purchasing Department.

6. Personnel Department.

7. Budget Officer.

8. Financial Administrator.

17

Chapter 5

CEDARS-SINAI MEDICAL CENTER

ORGANIZATION

Cedars-Sinai was created in 1961, with the merger of

Cedars of Lebanon and Mount Sinai Hospitals, to provide

better professional, educational and financial resources

than either hospital could deliver independently. A decade

later, the first phase of construction of the total Cedars

Sinai Medical Center complex started with the Thalians

Community Mental Health Center, located at the 24-acre site

of the then-present Mount Sinai Hospital and Halper Build

ing. The mental health center was dedicated in June, 1973.

In the meantime, groundbreaking ceremonies in November,

1972, heralded the start of construction of the more than

$100 million Cedars-Sinai Medical Center. Under construc

tion for three years and four months, the first patients

were admitted to the new structure on April 3, 1976 and by

mid-July, all areas, including the 24-hour emergency care

unit, were operational ("Cedars-Sinai Medical Center: A

Progress Report to the Community").

Cedars-Sinai Medical Center stands today as the larg

est voluntary non-profit medical center in the West. The

eight-story structure consists of a central professional

18

~~ .

services tower to which twin patient wings are attached at

either end. The Medical Center has 1,120 beds. A Board

of Directors governs the activities of the hospital. The

clinical staff is organized by department. There are 15

departmental chairmen who formulate medical policies,

which are subject to the approval of the Executive Director

and the Board of Directors ("Cedars-Sinai Medical Center:

A Progress Report to the Community") .

GOALS

It is the goal of the Medical Center, within the

legal limits set forth by local, state and federal regula-

tory bodies, and under the terms of its constitution and

by-laws to:

1. Provide the highest standards of patient care which medical science, technical skills and an outstanding medical staff will make possible.

2. Provide medical care and services to the acutely ill, the convalescent, people with chronic illnesses, custodial patients, including terminal cases and to people with mental illnesses.

3. Develop research and teaching as basic function of a first-class hospital and medical center as far as possible.

4. Maintain a Board of Directors with wide community representation and with two-way lines of communication to its auxiliary and affiliated groups.

5. Maintain medical staffs so organized that the duties of all members to the hospital shall be determined in a democratic manner.

19

6. Acquire and receive by purchase, gift, bequest, or otherwise, lands, buildings, furniture and other property to be devoted to hospital and other kindred purposes ("Cedars-Sinai Medical Center: A Progress Report to the Community") .

20

Chapter 6

RESULTS

CEDARS-SINAl MEDICAL CENTER'S PRESENT CAPITAL EXPENDITURE BUDGET PROCEDURE

Background

When the present administration opened CSMC three

years ago, a formal plant and equipment budgeting mechanism

did not exist. Capital expenditure decisions were made on

an ad hoc basis. In order to make a capital expenditure, a

department head submitted a purchase requisition to Admin-

istration. The administrator of the hospital reviewed all

requisitions and requested department heads to justify, in

writing, those items which initial1y appeared to be valid.

If sufficient monies were available in the appropriate fund,

then the administrator would approve the requisition and

the expenditure was made.

In 1978, Cedars-Sinai realized that if plant and equip-

ment expenditures were to be made in a manner which yielded

the greatest benefit per dollar of expenditure, then this

ad hoc approach to capital expenditure budgeting must be

replaced. A systematic budgeting procedure which allowed

all requests to be reviewed simultaneously was needed.

Also, Cedars-Sinai needed a new capital expenditure

21

budgeting system to comply with Federal Government regula-

tions. Therefore, in November, 1978, a formalized capital

expenditure budgeting system was initially implemented,

which allowed for all capital expenditure requests to be

analyzed both in terms of absolute and relative merit.

DESCRIPTION OF THE PRESENT PROCESS AT CEDARS-SINAl MEDICAL CENTER

Cedars-Sinai Medical Center's present system is in its

first year. The budgeting staff at CSMC reviewed the

California Hospital Association's Budget Manual and the

capital expenditure budgeting system presently in use at

Mount Sinai Medical Center in New York. From these two

sources, the present capital expenditure budgeting system

at CSMC was designed.

Structure of the Institution

In order for a budget or management system to be

effective, the structure of the institution must be under-

stood. At Cedars-Sinai Medical Center, the size of the

institution and the decentralized administration philosophy

make the hierarchy and flow of decision-making difficult to

follow. To further complicate matters, the medical center

is a merger of two hospitals, Cedars of Lebanon and Mount

Sinai (see Appendix B) .

The budget process was developed in the Budget and

Reimbursement Department which is part of the Finance

22

. Department. The organization chart for the Department of

Finance is outlined below.

DIRECTOR OF FINANCE

Associate Director of

Finance


Finance

Data Processing


Finance

Patient Accounting

I Associate

Director of Finance

I

Within the Budget section, the organization chart is out-

lined below.

Payroll Budget

Non-Wage Expense Budget

BUDGET MANAGER

Revenue Budget

Capital Budget

I Financial Analyst

Budget Process. The budget process at CSMC consists

of the following steps:

l. Capital expenditure budgeting packages are distributed by the Budget and Reimbursement Department to the cost centers during the last week in November. Cedars-Sinai Medical Center's fiscal year is from April l, 1979 to March 31, 1980. The hospital has five months to prepare adequately a capital expenditure budget. The budget package consists of the following components:

23

a. Introductory Memo.

b. Preparation and Definitions.

c. Instructions for Equipment Requests (corresponds to capital budget Form 1).

d. Instructions for Renovations Requests (corresponds to capital budget Form 2)

e. Capital Expenditure Request Form.

f. Capital Renovation Form.

g. Capital Expenditure Justification Form.

h. Capital Renovation Justification Form (See Appendix C) .

2. Between November 27 and December 22, Budget Workshops for department heads are held by the Budget and Reimbursement Department to review detailed instructions on the capital expenditure budget.

3. Request Form Records with (1) intention to formally request equipm~nt or renovations, and (2) the assurance that the head of the department, responsible associate administrator and medical staff are aware of the costs and quantities that are requested must all be fully completed and signed. All requests for equipment items and renovations must be supported by justification forms.

4. All request and justification forms with the appropriate approvals and review are returned to the Budget and Reimbursement Department · within 20 working days after the scheduled workshop.

5. The Budget and Reimbursement Department then goes over all request forms checking to make sure:

a. The forms are filled out correctly.

b. All prices for equipment and renovations are entered.

c. Proper codes are listed.

24

d. No duplication of equipment is entered.

e. Proper signatures were obtained.

6. All request forms including ones that are missing current prices (due to departments not knowing actual figures) are then sent to the Purchasing or Plant Operations Departments for price review.

7. Once the Purchasing and Plant Operations Departments enter any missing prices on equipment and/or renovations, then the request forms are again returned to the Budget and Reimbursement Department for a second review.

8. The Budget and Reimbursement Department then codes all the data in order to input the data into CSMC's data base. Cedars-Sinai Medical Center has its own in-house data processing capabilities. Cedars-Sinai Medical Center's computer analyzes all the data according to four sections (see Appendix D for examples) :

a. Hospital Summary - Lists all the responsible persons (Hospital Administrator and Associate Administrators) and itemizes their total departments' capital expenditures according to priority.

b. Associate Administrator Summary - Itemizes each Associate Administrator's individual departments with corresponding capital expenditures according to priorities.

c. Department Sumn1ary - Is a list of each department's cost centers' capital expenditures by priority.

d. Cost Center Detail Summary Is a list of the equipment requested by each cost center according to priority.

9. The computerized department summaries are then sent to each department head for final review. He reviews them for errors or any changes he may want to enter.

10. The Budget and Reimbursement Department again reviews the department summaries and final

25

computer printout summary sheets are run according to the above four sections in number eight.

11. The complete capital expenditure budget, including all four sections, is assembled into book form by one of the Financial Analysts and given to the Associate Director of the Finance Department.

12. The Associate Director of the Finance Depart-. ment delivers the completed book to the Hospital Administrator (sometime at the end of April) for his review and final determination of what the capital expenditure budgets for 1980, 1981 and 1982 will be (see Flow Chart of the Budget Process in Appendix E) .

If other equipment or renovations are needed during the

year, the department heads· complete a purchase requisition

with justification attached and submit it to the Adminis-

trator for his review and approval. This procedure is

used to request equipment and renovation needs that are

not anticipated during the year.

Summary of Present System

Cedars-Sinai Medical Center appears to utilize a

fairly sophisticated systematic appro~ch toward generating,

analyzing, ranking and funding capital expenditures. The

process is planned and executed far in advance (five

months) to provide for the year-to-year requirements

generated at the department head level.

Cedars-Sinai Medical Center's capital expenditure

budgeting system provides the mechanics for generating the

capital equipment needs of the hospital and for communicat

ing these needs to the decision-making authority. ·The

26

system also provides a vehicle for developing alternate

choices to satisfy the needs. It further provides for the

systematic analysis of the alternative proposals in terms

of benefits vs. costs.

The new system benefits the Finance Department,

Administration, and department heads in planning, as well

as complying with requirements of the 1972 amendment to the

Social Security Act.

It further allows for monthly cash flow planning and

anticipates what will be needed in the next several years.

The system can be used for. cost benefit analysis on an

individual basis, but the overall goal is to monitor costs

on a cost center, department and hospital level. The

capital expenditure budget system was also designed to be

compatible with other information systems used in the

hospital.


budget system is of additional importance in the Certifi

cate of Need process. The Certificate of Need application

includes questions on financing of equipment and construc

tion related to the proposed project. A well-documented

and detailed capital expenditure budgeting system makes

the application process much easier to estimate arid docu

ment costs.

In conclusion, the present capital expenditure budget

ing system at CSMC is structured, explicit and it is

27

designed to encourage departmental leaders to play a sub-

stantial role in the capital budgeting process.

CEDARS-SINAl MEDICAL CENTER'S CAPITAL EXPENDITURE BUDGET VS. A STANDARD

CAPITAL EXPENDITURE BUDGET

Through an extensive literature search, the character-

istics of a standard hospital capital expenditure budgeting

system were identified. With these characteristics in

mind, a careful analysis of the capital expenditure budget-

ing system currently in use at CSMC was made (refer to

pages 12-17).

Planning


budget is a major tool to aid in short-term and long-term

planning for capital needs. Cedars-Sinai Medical Center

has developed a new capital expenditure budgeting system

that assures that the equipment and facilities needed to

support the overall hospital and departmental programs are

available at the proper time. In this matter, cash outlays

are controlled by a planned program of development. The

capital expenditure budgeting system also facilitates the

establishment of priorities for asset acquisition and pro-

ject selection.

Cedars-Sinai Medical Center allows adequate time (five

months) for the preparation and submission of the capital

expenditure budget for final approvals. Cedars-Sinai

28

Medical Center also complies with current government regu

lations that require hospitals to have a three-year plan

for capital expenditures.

Coordinating


budget aids hospital management in coordinating the alloca

tion of resources among major expenditure areas.· All

departmental capital expenditure requests at CSMC are sub

mitted to the Budget and Reimbursement Department at the

same time. This helps in coordinating all the capital

expenditure demands of the entire hospital. Cedars-Sinai

Medical Center's new capital expenditure budget system

then coordinates the capital requests of all departments

with each other and with the available sources of capital

funds.

Communicating

Good communications and understanding of the capital

expenditure budget process prevents many problems and

resistance to budgeting as well as enhances the resulting

budget. At CSMC, the capital expenditure budget workshops

help in establishing good communication lines between

department heads, Budget and Reimbursement Department,

Purchasing and Plant Operations Departments, as well as

other departments. The medical staff at CSMC are actively

involved in the capital expenditure budgeting system and

29

gained a better understanding of-the system. They are also

able to see why certain pieces of equipment cannot always

be obtained.

Cost Containment

The department heads at CSMC have to justify all their

capital demands. This additional process helps department

heads become more aware of their needs, reduces duplica

tion and promotes cost consciousness throughout the hospi

tal.

Scope of the Capital Equipment Budget

Cedars-Sinai Medical Center's new capital expenditure

budgeting process covers both short-term (one year) and

long-term (three years) capital expenditures. Cedars

Sinai Medical Center's medical and office equipment fell

into three categories for a6counting purposes:

The first category, minor movable, is defined as

items that can be readily moved from one location to

another. Wastebaskets, glassware and surgical equipment

are examples of minor movable. Because of the low cost and

short useful life of such items, this equipment is usually

expensed and entered into the non-wage expense budget

rather than the capital budget.

The second category of equipment is major movable,

which is defined as equipment that can be moved from one

location to another and has a purchase price greater than

30

$200, and a useful life of more than one year. This may

include items such as calculators, patient charts or

radiology apparatus. The cost to be capitalized should

include installation costs, commissions, freight charges

and taxes.

The final category of equipment is fixed equipment.

Items in this category cannot be moved from one location

to another and constitute a structural component of the

hospital. The asset is usually depreciated over a very

long, useful life. Examples of fixed equipment include

the mechanical system, elevators and refrigeration

machinery. In summary, only fixed equipment and major

movable equipment are included in the capital expenditure

budgeting system at CSMC.

Budget Orientation Meetings

Budgeting orientation meetings are a series of meet

ings designed to orient, train, motivate and distribute

budget materials to the department heads and others

involved in the budget preparation process. Cedars-Sinai

Medical Center's Budget and Reimbu:r·sement Department pre

sents a series of budget workshops for all department

heads. Each page of the capital expenditure budget package

is reviewed with all input forms used presented on an over

head projector as a visual aid. The presentation explains:

the need to have a budget, planning and legal requirements,

what input was expected from each department hGad, and

31

question and answer periods. The meetings are successful

and the overall advantage of accomplishing a workable capi

tal expenditure budgeting system is achieved.

Identifying the Capital Expenditure Needs


budgeting system appears to be fairly well structured in

terms of identifying equipment and renovation requirements

at the department head and cost center level. Cedars

Sinai Medical Center's system spells out specific pro

cedures for communicating the needs, for documenting cor

responding justifications, and for establishing user

priorities. The system also provides for identifying

replacement equipment proposals. This disecting of the

equipment investment program seems to be a sound proposi

tion, as it introduces a logical division in the decision

making process between perpetuating existing operations

and instituting new ones.

The importance of the department heads' involvement

in identifying capital asset needs cannot be overempha

sized. Cedars-Sinai Medical Center's departmental objec

tives primarily stem from programs and plans prepared by

the department head. The department heads can best iden

tify the participating capital asset needs generated by

these objectives and define the priority of those needs.

32

Analyzing the Capital Expenditure Requests and Verification Process

Cedars-Sinai Medical Center employs a formal system

of review for its capital expenditures. Each request sub-

mitted must be approved by the department head, Associate

Administrator and riledical Staff Review Committee. The

process is designed to corroborate the information given in

the Capital Equipment Request Form. This is the control

mechanism which acts to prevent unrealistic claims of

benefits and excessive understatements of costs. Only

equipment and renovations that are truly needed and justi-

fied will be evaluated.

All requests that are approved and then reviewed by

the Budget and Reimbursement Department are then sent to

the Purchasing and Plant Operations Department for verifi-

cation of purchase costs, lease (rent costs and supply

costs) and contractor's costs. The Purchasing and Plant

Operations Departments participating in the capital

expenditure budgeting process as an advisor (pricing of

equipment, renovations and alternatives) is essential to a

reliable capital expenditure budget system.


budgeting system includes all the elements of a standard

capital expenditure budgeting system. The system is

structured, explicit and complete. The capital expenditure

budgeting system now in operation at CSMC could be used in

any size hospital in the USA today.

33

Chapter 7

CONCLUSIONS

The capital expenditure budgeting systems utilized by

hospitals vary extensively from one hospital to another.

The capital expenditure budgeting system presently in use

at CSMC has many advantages:

1. It complies with the requirements in Public Law 92-603 (1972 Social Security Amendment).

2. It provides information which enables participants to choose between alternate courses of action. It further provides a relative evaluation of departmental needs and departmental performance and it is useful in setting sub-objectives which are related directly to the primary objectives of the institution.

3. The system provides both quantitative and qualitative information to all of the participants in the decision-making process. This information flow provides direction to those involved in objective setting and strategy selection.

4. It motivates participants to work within the constraints of the capital budgeting system rather than to circumvent the formal decisionmaking process.

5. It recognizes the multiple participants in the budgeting process and removes the allocation process from th~ single dominant decision-maker. It encourages a participative philosophy and it is useful in reconciling conflicts over resource allocation.

6. It facilitates decentralization by enabling the associate administrators to monitor the

34

capital activity in their respective responsibility centers.

7. It recognizes qualitative factors which bear heavily on the delivery of high-quality medical care and it presents a force which prevents the primary goals of the hospital from being easily displaced by wholly economic considerations.

8. It is a vehicle which provides feedback and allows for ongoing evaluation. Rejected capital requests are returned to requesting departments with reasons for the rejection explained in detail.

9. It specifies the constraints within which decisions must be made, thereby reducing the amount of wasted effort in developing capital programs which lie beyond the institution's capabilities.

10. It provides quantitative information useful in both long- and short-term planning.

11. It discourages politicizing and power bargaining by specifying criteria for decision making.


budgeting system was designed with the needs of the hospi-

tal and its staff in mind. Department head and medical

staff cooperation and involvement is critical to effective

hospital budgeting and should be continued. The new system

also helps to ensure that the capital resources of the

hospital are allocated in the most efficient and effective

manner possible consistent with the delivery of high-

quality health care.

In conclusion, CSMC's new capital expenditure budget-

ing system is a very sophisticated, complete, structured

35

and thorough system that helps management satisfy its

capital expenditure demands in a systematic, rational,

objective and manageable manner.

36

BIBLIOGRAPHY

American Hospital Association. Budgeting Procedures for Hospitals. Chicago: American Hospital Association, 1971.

American Hospital Association. Accounting Manual for LongTerm Care Institutions. Chicago: American Hospital Association, 1971.

Anthony, Robert N., and Herzlinger, Regina E. Management Control in Non-Profit Organizations. Homewood, Illinois: Richard D. Irwin, 1975.

Berkopec. Robert N. 11 Good Budgeting is the Key to Coping with Phase II. 11 Hospital Financial Management (November 1972) :56-67.

Berman, Howard J., and ~\Teeks, Lewis E. Financial. Management of Hospitals. 3rd ed.; Ann Arbor: Health Administration Press, 1976.

Bowman, Richard W. 11 Hospitals Need New Budgeting Systems ... Modern Healthcare (August 1977) :61-62 .

.. Cedars-Sinai Medical Center: A Progress Report to the Community ...

Cleverly, William 0. Financial Management of Health Care Facilities. Maryland: Aspen Systems Corporation, 1976.

Cluley, Carson H. 11 Is Your Hospital's Budget Good Enough for Management? 11 Hospital Financial Management (September 1970) :18-21.

Gass, Anthony D., and Pavony, William H. 11 How Budgeting Can Help the Hospital Achieve Its Goals." Hospital Financial Management (December 1970) :3-6.

Gilbert, R. Neal. "Four-Step Capital Budgeting ... Hospital Financial Management (June 1976) :48-60.

Gotcher, J. William and Raihall, Denis T. 11 Established Priorities, Price Guidelines, and Responsibilities to

37

Make an Efficient Capital Budget." Modern Hospital (December 1973) :62-64.

Hay, Leon E. Budgeting and Cost Analysis for Hospital Management. 2nd ed.; Bloomington: Pressler Publications, 1963.

Howe, Robert L. "A Practical Approach to Budgeting." Hospital Financial Management (December 1970) :7-10.

Kovner, Anthony R., and Lusk, Edward J. "Effective Hospital Budgeting." Hospital Administration (Fall 1973): 44-64.

MacLeod, Gordon K. Health Care Capital: Competition and Control. Cambridge, Massachusetts: Ballinger Publishing Co., 1978.

Mehta, Nitin H., and Maher, Donald J. Hospital Accounting Systems and Controls. New Jersey: Prentice-Hall, Inc., 1977.

Moss, Arthur B. Hospital Policy Decisions: Process and Action. New York: G. P. Putnam's Sons, 1966.

Pendola, Charles J. Hospital Budgeting: A Case Study Approach. Hicksville, New York: Exposition Press, 1976.

Seawell, L. Vann. Hospital Financial Accounting: Theory and Practice. Chicago: Hosp_i tal Financial Management Association, 1975.

Silvers, John Byron, and Prahalad, C. K. Financial Management of Health Institutions. Flushing, New York: Spectrum Publications, Inc., 1975.

Wacht, Richard F. "A Capital Budget Planning Model for Nonprofit Hospitals." Inquiry 15 (September 1978): 234-245.

Walters, James E., and Watson, Hugh J. "Building a Budget: Three Generations." Hospital Financial Management (September 1977) :10-17.

Witalis, Roger. "The State of the Budgeting Art: Survey Shows Many Hospitals are Not Prepared to Comply with New Law." !>·1odern Hospital (December 1973) :53-55.

38

APPENDIX A

SAMPLE BUDGET CALENDAR

APPENDIX A

SAMPLE BUDGET CALENDAR

The following is the budget time table for fiscal

1979-1980. Meeting the time table is contingent upon

cooperation from all departments. For this 1979-1980

budget, the Finance Department will work closely with

department heads to develop budget rationale and data

prior to administrative and medical staff review and

approval.

Budget Planning

8-15-78 to 11-15-78

Units of Service

10-15-78 to 11-1-78

11-1-78 to 11-17-78

11-20-78 to 12-8-78

12-11-78 to 12-15-78

Budget Workshops

11-27-78 to 12-8-78

Develop detail tasks, modify existing budget system, and develop the budget plan.

To be completed by those departments with units of service.

Accumulate and analyze historical patient.days and units of service.

Finalize patient days projections and outpatient visits.

Projection of units of service by departments.

Analysis and review of units of service with Administration.

Budget workshops for department heads, reviewing detailed instructions on the wage, non-wage and capital budgets.

Non-revenue producing departments will have their workshops first. Department heads are encouraged to

40

Budget Input

12-26-78 to 1-11-79

Budget Review

1-10-79 to 2-1-79

1-29-79 to 2-16-79

bring any of their staff involved in the budget process to the workshop.

Budget input due in Budget and Reimbursement Department, Room 2802. All departments will have 20 working days from the date of their workshop to return their input.

Input of the wage, non-wage-and capital budgets will be assembled and returned to each department for their review.

Analysis, review and revision of the wage, non-wage and capital budgets.

41

APPENDIX B

ORGANIZATIONAL CHART

®' CEDARS-SI!-lAI MEDICAL CENTER

leAH 1 /?VUAA/J'FU 7

OHGMJIZATION CIIAflT

OFFICE OF THE ADMIN:STRJHOR llllf

"?HYS!(.IAII 0£PAnTI.I£UT HfAO nt POHIS TO D•P:ECICil OF l'fiOfl:O:;I()f.~Al ~l/IVI(..l$

CII~RT NO.-I H\1

,j::,.

w

APPENDIX C

CAPITAL EXPENDITURE BUDGET PACKAGE

(.!,? !Tf,L EXPENDITURES BUDGET

INDEX

Introductory Xeno

Preparation and Cefinitions

Instructi~ns for Ecuip~ent ~equests ( Corres:G~.;:is to CAF3UD FO:l.M 1)

Instruc!ions for Renovation Re~uests (Corres~o~cs to CAPBUD FORM 2)

Capi:al Equipment Request Form

Capital Renovation Request Form

Capital Equipment Justification Form

Cap1tal Renovation Justification Form

..

2 - 4

5 - 6

CAPBUD FORt1

CAPBUD FCRH 2

CAPBUD FO:<r'

CAPBUD FOR'1 4

45

CEDARS-SINAI

TO

FRO~

Subject:

Department Heads

Ar.dr~de r~an Ov Assoc. DirectOr of Finance

Capital Expenditures Budget

::-.1EDICAL CENTER

DATE !;ovember 30, 1378

The Clpital Expenditures Budget package has been integrated into the b~dget precess to aid in the 1ong~tern and b~G?et ye?.r planr.ing of caoita1 equi~ent ~nd renovations. In addition to the b~nefits to th~ Medic~l Center which will be realized through planning, this project is being i~cle~ented to ccc;ply with require~ents in a recent ar.ie~d~ent to the Social Sect.:ritj' Act. This a~end:r.er.t requires providers to have a three-year c~pital expenditures budget as a condition of pa~ticipation in the ~edicare prcgram.

Definitions and preparation notes are ircluded in this ~ackage to fa~iliarize you with the new capital budgeting process. Detailed instructions fer request foros (For:ns 1 a~d 2) are also included. The coc;pletion of t~e request foms records I) your intentior. to fo~ally request equio~cnt or renovations, and 2) t~e assurance that the ne=i of the deoartr.ent, respons~ble associate aC,inistrator, and medical staff are aware of the costs and quantities you are re~uesting. All reGuests for equip~ent items and renovations must be supported by justification forms (Fonr.s 3 and 4).

All request and justification forms with the apprcoriate a~provals and review should be r~turned to the 8Jdcet and Rei>':lbursm~nt DeJar~"'·eot, Room 2S02, Plaza Level, South To>.er, within t•·;enty (20j ~<~orking cays af':er ycur schec!uled workshop. The forms will then be sent to the Purchasing Depart~ent or Plant Operations for verif!cation or review of costs.

Please feel free to call Rebecca Bales, extension 3131, or Michael Glachino, extension 5774, if you have questions.

AM: or

46

C,!.P IT i.L 3~~Gt:T

Sut-it re~~es~s for three yP.a~s based en the io:lc'.;ing fiscal year ca 1 e~dar:

8:.1C;et year April 1979 throug'l ~arch 1980

Bud;et year .!.;:.ril 1930 thrOVJh t·'arch 1931 Budget year April 1981 through f·~arch 1?82

Ee~i:1 a se~arate fonn for each budget year.

Re~:.1ests for e:~ic~ent or re~ovaticns t~~~ a~e rec~ired for new progra~s shou1d be se0arc.ted frcm those fer co"1t.ir-,uin? 0:::r:::io~s ty beginning a r.2·.~· fer.: and checking the a~pro;:;:ia~e Jox en ~r:e l:"l?ut foms.

For each re~ovation and equip~ent ite~ recueste~, a capi~al eq~io~ent or rer1JVJticn ~~stification forn rr:ust !)e c::-::1e~e: cr.:! ?.:-;::rc.,led (C.O:?EUD For:ns 3 a.~~ 4). T.~e justifiotion foros s~o~11d be rc:.urned to the Oud;et and Rei;JJurse-:-.e:~t Cepartr.1ent with the in?ut for~s.

Cefiniticns

CaJi:al E:ui~~~nt is defined as items that have a useful life of at least ere y2~r a~a ~n original cost of S2C8.CJ or r~re. In cases where a c:~:le~e asse~bly is ~ade of interce~e~~e~t :arts 2nd accessori~s, the c::-:-)ined c2s: of an parts n:ake uo the u~;: c2st. For exa:::ple, if a ter.-:inal, Sl.2J0, _and paper tray, S!S:, ~-.ere orC;;red the u:1it cost should te entered as $1300, with a descriotic~ cf 'ji;i:31 e~uip~ent terminal w/accesso~ies, ~cdel 120'. lte~s valued less t~~n S2CO are to be included if t~ey are p~rchased in quantities and ac:ear en the same invoice. An exa:.~ie of this is five chairs C8St~na S75 eac~ t~at are invoiced together. The ~nit ccst in this case wGu1d ~e 5~75 a~d !~e ~escription should be e~~ere~ as 'se: of chairs'. If you have ~o~bts c~ncerning whether an it~~ is c=oital eouio~ent or not, call the Generai Accounting office and ask for Sid Choudhry (X4248).

C~cital ~enovaticns are construction or re~~celing prcjects that exceed S2rC.CJ 1n iaocr and materials and have a useful life of at least one year. ihis does not include routine r::ain~enance jobs.

~~e ..... Prcc:c~s are major activities that are no~ C;Jr:e"'tlv budoeted, for whlc., rescurces would be exoended. For exa:cGle, tne procosea ~.rr.bulatory S:.:r:;ery :enter wo:.ild be consiCerEd a r;e\" ;:>ro·~rc;. These orojects must hJve ~rior acoroval by the depart~ent head ao~ resconslble associate acrninistratcr. ~ew Prograns may have beth eq~i~~ent ana renovation requests.

47

Instr~.JC~~c~s for c.~.PS~J Form

RQminder: Use a separate form for each budget year and for each ne·~ program.

1. Paoe Nv,rber

2. Budoet Year

3. Cost Center Na~

4. Hospital ~.ccount ~lurrber

5. C0st Center Number

6. A~Qrova ls

7. Patient Care

8. Priority

Begin new numbering sequence for each budget year.

Check appropriate period.

Self-explanatory

Use hospital general ledger 4-digit account number.

Use CHFC 8-digit number.

!~ust be signed by de~artr:-ent head and associate ad~inistrJtor, i~dicating ;~ey have aooroved all ite~s, quantities, a~d costs. It must then be revieweo by the ~edic31 staff, Purchasing Department and Finance Departm~nt.

Code equipment as:

D =Utilized bv oersonne1 hovioo dirPct resoonsi~ for rcnGering inpat1ent or outpat1ent care.

N = Administrative, non-patient related.

Each item must be prioritized according to the needs of the dep!rtment. Use the following codes to define priorities:

A= Required for continued licensure. Includes equipment necessary for cc~oliance with the Joint Ccrr.missic~ for the Accredition of Hospitals, fire codes, life safety codes, and other regulatory codes. Examples of this would be cardiopul~onary resuscitation equipment.

B Replacement esse~tial to maintain current operations.

C Acquisition would be revenue producing or cost saving.

D Ii.".prove$ or;era~ions or is reouired to ~r..;.:1c::r depa1·~~ent c~~e::ives. Requested ite~ i~ ;~: revenue producing or cost saving,

~ No i~orovem~~t in current operations. ~o cost saving or revenue involved.

48

CAPS'JD Fom Continued

9. Secondary Priority"

10. E~uiD~ent Descriotion

11. Eouio~ent Classification

12. Unit Cost

In Instruction No. ~. ite~s are ~rioritized accordi~g to the n€eds of the C?partment. Rank iterrs wi~hin the sc:~ prinr1ty class. Exa~.ple: Eicht ite~s within tne crioritv class of ''A~ shou1 d be ranked 1 t~ro~ch 8. • :;o t;;o eG~i p.~ent ite~s in your cost cente~ s~~uld ~ave the same priority and secondary priority cc:~~inatio~ unless ite~s are ~eoende~t u~cn each ether to function. If th~re are r..cre tr~ar, eicht re~:;ests for a priority c1ass1fi:a~ion, enter 1 9 1

• '1' is the highest ranking.

Specifically state what t~e item Is. Do not use ten:.s s~;ch as "latcratory ea;,:ip:-:-ent", or ''office r..acnines". !nterde;Jendent acc~sscries should be listed as ~~~·it~ acc!:ssori-es" unless the accessory item can be easily ana briefly described with main item. Begin description in Colur.n 21. Ro;-.an nu~7.era1s have been provided to the left of each description so you can incluce soecific deta i 1 s on th'= back of the for-:; (vender, oanu-facturer, i:"OCe1 r.t.:n~oer and sour-ce). This is necessary for the Purcnas ii1g Departr::ent to verify an accurate item cost.

Two eavip~e~t classiflcotions will be usPd. As a reminder, bo~h classifications must have a purchase price of more than S20C.CO and have a useful life of at least one year.

10 = ~ajor ~ovable - Equipment which can b~ readily moved fr~m one location to another.

20 Fixed - EcJipr.ent that is affixed or constitutes a structural co~~cnent of the hospital. This equipc-,ent Is not subject to removal or transfer.

Enter the current unit cost rounded to the nearest dollar for each item listed. Do not cc,...olete this oonion ur.iess vou are cer:talil of t~e price you are hst1ng. Cther•dise, :edve it blank ar.d Purchasing ~1111 cc:nplete it for you using the detail orovlded on the back of tne form. Justify this figure to the right in the spece provided and do not account for an inflatio~ factor in the amount.

Enter nu~:er of Items needed.

49

CAF5U::l Form Ccntir.~~d

15. Purch~se Date

16. llew Prooram

17. Co!"r.lents

Code each item as:

N New equipne~t.

R Rep1aCJ.'2:"'e~t of existin·J ·,.,.Grn o·.1t equi~"i".ent. If renlac~-e~t is ent~~ed. it is assuned to be nec~ssary for ccntinuirg cp:r~tions.

Enter the rJnth and year th3t y~~ inte1d to reauisition fer t~e i~e~. E~2~·~1e: ~arch, 1981 Sl!ould be ertere~ as 0361. As a re~in~~r, ~ake certain this ~~te falls withln t~e ~cdget year

. ycu have specified in Ite:11 ~2.

Enter title of new program, if aep1icable.

(Attach additional pages if necessary.)

50

J::e"1inder: Use a separate form for each buc;et year and for each ne\·i progra!:l.

1. Pase :h;;ber

z. ~Year 3. Cost Center ~:a me

4. Hos;>ital ~ccount ~tv~ber

5. Cost Center t-~u~.ber

6. A£orovals

7. Patient Care

8. Priority

Begin ~ew num~ering sequ!nce for each budget year.

Check appropriate box.

Self-explanatory

Use hosoital seneral ledger 4-digit accGunt nur:1ber.

Use CHFC eight-digit number.

Must be signed by de~ar~m!nt head and associate ad~inistrator indicating tney have acproved ~11 projects an~ costs. It m~st then be reviewed by the "'edical stuff, Plant Operations and Finance Depa rment.

Code renovation as:

D = Utilized by r.erso~nel havino direct res~cns~C1ii:'l for render1r:g 1npatient or out~at1ent care.

N = Ad~inlstrative, nan-patient related.

Each renovation rr.ust be prioritized according to the needs of the deoartPent. Use the following codes to define priorities:

A = Recvired for continued licensure. Includes renovation necessary fc:- comolianc~ with Joint Cor..-,ission for the Accreditation of Haspitais, fire codes, life safety codes, and other reaulatorv codes. Exa~oles of this would be constructing rar.:ps for wheel chai;-s.

B Replacenent essential to maintain current operations.

C Construction would be revenue producing or cost saving.

D Jrr.proves operations or is required to i~o1'2~~~t der2rt:.r~nt objectives. ~em1~5t~d job is not rev~nue prcducing or c~st saving.

E s ~o 1mpro,·err.ent In current operations. No cost saving or revenue involved.

51

lns!ructior.s for c.;?SUD Forn 2 continued

9. S~c~~darv Priority

10. Oescrirtion of work

11. Cost of Proje:t

12. Coyoletian Date

13. New Program

14. Cor. . .,ents

In instruc ion ~o. 8. ite~s are prioritized a~r..ordir.~ ~ ~!"~e n~~1s o-7 t"',e Ce;;art!':'er~t. Ran~ i~;;'~ ~:~:::~. :-; ~:;e s.~~~ ~ ... -icrlty c~-3ssification. Ex~:: .. _. "'. ~l;,·t i:~~·~s -.... ~ti-t1n t:~e sa.:;;~ priority c1ass of ''A'' s~ould te ra~;.ed 1 tn~ou;h 8. No t~o renovatic1 ite-s in vo~r cost center should have the sa~~ :lriority ~;c seccr.CGry pricrity co~~ination unless rer;ovaticr:·s are de~enCent uoon each o~her to fJ~ction. lf ~here are ~Jre tha~ eig~t req~es~s for a pr~ority classification, enter '9'. '1' is the higcest priority ranking.

Specifically state ~hat the work is b?ginning in co1~.;::.n 21. ~o nat use t.:?~s suc:h as 'construction'. Rc~~n nu~~rals ~~ve :2e~ ~rcviCed to ~he left of each ~escrio~ion for vcu t~ crovide details on tl:e back of ~~e ~o~.~ Inc1u~Getal1S or ccnstr~ctlon, pr1ce scJrce, a~d price breakdown.

Enter the total cost of the project including labor and ~aterials in w~ole dollars. Co not CCTJlete this ~or~i:~ ~~less vc~ ~re ce~t~i~ y~~r orice 1s CC~r?ct. CJtr,e::-n·~ SE ,~.~e :rH? 1 :e.,-r, D 1 d'1)( and Plant C~erations wi11 cc<~lete it for you using the detail provided on t.'1e back of the form.· Justify to t~e ri~ht in the spaces provided. Do not try to account fo1· an inflation factor in the amount.

Enter the nonth and year that you would like construction to be cc~p1eted. Make certain this date falls within the budg~t year you have specified in Item 2.

Enter title of new program if applicable.

(attach additional pages if necessary.)

52

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53

Z) Budget Yur (checlr. one)

"""' - OJ/00 CJ ""'"' - Ol/81 D 0</81 - Ol/81 CJ l) Coit Ce,.,ter ~~~ -------------

CEOARS-S INA! MEDICAL CENTER

CAPITAl ~NOVATIONS BUDGET

:: ~~;:';::.~-::.:;lllllllll lludget Dept. Use Only

[rH+++-f+-1

f+H++-H-1

7) Pctlent C.are 8) Priority

j;.1 r··

7) P•tlent Cue D • P•tfent ffthted H • Hen P•tlent RtLHed

9) lnd Pr:~~rlty

REQUESTs roR: WHINU!NG OPERATioNs D (check one) NEW PROGRAM c::::J

10) Ducrlf.!_fon of Work! •

---·'·{~f~~~m:, ... , .. ~ .. j •• ,.,, •• ,; ........... " ••

·::atttlllllllll& ,::mttttttttl-H+H++++-H-H+++t+-l-H

VIII

" "H++H-l-H--+

Ill

I -lj "I .,,\ •1\ 1 nl • •IH~ • >

8) Priority A • H•nd.tcd by Sccurlty/Rcgul•tory Polley I • Fleplolle":Ment Euentlal for Contln~o~lng Op•r~ttoos C • Revenue ProJuclng/Colt So~vll"'g D .. !ll!prov•l Oper•tlons, /'lo Cost SHine;~ £ ·~rgln•l l~o~ct

IJ) New Pr09rM Title (If appllc.ble) ---------·

HI llcto~lls orCo-P~ents

6) Ooeput~nent He•d Approul

Auoc, Alhl". Approv1l

~dlc1l St.rr Review

Phnt Op. Review

flncnct Dept. Re.,dew

11) Who Ia Dol hr Cost IZ) COfll:llete of Proj11ct O.te (tt1H)

,. 1~L'' .J, ;[;,] ~-.r,;l ... I. ,I

D

.J

I) P•g~ __ or __

0Ate

Ph1nt Operations Use On! - ,.[;~ .. !.

CN'BUO for. 2

U1

"""

CEDARS-SIN~! MEDlCAL CENTER

Initial Cate

Cost Center Name _____ _

CHFC No.

Budoet Year 4!79-3!80 .-. 4/80-3/81 .-. 4/81-3/82 il

---'

1) Med. Staff Review

2) Dept. Head Approva 1

3) Assoc. Admin. Approval

4) Description of equ ipl"l'.!nt ________________________ _

5) How will this equip"ent help your depar~ent f"nction more effectively?

6) Does this ( ) No ( ) Yes

equip~ent reJ1cce existing equip~ent? Please sta:e whv the equipment is needed and how it will Please sto:e t~e reason(s) for the replacenent and what to the re~laced equipment.

be used. will happen

7) Will this equipc-.ent ~e cost effective? ) Yes No Please explain.

8) Will this piece of equipment generate direct revenue? ( ) Yes ) No

If so, how? ------------------------------------

9) What supplies are necessary to operate this r:;achine? --------------

1/hat will be their cost per year?

10) Will additional employee(s) be necessary to operate this equipment? ( ) ~o ( ) Yes How many? AJ-1 PM Graveyard What will be their labor cost per year?-- -- -- $ ______ _

11) Specifically, how will the equipment be maintained, and by whom?

What will be the approximate maintenance cost per year?

12) Will the equipment require additional space? ( ) No ( Yes If yes, "here is it to be located and "hat will the cost of construction or remade 1 i ng of space be? ------------------------------------

13) Impact if not approved:

14) Surrmary remarks from prep a rer: ___________________________ _

15) Disposition: Approved

------;,.ejected _______ D.eferred until

Prepared by:

Re~arks=---------------------------~~~~~~ CAP8'JD fORlL,L

55

CEDARS-SINAI ~EO!CAL CENTER

C.4PIHL RENCJVATIO~ JUST!F!CAT!O'l Initial Date

1) Med Staff Review

Cost Center Na~--------------------CHFC No. ---------------------------- 2) Dept. Head

Budget Year Approva 1

3) Assoc. Admin. Apprcva 1 4/79-3/so =:J 4;8o-3/81 0 4;a1-3;sz 0

4) Description and location of renovation? ---------------------

5) How will this renovation help your depart~ent function more effectively?

6) Will this renovation be cost effective? ) Yes ) No Please explain.

7) Will this renovation generate direct revenue? ( ) Yes ) No If so, how? __________________________________________________ __

8) Will this renovation create a need for additional supplies or equipment? ( ) Yes ) No If so, please specify ________________________ _

~hat w1ll be their cost per year?

9) h'i11 additional er'1Dloyee(s) be necessary as a result of this renovation? ( ) Yes ( ) .\o H0w many? AM PM Graveyard What will be their labor cost per yea;:r- ---- $ ________ _

10)

11)

Will additional maintenance be required ( ) Yes ( ) No If so, what will mainte~ance cost per·year? Impact if not approved:

12) Surrrnary remarks from prepater:

13) Disposition: Approved Rejected

----------,Deferred until

Prepared by:

Remarks:

as a result of this renovation? be the approximate additional s _____ _

CAPBUD FOR.'i 4

56

APPENDIX D

ACTUAL CAPITAL EXPENDITURE SUMMARY SHEETS

ClOARS•S!NAI HfD!CAL CENTER CAPITAL RENOVATIONS HU0GET

TOTAL CAPITAL EXPENDITURES BY PRIORITY

110SPIHL SUMMARY FYE I 03/ll/60

A : MANDATED ~y S~CURITY/REGULATORY POLICY 8 ~ REPLAC[M(NT ESSENTIAL TU CURRENT OPERATIONS C • kEH~<UE PRODUCING/COST SAVING 0 a I~PRuVtS UPE~ATlONS

E • MARGINAL IMPACT

A B RESPONSIBILITY PERSON

-------·------------- ·--------- ----------A!NS"'URTH

A"oOREWS

CALDWELl. Sl9,9'18 St.2,000

KATZ S35,200 s I, 254

KING

LACKEY $800

LEISHER Sl4,t25 $21>,500

HARTIN Sll,t'IS $bOO

RUBENSTEIN

SCHI<ARTZ S22, 300 ~14,000,

========.== ========== $102,818 s1os, 154

c

----------

SI2,2QO

S7,St.5

S4,000

$21,000

Slb7,000

======='=== S211,80S

0

·---------13,500

S!Q,297.

$82,'170

$23,700

$51,700

$204,500

sHS,IOO

sz,soo

$10,400 =========s:

S728,bb7

E

----------

ss.t.oo

S200

:::::::::::::r 15,!100

TOTAl.

----------Sl, so 0

132 .ll7

st72,7H

Sbli,JSQ

S5!,700

$600

$2bb,l25

SSIJ,6'15

sz.~oo

$lJb,700 :::;:::.:::-s sltl)~,<"o

lJl 00

59

: :

: :;

. r -. - =

r --. - - -, ·-LW -· ,. ou

-· e ~ .. ~

, .. . e . - . -o . ,

~

Ow u :: . .

0 :: ~ 0 z 0

z . w ::. ~ ::. 0

' ;:: L ' . '

! ! . . c 0 . , . . L . .

0 . , . L .

! ;; . - . . - :

' . 0 0 . . . :' : 0

UIPANIM~Nl SUMMARY

Rl Sf'IINSII<Il II Y PlNSWI IHPANI'If.Nl NH•f

PAIHNI CAl<~ Sl4111S

>I•JN•f>AllfNI NILAIH>

ANI!I<lwS

CEDARS•SINAJ M~U!CAL CENltR TOTAL CAPTIAL fUUIPMtNI fXPENO!IURES

SUNTED HY PATI[NT CANf STAIUS AND PRIORJIY

Nf_CI.oiWS K J;ff'P(J()IJ( T !liN MGf<T

FYI: I Ol/31/80

(I lAPII•.JUN C2lJt!L•lH P C311>C I •ll£C Pfl I 1111 I 1 Y CtiST UNT!H NAill.

f'll[llfi[TY fl Pll[tH SHI)f' !1.722

(q)JAN•MAR

PAl;E b

03/1!:./1'1 C5Ell09

TUIAL

S/. 7<!t!

S7,722 SO SO $0 ~1,12~

f'fl[flfl[ IV t PR[NI S~fiiP $bOO HOO

NHIIIWS ss,ooo ,';,000

-----------· ---------·-- ··---------- ............................. --------""·--$/,1)0 ~0 so $5,000 $5,1:>00

f'fiiOfll IY ll (;JIAPIIJ(S !3,500 $I, ~00

·------·---- .............................. ------------ ------------ -----------· $0 \0 Sl,SOO )I) .l j, ':>0 0

------------ -----------· ··---------- ------------ ------------SIJ, 122 so ~3,500 S';,OOO 'lb,"cc -----------· ------------ ---------·-- .......................... _

_______ ... ____ 3.11. 322 \0 s 3, ';()0 $!'>,000 $1b,ll22

0'\ 0

fi)Uif'"t.~T LJEIAIL FUi< CriST CtldtRS

RESPU~S!HIL I TY PE><SrJI·, DtPAR I H: 1d

Cil5T CtrJ!t.R

~d.i"' ut""

~Ut>U•S IE IN PRU,~SS!U'-AL SERVICES ~IDIAT[UN SAFETY 0'FlCER ~oi02!2P

PR[[)R[IY

•TdrAL A

I 2 4 ,

l~UIP O~SCH!PTIUN

'' J C lirl" A V E U Y t ~ l t A K ItS H. R (. l PErHIJ,.;~A~'>~CE PH.t..NTIJ~

''IJIAT!<jrr Alh r'IJN!TL'R r IJL l!CHA~i.t.L Ar<Allf:.R (SOX NIJC Mt.Dl

*TIJTAL RAirJAT!ur, S~rETY uFriCER

CEDARS•SINAI MEDICAL CENTEH CAPLTAL EUUIPMENT HUDGET

F Y£ I 05/3!/HO

UNIT CrlS T

l!!,SOO 1950

$2,0'30 ~30,000

ClUAN CUST lrF NEW ~ErJUfST Rf:.f'L

~1,~00 N :>'ISO N

l2,0SO N ~)IJ,OOO N

$34,~00

$34,500

UATE ----U!tlU 041'1 u97'1 U479

PAT R~LAnD

PAGI: 139

03/14/7'1 CSf:.Cl02

UN!CJUE NI)Mti

-------------------- -----NUN-PATIENT RELATf:.O 00~07

O!KECT PATIENT CAHE oosu~

Ll!RECT PATIENT CARE 0050'1 O!Rf:.CT PAT!t.NT CARE U09U7

0"1 I-'

APPENDIX E

FLOW CHART OF THE BUDGET PROCESS

CC.'IT!IiU!I~G OP[P.IIJIO.'IS

CAPITAL BU[:GET )

I ~------------_J _______________ ,

"'" PR%RNiS CCHT/IIUI/1':; OPERATIC:IS

R[TU::I/ All FC!l.i!S rQ;l [QU!Pii[IH fli/D RE!lOVHIO!IS

TO BUDGET AND Rf,fi~!HHSH:UIT

(CAPauo rmt·1s ,:4)

SUilHIT ll[QUEST rOP.'iS TO PURCHAS I /;G OR

PLANT Of'EflfiTICIIS FOR· PRICE REVIEW

R£1/0'IATJC'iS

!1£\,' 1".~.:·:-.~A'lS

63

HOSPITAL BUDGETING: CAPITAL EXPENDITURE BUDGETS

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