Unit-ix Fiscal Planning New 1

Mr. Channabasappa. K. M

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UNIT – IX

FISCAL PLANNING

1. BUDGETING IN NURSING PRACTICE

INTRODUCTION

Budget, as a control device is an extension of planning. After the planning and

programming decision, the approved programme is translated into a totaled statement of

monetary requirements and financial consequence.

Budgeting, though primarily recognized as a device for controlling, becomes a major

part of the planning process in any organization budgeting is done for indicating the expected

results of the business and the possible future lines of action to be followed for the attainment

of such results. Expected results are projected either in financial terms or in other numerical

terms like units of products person-hours machine hours.etc

MEANING OF BUDGET

The word ―budget‖ derived from the old English word ―budget tee‖ means a tack or

pouch which the Chancellor of the Exchequer use to take out his papers for lying before the

parliament, the government, financial scheme for the ensuring year.

DEFINITION

―Budget is a concrete precise picture of the total operation of an enterprise in

monetary terms‖ (HM Donovan)

―Budget is a operation plan, for a definite period usually a year- Expressed in

financial terms and bused an expected income and expenditure‖

PURPOSES

The purposes of budgeting are:

1. Budget supplies the mechanism for translating fiscal 1-year objectives into

projected monthly spending pattern.

2. Budget enhances fiscal planning and decision marking.

3. Budget clearly recognizes controllable and uncontrollable cost areas.

4. Budget offers a useful format for communicating fiscal objectives.

5. Budget allows feedback of utilization of budget.

6. Budget helps to identify problem areas and facilities for effective solution.

7. Budget provides means for measuring and recording financial success with the

objectives of the institution.

FEATURES OF BUDGET

It should be flexible

It should synthesis at past, present and future.


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It should be product joint venture, cooperation of executives / department heads at

different levels of management.

It should be in the form of statistical standard laid down in the specific numerical

terms.

It should have a support at top management throughout the period of its planning and

implementation.

PRINCIPLE OF BUDGET

Budget should provide sound financial management by focusing on requirement of

the organization.

Budget should focus on objectives and policies of the organization. It must flow from

objectives and give realistic expression to the way of realistic such objective.

Budget should ensure the most effective use of scarce financial and non financial

resources.

Budget requires that programme activities planned in advance.

Budgetary process requires consistent delegation for which fixed duties and

responsibilities are required to be allocated to managers at different level for framing

and executing budget.

Budget should include co-ordinating efforts of various departments establishing a

frame of reference for managerial decision and providing certain criteria for

evaluating managerial performance.

Selling budget target requires an adequate checks and balance against the adoption of

too high or too low estimate, almost care is a must for fixing targets.

Budget period must be appropriate to the nature of business or service and to type of

budget.

Budget is prepared under the direction on the supervision of the administration or

financial officer.

Budget are to be prepared and interpreted consistently throughout the organization in

the communication in the planning process

IMPORTANCE OF BUDGET

1. Budget is needed for planning for future course of action and to have a control

over all activities in the organization.

2. Budget facilitates coordinating of various departmental and selection for

realizing organizational objectives

3. Budget serves as a guide for action in the organization.

4. Budget helps one to weigh the values and to make decision when necessary on

whether one is of greater values in the programmes than the other.

TYPES OF BUDGET

Since budget express plans and an organization may have different types of plans, there

may be different types of budgets. These may be classified on the basis of


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1. Coverage of functions master and functional budgets.

2. Nature of activities covered – capital and revenue budgets

3. Period of budgets – long term and short-term budgets

4. Flexibility adopted – fixed and flexible budgets.

1. Master and Functional budgets

A master budget is prepared for the entire organization incorporating the budget of

different functions. For example when we refer to the annual budget of government of India,

it incorporates the budget outlays of different ministries. In the business organizations, the

maser budget incorporates various functions and units and their outlays. It generally includes

sales, production, costs.

A functional budget is prepared incorporating a major function and its sub- functions.

Since an organization may have a number of functions, numerous functional budgets are

prepared. Eg. Production budget, cash budget in an organization.

2. Capital and Revenue budgets

An organization activity involves two processes- creating facilities for carrying out

activities and actual performance activities. Creating facilities for carrying out activities

include capital expenditure whose returns accrue over a number of years. For such activities,

capital budget is prepared which is essentially a list of what management believes to be

worthwhile projects for acquisition of new assets together with the estimated cost of each

project.

Revenue budget involves the formulation of target for a year or so in respect of various

organizational activities such as production, marketing, finance, etc. Thus, a revenue budget

includes expenditure and earning for a specific period like one year.

3. Long term and short-term budgets

Many organizations integrate their yearly budgets with long-term projections of

business activities and along with yearly budgets; they prepare budgets for a longer period of

2 – 3 years. When one budget period is over, budgets are prepared for the next year and

subsequent 2 -3 years.

The short term budget is for a year and is divided into a number of periods for

effective implementation. For eg. Cash budgets are on yearly basis as well as on monthly or

quarterly basis to facilitate better cash management.

4. Fixed-celling and flexible budgets:

Generally, organizations prepare which certain to only certain projected fixed volume

of operations for a year or so. Such budgets are known as fixed of static budgets. When an

organization’s volume of business can be predicted with fair amount of precision, the fixed

budget is satisfactory.


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A budget which is designed to change in accordance with the activities of the

organization is known as flexible budget. It considers several level of activity and assumes

that labour, material or facilities used in production and hence cost vary with a known

relationship to the actual of activity.

OTHER TYPES OF BUDGET

1. INCREMENTAL BUDGET

It is one based on estimated changes in present operation, plus a percentage increase

for inflation, all of which is added to previous year budget.

2. OPEN ENDED BUDGET

Is a financial plan in which each operating manager presents a single cost estimate for

each programme in the unit, without indicating how the budget should be scaled down if less

funding is available.

3. FIXED CEILING BUDGET

Is a financial plan in which the upper most spending limit is set by top executive

before the unit and divisional managers develop budget proposals for their areas of

responsibility

4. FLEXIBLE BUDGET

Consist of several financial plans, each for a different level of programmes activates.

It is based on the fact that operating conditions rarely conform to expectations.

5. ROLL OVER BUDGET

Is one that forecasts programmed revenues and expanses for a period greater than a

year. To accommodate programmed that greater target than annual budget cycle.

6. PERFORMANCE BUDGET

It is one based on functions, which allocate function, not division. Eg. Direct Nursing

care, in service education, quality improvement, nursing research.

7. PROGRAMMED BUDGET

Is one which costs are computed for a total programmed, i.e, grouping total coasts for

each services programmed eg. MCH, FP and UIP etc. These base budgets requires the nurse

manager to examine, justify each cost of every programmed both old and new in every annual

budget preparation.

8. SUNSET BUDGET

It is designed to ―Self Destruct‖ within a prescribed time period to ensure the

cessation of spend in by a predetermined date.


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9. SALES BUDGET

Is the starting point in a budgetary programmed, since sales are basic activates which

give shape to all other activities. Sales budget are compiled in terms of quality as well as of

values.

10. PRODUCTION BUDGET

It is the budget that aims at securing the economical manufacture of products and

maximizing the utilization of production facilities Revenue and expanse Budget.

It is expressed in financial terms and takes the nature of a perform income statement

for the future. It may use prepared in a detailed form or in an abstract statement showing the

items of profit and loss under classified headings.

APPROACHES TO DEVELOP AN ORGANIZATION WIDE BUDGET

Organizations adopt different approaches for preparing their budgets. One of the most

common approaches is in the form of traditional budget in which the current year’s budget is

taken as a base with the provisions of some additions and deductions in the next year’s

budget. The traditional approach of budgeting does not eliminate the draw back of the past.

Therefore, newer approaches of budgeting have emerged. These have resulted into three

types of budgeting.

1. Performance budgeting

2. Zero base budgeting

3. Strategic budgeting

1. Performance budgeting’s

A performance budget is an input / output budget or costs and results budget.

Performance budget emphasis on non-financial measures of performance, which can be

related to financial measures in explaining changes and deviations from planned

performance. Performance measurements are useful for evaluating past performance and for

planning future activities. Performance budgeting, results into the following.

It correlates the financial and physical aspects of every programme or activity.

It improves budget formulation, review and decision making at all levels of the

organization.

It facilitates better appreciation and review of organizational activities by the top

management.

It makes possible more effective performance audit.

It measures progress towards long-term objectives.

2. Zero base budgeting

This was applied for the first time in preparing the divisional budgets of Texas

instruments of the USA in 1971.


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Zero base budgets is based on a system where each function, irrespective of the fact

whether it is old or new, must be justified in its entirety each time a new budget in detail from

scratch that is zero bases.

The process of zero bases involves four basic steps:

Identification of decision units, that is cluster of activities or assignments within a

manager’s operations for which he is accountable.

Analysis of each decision units in the context of total decision package.

Evaluation and ranking of all decision units to develop the budget request.

Allocation of resources to each unit based

Benefits of zero base budgeting:

1. effective allocation of resources

2. improvement in productively and cost effectiveness

3. effective means to control costs

4. elimination of unnecessary activities

5. Better focus on organizational objectives.

6. Saving time of top management.

3. Strategic budgeting

It is used as a tool of resource allocation to various strategic business units and

other units of an organization. Under strategic budgeting, in determining the resource

needs of various units

Formation of a budget committee:

Budgeting is a cooperative undertaking. In smaller organization, the task of budget

preparation may be entrusted to the accountant who works in close cooperation with the

general management and department heads.

But in bigger concerns, the budget should be prepared by each departmental/division

manager. The accounts department assists in providing necessary background information

and coordinates the budget of different departments.

There may be a budget committee in an organization comprising of the departmental

heads and finance manager or a budget officer.

The function of the budget committee is to

a) receive and approve all forecasts, departmental budgets, periodic reports showing

comparison of actual and budgeted income and expenditure.

b) the committee may also request for special studies of deviations from the budget and

consider revision of budget to meet changed conditions.

Essential requirements for budget preparation:

1) sound forcasting:

2) an adequate and well conceived accounting system

3) a well devised cost accounting system

4) a soundly constructed organization with fixed lines of responsibility.


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5) Statistical informations

6) Support of top management

7) Length of budget period.

PLANNING THE BUDGET

Planning yields forecasts for one year and several years. The budget is an annual

plan, intended to guide effective use of human and material resources, products or service and

managing the environment to improve productivity. Budgetary planning ensures that the best

methods are used to achieve financial objectives.

In nursing, budgetary planning helps to ensure that clients or patients receive the

nursing services they want and need from satisfied nursing workers. A nursing budgeting is a

systematic plan that is an informed best estimate by nurse administrators of revenue and

nursing expenses.

Managing the financial end of nursing through an operational budget obviously can

create a new dimension for nurse. The budget can be a strong support for developing written

objectives for the nursing division and for each of its units.

2. STEPS IN THE BUDGETARY PROCESS

The nursing process provides a model for the steps in the budget planning.

1. Assessment

The first step is to assess what needs to be covered in the budget. Historically, top-

level managers frequently developed the budget for institution without input from middle or

first level managers. Because unit managers who participate in fiscal planning are more up to

be cost conscious an better understand the institutions long and short term goals, budgeting

today generally reflects input from all level of the organizational hierarchy. Unit managers

develop goals, objectives and budgetary estimates with input from colleagues and

subordinates. Budgeting is most effective when all personnel using the resources are involved

in the process. Managers therefore must be taught how to prepare a budget and must be

supported by management throughout the budgeting process.

2. Develop a plan

The second step is to develop a plan. The budget plan may be developed in many

ways. A budgeting cycle that is set for 12 months is called a fiscal year budget. This fiscal

year which may or may not coincide with calendar year, is then usually broken down into

quarters or subdivided into monthly, quarterly or semiannual periods. Most budgets are

developed for a one-year period, but a perpetual budget may be done on a continual basis

each month. So that 12 months of future budget data are always available. Selecting the

optimal time frame for budgeting is also important; a budget that predicted too far in advance

has greater probability for error. If the budget is short sighted, compensating for unexpected

major expenses or purchasing capital equipment may be difficult.


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3. Implementation

The third step is implementation. In this step, ongoing monitoring and analysis occur

to avoid inadequate or excess funds at the end of fiscal year. In most health institutions,

monthly-computerized statements outline each department’s projected budget and any

deviations from the budget. Each unit manager is accountable for budget deviations in their

unit. Most units can expect some change causes and remedial actions must be taken if

necessary .some managers artificially inflate their department’s budgets as a cushion against

budget cuts from a higher level of administration. If a major change in the budget is

indicated, the entire budgeting process must be repeated. Top-level managers must watch for

and correct unrealistic budget projection before they are implemented

4. Evaluation:

This is last step. The budget must be reviewed periodically and modified as needed

throughout the fiscal year. With each, successive year of budgeting, managers can more

accurately predict their unit is budgetary requirements.

BUDGET STAGES:

The nursing budget follows three stages of development.

1. Formulation

2. Review and enactment

3. Execution

1. Formulation stage

It is usually a set of number of month before the beginning of the fiscal year for the

budget. One of the first steps in writing a budget is gathering data for accurate prediction of

expenses and revenues (income). Primary sources of data are the objectives for the division

of nursing and each cost center .other data include programmes from other departments that

will require use or expansion of nursing resources, expansion of nursing clinics and client

teaching programmes, incentive awards, library requirements, clinical and office supplies and

equipments etc.

2. Review and enactment stage

Review and enactment stage are budget development process that pull all the pieces

together for approved of a final budget. Once the cost center managers present their budgets

to the budget council, the chief nurse executive will consolidate the nursing budget. The chief

executive officer of the organization and the governing broad will then give their approval.

Throughout this process, conferences will be held at which budget adjustments are made.


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3. Execution stage

Execution of the budget involves directing, executing, and evaluating activities. The

nurse administrator and managers who planned the budget execute it. Revisions in execution

of the budgets are scheduled at stated intervals, frequently once or twice during fiscal year.

Certain procedures are followed for evaluating the budget at cost center levels.

Steps in the preparation of an operating budget:

1) Collection of past data (historical data) as a background material for the preparation

of budget in a cumulative form.

2) Examining the expressed objectives of the previous years and to note in each instance

the extent to which these objectives have been achieved or exceeded. Before setting

programs for future, it is necessary to assess the successes and failures of the past.

Budget time is ideal for such reviews.

3) Setting objectives for the forecast year. These objectives might include ways to

increase the utilization of existing facilities and personnel.

4) Stating the objectives in terms of units of production or services or activities. The

indicated units are increased or decreased by the effect of expected achievements.

5) Consideration of salary of wages adjustments. A complete schedule of cost of living

increase and merit increase must be prepared of all cost centres, detailing the persons

and months and the amount of adjustments. However these increases should not

exceed the ceiling salary/ wages established under the job evaluation study.

6) Preparation of report on the expenses related to insurance, taxes, supplies, services,

maintenance and repair costs etc to be included in the budget schedule.

7) Preparation of budget report: this report comprises of a) narrative section

summarizing the budget of explaining the budget plan for the year ahead, including

the anticipated operating result and principal factors entering into increases and

decreases in income and expenditure b) budget statements and supporting schedules

in a concrete manner c) a comprehensive presentation of budget informations by

activities and cost centres.

8) Review of the budget report by the administrator of the organization who ultimately

presents it to the board of trustees.

9) Evaluation of the budget as an operating plan, incorporating any changes and

presenting it to the finance committee.

10) The finance committee may further initiate any changes or modifications before

finally presenting to the board for its consideration and decision.

11) Final approval by the board.

THE BUDGET CALENDAR

Formulation stage:

1. Develop objectives and management plans

2. Gather all financial, historical and statistical data and distribute


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to cost center managers

3. Analyze data

Review and enactment stage:

4. Prepare unit budgets

5. Present unit budgets for approval

6. Revise and combine into organization budget.

7. Present to budget council

8. Revise and present to governing board

9. Revise and distribute to cost center managers

Execution stage

10. Direct and evaluate expenses and receipts

11. Review budgets if indicated

BUDGETING CYCLE:

The nurse administrator should use a system approach in designing and implementing a

planning program budgeting cycle as follows

1. Agency goals are reviewed to identify activities of highest priority, because these are

most likely to receive funding.

2. Objectives are reviewed for existing programs and written for proposal programs to

ensure that achievement of these objectives will support agency mission.

3. Existing programs are revised and proposed programs designed to maximize goal

achievement.

4. Labour, capital and operating expenses are computed for each program, old and new.

5. Alternative methods are identified for realizing designated objectives and price of

each alternative is determined.

6. Comparisons are made to determine which alternative is most cost –effective

7. A budget request is developed that details a fiscal plan for the preferred program,

indicates alternative methods for meeting the same objective and explain why the

recommended program is preferred.

Cost expenditure:

Cost can be defined as the value of economic resources used for producing a

commodity or for carrying out the activity for providing services, which consist of two

components, i.e quantity used and price fixed.

Cost is the expenditure required to achieve a desired object. The total cost of a budget,

service or program includes all significant elements-monetary property and personnel

resources that are consumed to acquire or achieve the object service or program. Total cost

can be direct or indirect labour cost.


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1. Direct labor costs are wages paid to employees who are directly engaged in

productive output, e.g. services to client.

2. Indirect labor cost includes all labor costs not included in direct costs, such as salaries

to supervisors on above categories,e.g. services to ANO.

3. Semi variable costs are expenses that change as volume of output changes but not in

direct proportion to the change in output, e.g. IJE.

4. Period costs are expenses that are associated with a period of time rather than with a

level of activity,e.g. insurance premium.

5. Committed costs are expenses that are required to maintain an agencies legal and

physical existence, e.g. license fee, application fees.

6. Programmed costs are expenses that are subjected to managerial control but relatively

unconnected to current activities, e.g. research costs.

7. Overhead costs are expenses that are essential to agency operations but cannot be

directly related to work volume or service delivery, e.g. cost of housekeeping or basic

amenities.

3. Audit:

Audit is an independent appraisal activity within an organization for review of

accounting, financial and other operation as a basis of services to the management. It is

monitoring the budget process. Here, the budget reports are needed to monitor expenditure

and keep the budget process focused on long- range objectives. The most common tools are

Capital inventory is an itemized list of current capital asset that enumerates each piece of

capital equipment, together with items serial number, current valuation, and physical

location, e.g.checking stock register and inventory.

Supply inventory is itemized list of available supplies. It is needed to implement the

operating budget for each unit.

Position control system is a status of each budgeted position. The serial number assigned to

each budgeted position should indicate both the job classification and the budget unit and cost

centre which the position is assigned it should be documented, dated and identified the nature

of transactions and facilitates later retrieval information.

Monthly account reports are reports of the amount spent and remaining per item, e.g salary,

T.A.etc

Cost accounting is process of linking each expenditure to its purposes.

Variance analysis a variance is a discrepancy between the amount of funds intended to be

spent for particular purpose and the amount of funds actually used for that purpose.

Variance analysis is a process that has the following four steps

1. Founds required for each budget item or expenditure are calculated for the expected

level of activity.

2. For each budget item, the difference between actual and planned expenditure is

calculated.


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3. These differences or variances are examined and the cause of each variance is

identified.

4. Each positive variance (amount expended that exceeds the amount budgeted) is

corrected either by increasing the funds allocated for the item or decreasing

expenditure for it.

The common causes of budget variance are:

1. Unanticipated increase in supply or equipment price.

2. Bills received in a different month from when purchases were made.

3. Higher-than- expected inflation rate.

4. Failure to calculate the cost of disposable supplies needed for new equipment.

5. Professional practice charges that entail additional purchase.

6. Unforeseen technological improvement demanded by patients and doctors.

7. Reimbursement changes that alter the type and volume of service delivered.

8. New medical staff members who implement new treatments requiring new equipment

and supplies.

9. Changes in safety or injection –control standard.

10. Excessive breakage of equipment by untrained staff.

11. Opening or closing of nursing unites.

12. Improperly budgeting unproductive time.

The responsibility of nursing administration in budget includes the following.

1. Participation in planning budget.

2. Consult and take assistance of his /her subordinate in determining the needs of the

unit for ensuing year on the basis of information received.

3. Request sufficient funds to suggest a sound programme such as provide for

developing programme provision, expansion of programme, to attract and hold

qualified staff to provide for expansion of physical facilities, supplies, equipment, for

improving instruction (school and college) and also to carry out adequate functions of

the institution.

4. Submit budget request with justification with proposed expenditure. The

administrators define his/her budget so that nursing unit will have enough money to

conduct programme effectively. Money must be available to allow experimentation

also.

5. He/she should support the budget and interpret the subordinates, any changes that

may affect instruction services for the adopted budget. He/she secures for the adapted

budge and responsibility of the administrator to see that expenditure should not

exceed the appropriation made.

6. Nurse administrator also is responsible for budget, and covers the routine budget

control.


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To sum up the general rules and functions administrator/manager in budgeting are as

given below:

Rules: He/she:

1. Is visionary in identifying or forecasting short and long term unit needs, thus inspiring

proactive rather than reactive fiscal planning.

2. Is knowledgeable about political, social and economic factors that shape fiscal

planning in health care today.

3. Demonstrates flexibility in fiscal goals setting in a rapidly changing system.

4. Anticipates, recognises and creativity problem-solves budgetary constraints.

5. Influences and inspires group members to become active in short and long range

fiscal planning.

6. Recognises when fiscal constraints have result in an inability to meet organisational or

unit goals and communicate this insight effectively, following the chain of command.

7. Ensures that client safely is not jeopardised by cost contents.

Functions:

1. Identifies the importance of, and develops short and long range fiscal plans that reflect

unit need.

2. Articulates and documents unit needs effectively to higher administrative levels.

3. Assess the internal and external environment of the organizations in forecasting to

identify diving forces and barriers of fiscal planning.

4. Demonstrates knowledge of budgeting and uses appropriate techniques.

5. Provides opportunities for subordinates to participate in relevant fiscal planning.

6. Co-ordinates unit level fiscal planning to be congruent with organisational goals and

objectives.

7. Accusatively assesses personal needs using predetermined standards or an established

patient classification system.

8. Co-ordinates the monitoring aspects of budget control.

9. Ensures that documentation of clients need for services rendered in clear and

complete to facilitate organisational reimbursement.

Advantages of clinical budgeting:

1. Head of the clinical units are involved in planning, allocation of resources and

achievement of objectives.

2. Head of the clinical units seeks specific resources, personnel and equipment to

perform optimally the services.

3. Each clinical unit is responsible for expenditure including referrals, investigations,

drugs and materials and services from other departments.

4. Clinical budgeting leads to cost containment and control over wastage.

Conclusion:

The budget is very important in management of patients in health care setting .proper

planning of budget will improve the quality of services provided in the organization. So the

nurse should know about types, steps, and cost containment.


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4. COST EFFECTIVENESS AND COST ANALYSIS

INTRODUCTION

Cost-effectiveness analysis (CEA) is a form of economic analysis that compares the relative

expenditure (costs) and outcomes (effects) of two or more courses of action. Cost-

effectiveness analysis is often used where a full cost-benefit analysis is inappropriate e.g. the

problem is to determine how best to comply with a legal requirement. Typically the CEA is

expressed in terms of a ratio where the denominator is a gain in health from a measure (years

of life, premature births averted, sight-years gained) and the numerator is the cost of the

health gain. The most commonly used outcome measure is quality-adjusted life years

(QALY). Cost-utility analysis is similar to cost-effectiveness analysis.Cost-effectiveness

analysis is generally not equivalent to cost-benefit analysis (CBA). Cost is money expended

for all the resources used, including personnel, supplies, and equipment.

COST

DEFINITION

The total amount of money that needs to be spent by an organization or a person or

government.

TYPES OF COST

1. Fixed cost: Fixed costs are those costs which stay the same regardless of the level of the

activity. They are not related to volume. They remain constant as the volume increases

and decreases over the period of time. Among fixed costs are deprivation of equipments

and buildings, salaries, benefits, utilizes, interest on loans or bonds, and taxes.

Example: Fixed costs are those which would exist even if the organization were ―shut down‖.

2. Variable cost: Variable costs are those cost that change depending on the level of

volume. They do relate to volume and census (patient days). They include items such as

meals and linen. The cost of supplies varies by patient census, physician orders and

diagnosis.

Example: the cost of surgical dressings increases when the patient’s wound has drainage and

dressings to be changed frequently.

3. Sunk costs: Sunk costs are fixed expenses that cannot be recovered even if program is

canceled.

Example: Advertising

4. Accounting cost:

―A measure of cost based on a number of simplifications such as an assumed useful

life for a price of equipment.‖

http://en.wikipedia.org/wiki/Economic

http://en.wikipedia.org/wiki/Financial_analysis

http://en.wikipedia.org/wiki/Quality-adjusted_life_year

http://en.wikipedia.org/wiki/Cost-utility_analysis

http://en.wikipedia.org/wiki/Cost-benefit_analysis


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5. Average cost:

―Full cost divided by the number of units of service or patients‖

6. Cost center:

―A unit of department in an organization for which a manager is assigned

responsibility for costs.

7. Direct costs – direct costs are those expenses that directly effects patient care

Ex: salaries for the nursing personnel who provide hands on patient care is considered as

direct cost.

8. Indirect costs – indirect costs are the expenditures that are necessary but don’t effect

patient care directly.

Ex: salaries for dietary or housekeeping personnels.

9. Economic cost:

―The amount of money required to obtain the use of a resource.‖

10. Joint cost:

Costs that is required for the treatment of several or more types of patients. The cost

would not incur unless the organization stopped treating all of those different types of

patients.

11. Opportunity costs:

A measure of cost based on the value of the alternatives that are given up in order to

use the resources as the organization has chosen.

STAGES OF COSTS:

Costs have two stages:

1) Acquisition cost: when some asset or service is purchased, the resource given in

exchange represents the acquisition cost.

2) Expired cost: once the asset is fully consumed, it becomes an expired cost or an

expense.

FACTORS AFFECTING COST

The volume of service provided is the greatest factor affecting costs. Other factors

include length of patient stays, salaries, price of the material, case mix, seasonal factors, and

efiiciencies (such as simplification of procedures and quality management to prevent errors

that increase patient complications and increase costs). Still other factors that have an impact

on cost are regulation and competition for market share; third party payers; the age and size

of the agency; type and amount of services provided; the agency’s mission; and relationships

among nurses, physician and other personnel.


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COST CONTAINMENT

The goal of the cost containment is to keep cost within acceptable limits for

volume inflation, and other acceptable personnels. It involves the following:

1. Cost awareness.

2. Cost monitoring.

3. Cost management.

4. Cost avoidance.

5. Cost reduction.

6. Cost control.

COST AWARENESS:

It focuses the employees attention on costs. It increases organizational awareness of

what costs are, the process available for containing them, how they can be managed, and by

whom.

COST MONITORING:

It focuses on how much will be spent where, when and why. It identifies, reports and

monitors costs. Staffing costs should be identified. Recruitment, turnover, absenteeism, and

sick time are analysed, and inventories are controlled.

COST MANAGEMENT:

It focuses on what can be done by whom to contain costs. Programs, plans,

objectives,a nd strategies are important. Responsibility and accountability for the control

should be established. A committee can identify long and short range plans and strategies.

COST AVOIDANCE:

It means not buying supplies, technology, or services. Supply and equipment cost should

be carefully analyzed. Costs and effectiveness of disposable versus reusable items are

compared. The receipts, storage and delivery of disposables and labour and processing cost of

reusable items are part of the analysis. The least expensive and most effective supplies,

equipment, and services should be identified and expensive and less effective items avoided.

COST REDUCTION:

It means spending less for goods and services. The amount of reduction depends on the

size of the agency, previous efficiency, skills of managers, and cooperation of employees.

COST CONTROL:

It is effective use of available resources through careful forecasting, plaaning, budget

preparation, reporting and monitoring.

COST ANALYSIS

It is the system of analyzing the relationship between the fixed and the variable cost.


17

TYPES OF COST ANALYSIS

1. Cost benefit analysis [CBA]

2. Cost benefit ratio [CBR]

3. Cost effectiveness analysis [CEA]

4. Cost-of-illness analysis

5. Cost-minimization analysis

6. Cost utilization analysis

7. Cost consequences analysis

1. COST BENEFIT ANALYSIS [CBA]

Cost benefit analysis [CBA] is measurement of the relative costs and benefits

associated with a particular project or task.

The cost benefit analysis is a tool which is useful in setting priorities for various

sources of action to meet objectives, and provide an estimate of the net financial value

associated with each course of action (eg. Manpower and labour, material and equipment,

facilities). All the inputs and outputs have to be converted into momentary terms because all

inputs (ie costs) and all the outcomes (ie benefits) are valued in money terms.

OR

It is a procedure by which all the costs resulting from installing and operating a system

are determined and converted to a money amount and the ratio is calculated to reflect the

relationship of costs and benefits.

OR

Cost benefit analysis [CBA] is tool with great potential for the decision makers so long

as he or she recognizes the difficulty in determine the true costs and benefits of various

alternatives. This tool can especially useful when trying deciding between alternative

expenditure of money.‖

BASIC APPROACHES OF COST BENEFIT ANALYSIS

Two basic approaches for cost-benefit analysis (CBA) are-

Ratio approach

Net benefit approach.

Ratio approach: The ratio approach indicates the amount of benefits (or outcomes)

that can be realized per unit expenditure on a technology vs. a comparator. In the ratio

approach, a technology is cost beneficial vs. a comparator if the ratio of the change in costs to

the change in benefits is less than one.

Net benefit approach: The net benefits approach indicates the absolute amount of

money saved or lost due to a use of a technology vs. a comparator. In the net benefits

formulation, a technology is cost-beneficial vs. a comparator if the net change in benefits

exceeds the net change in costs.


18

2. COST BENEFIT RATIO [CBR]

―It is the numerical relationship between the value of the financial cost of a program

and the value of benefits‖

―It is defined as the ratio of the Value of benefits of an alternative to the value of

alternative cost.‖

Z= present value of economic benefits

Present value of economic cost.

Cost benefit analysis is often used in the public sector where there is no net income to

serve as a guideline.

In order to determine the ratio, it is necessary to assign value to both the cost and the

benefits in monetary terms. In practice, it is difficult to assign monetary values to health care

outcomes. It is difficult to measure the value of life and even more difficulty in measuring the

difference in health outcomes that do not involve life or death.

Cost benefit analysis is designed to consider the social cost and benefits attributable to

the project. The benefits are expressed in monetary terms to determine whether a given

program is economically sound, and to select the best out of several programs.

3.COST-OF-ILLNESS ANALYSIS: A determination of the economic impact of an illness

or condition (typically on a given population, region, or country) e.g., of smoking, arthritis

or bedsores, including associated treatment costs

4.COST-MINIMIZATION ANALYSIS: A determination of the least costly among

alternative interventions that are assumed to produce equivalent outcomes

5.COST-UTILITY ANALYSIS (CUA): A form of cost-effectiveness analysis that compares

costs in monetary units with outcomes in terms of their utility, usually to the patient,

measured, e.g., in QALYs

6.COST-CONSEQUENCE ANALYSIS: A form of cost-effectiveness analysis that presents

costs and outcomes in discrete categories, without aggregating or weighting them

7.COST EFFECTIVENESS ANALYSIS [CEA]:

―A technique that measure the cost of alternatives that generate the same outcome‖

OR

Cost effectiveness analysis is the technique for choosing, from alternative courses

of action, a preferred choice when objectives are not clear in such areas as sales, costs or

profits.

OR

It is a desired effect of careful planning.

OR

It means getting the most for your money.

OR

The product is worth the price.


19

Cost effective methods are those search for the last costly way of

achieving a defined result. Cost effective analysis are easier to make as that is clear. It helps

the administrator in managing his health resources. The problem is to find the way of

achieving the objective at lower cost‖

A more cost effectiveness analysis [CEA] oriented approach would consider

different approaches to save a life, and find out which one cost least, that would be the cost

effective that generate similar outcomes.

For ex: suppose a hospital has been treating a certain type of patient using a particular

approach is cost effective, we must first establish that the clinical money than the old

approach. If a new approach generates the exact outcome for less money then it is cost

effective.

STEPS IN COST EFFECTIVENESS ANALYSIS:

1. Identify the program goal or client outcome to be achieved.

2. Identify at least 2 alternatives means of achieving the desired outcomes.

3. Collect baseline data on clients.

4. Determine the cost associated with each program activity.

5. Determine the activities of each group of clients will receive.

6. Determine the client changes after the activities are completed. Combine the cost,

amount of activity and outcome information to express costs relatives to outcome of

program goals.

7. Compare cost outcome information for each goal to present cost effectiveness

analysis

COST EFFECTIVENESS ANALYSIS BASICS

A general misconception is that CEA is merely a means of finding the least

expensive alternative or getting the ―most bang for the buck.‖In reality, CEA is a comparison

tool; it will not always indicate a clear choice, but it will evaluate options quantitatively and

objectively based on a defined model. CEA was designed to evaluate health care

interventions, but the methodology can be used for non health economic applications as well.

It can compare any resource allocation with measurable outcomes to any other resource

allocation with measurable outcomes.

CONDUCTING, EVALUATING, AND USING ANALYSES

Increasing numbers of analyses are conducted in academia or research

organizations and published in peer-reviewed journals. Government organizations use

analyses to help shape public policy. Health insurers use CEAs to determine which kinds of

health interventions to cover.

COST-EFFECTIVENESS RATIO

The cost-effectiveness ratio is simply the sum of all benefits divided by the sum of all

costs. This is comparable to a return on investment calculation; however, the benefits are not

measured in terms of just dollars, but in a ratio that incorporates both health outcomes

and dollars.


20

Cost-Effectiveness Ratio = ∑ (All benefits)

∑(All costs)

WHY EMPLOYERS USE CEA?

✓ Supports objective decision making: Decision makers can consider options in a

comparable and objective way that provides support for the final decision.

✓ Brings clarity to data sources and outcomes: CEA evaluates options in similar terms to

avoid ―comparing apples to oranges.‖

✓ Allows for strategic review of organizations: CEA might justify some operational

centers operating at a loss to increase overall return on investment, employee health,

or both.

✓ Can be used in a host of operational and benefits areas including:

o Screening coverage

o Pharmacy

o Strategic Planning

o Labor Relations

o Disease Management

o Disability Management

o Wellness and Prevention Programs

✓ Presents evidence that can help gain support for changes in benefits plans or

employer-sponsored health programs.

STRATEGIC TIPS FOR INTERPRETING A CEA

✓ Consider perspective. Which parties are incurring costs and which parties are

receiving benefits? Many studies take a broad societal perspective; they are usually

not

written for an employer audience.

✓ Identify the strategies under comparison. Does the study compare different

alternatives (treat using drug A vs. treat using drug B) or examine incremental

changes in the same health intervention (screen every two years vs. screen every four

years)?

✓ Be aware of the analytic horizon. When are costs incurred and when are benefits

received? Most studies use a 3-5% annual discount rate to adjust both costs and

benefits to a present value, but if a benefit is not received until 10 years after an

intervention begins, this is important information to note.

✓ Analyze all stated assumptions. Are the assumptions built into the economic model

clearly defined, and are they valid for employers?

✓ Examine the sensitivity analysis. How do differences in data inputs affect the

outcome? Think how this relates to the health characteristics of your employee

population.

✓ Understand all metrics. How did the author present the cost-effectiveness ratio?


21

Most studies measure the costs of increased quality of life ($/quality adjusted life year

gained), disability prevented ($/disability adjusted life year prevented) or of life saved

($/life year gained). A study that measures quality adjusted life years is called a

cost-utility analysis, a specific type of CEA.

COST EFFECTIVENESS IN IMPROVING HEALTH CARE

Cost-effective care is that judged to provide good health value for expenditure. Health

value refers to the benefits of a particular medical intervention, which might include longer

life, better quality of life, or both. Expenditures should include not only the costs of a test or

treatment itself, but the subsequent costs it might cause, including additional medical

interventions, work disability, costs of longterm care, and so forth.

Cost-effectiveness analysis is a method for assessing the gains in health relative to the

costs of different health interventions. It is not the only criterion for deciding how to allocate

resources, but it is an important

one, because it directly relates the financial and scientific implications of different

interventions. The basic calculation involves dividing the cost of an intervention in monetary

units by the expected health gain measured in natural units such as number of lives saved.

PRINCIPLES WHICH ARE BASIC TO COST EFFECTIVENESS IN HEALTH

CARE:

Government health care programs should be screened for cost effectiveness.

Health education and physical fitness should be primary curricular items in our entire

educational system from elementary through secondary schools. Healthy life-styles for

adults should include continued health education, disease prevention and physical

exercise.

Health promotion and disease prevention must receive primary emphasis on all health

care plans with payment for such medical care being equal to or greater than that

provided for acute medical care.

Major efforts must be made throughout the profession to promote and emphasize

quality ambulatory care provided by those best trained to provide such care -- the

family physician.

There should be incentives provided to both physicians and patients to maximize value

in health care: highest quality at lowest costs.

Medical education should emphasize cost awareness and cost effectiveness at all levels

of education -- undergraduate, graduate and continuing medical education programs.

Patients must be educated regarding the necessity of their involvement in cost-effective

medical care and in cost containment. This can be achieved through informational

programs emphasizing personal responsibility for healthy life-styles and cost-effective

medical care. The use of health insurance deductibles and co-payments are also useful

tools in emphasizing cost containment but these should not be prohibitive in achieving

access to quality health care.


22

PURPOSE OF COST ANALYSIS

1. The administrator utilizes data provided by a cost study to interpret the needs

of the nursing units and to gain financial support for the unit.

2. It can be used to show the portion of the requested funds being used for

research programs.

3. It will show the relationship of the faculty salaries to the cost per student.

4. It assists the administrator in measuring change and provides the necessary

data which can serve as a guide in modifying the program.

5. It gives the supporting data when the board of trustees, central administrators,

legislators, foundations and other groups question the high cost of nursing

education.

6. It provides valuable information for institutions questions of higher learning

that wish to establish a new baccalaureate program.

STEPS OF ANALYSIS:

1. A clear statement of objectives.

2. Identifying all alternative actions that can achieve the objectives.

3. Identifying all the costs and all benefits with each alternative.

4. Converting all costs and all benefits for each alternative to momentary value,

and quantitive evaluation of costs and benefits of each.

5. Selection of the best cost- effective approach.

THE ROLE OF THE ADMINISTRATOR IN COST ANALYSIS

1. Understanding methods of cost analysis and participating with cost study of

nursing units and for the college. The administrator needs to know the cost of

operating the nursing education unit in order to make wise education

decisions. A school of nursing should operate economically and efficiently.

2. The administrator interprets the cost analysis to the faculty and others, and she

gains support for the study. She interprets findings to the personnel at the

college and at the health services agencies.

3. The administrator participates in the cost analysis committees: the cost

analysis committee is composed of the finance officer, dean of the college, a

nurse faculty member, the administrator of the school of nursing,

representatives from the central administrator of the health service agencies

and directors of nursing service for the various agencies involved.

4. The administrator encourages and leads to members of the overall study staff.

CONCLUSION:

Cost-Effectiveness in Health and Medicine is the product of over two years of

comprehensive research and deliberation by a multi-disciplinary panel of economists,

ethicists, psychometricians, and clinicians.

This study published in the Journal of the American Medical Association shows that nicotine

patch therapy, in conjunction with physician counseling, is a cost-effective approach to

smoking cessation. This is an example of information in published CEAs that can support

coverage decisions and justify health improvement programs.


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5. COST ACCOUNTING

Cost accounting is a process that supports the budget reporting system and agency

efforts for cost containment.

Cost accounting is a set of techniques for associating cost with the purpose for which

in curred.

In accounting the only facts recorded are those that can be pressed in monitory terms.

Advantages of Cost accounting:

1) The accumulated data enable a head nurse or divisional nursing director to assess

the cost of cost extra demand imposed on the nursing unit, such as abortion, oral

surgery.

2) It enables a manager to identify the interaction between different expenditures.

3) Through Cost accounting a manager can determine whether hiring additional

operating room or clinical care employees. Increase the unit expenditure for scrub

clothes, sterile supplies and bed linen.

4) It enables the manager to identify popular services program that receive hidden

founding in the form of voluntary time contributions by professionals from the

other units.

5) In some health care agencies, in house clinical nurse experts who are assigned to

various clinical specialty units, serve as volunteer teacher for in service programs.

Disadvantages of Cost accounting:

1. It is difficult to associate some cost with particular program

2. A cost incurred at one point in time may facilitate service programs over an

extended period.

3. It is the fact that it is difficult for a manager to justify the cost of a nursing care

program. When quantifiable measures of all patients outcomes of not variable.

Cost reduction:

Cost reduction means spending less for goods and service. The amount of reduction

depends on the size of the agency, previous efficiency, and skill of manager and cooperation

of employees. Safety programs that reduce the costs of workers, compensation and safety

programs that reduce the costs of workers compensation and absenteeism program that

reduce sick time, absenteeism and turn over reduce costs.

Factors influencing need for cost reduction

The capital funding availability for hospitals is not as attractive as industry. No doubt,

the financing institutions are ready to finance the hospitals today to the tune of several

croups, but the hospital project can never be as financially available as an industrial project.

Inability to generate finds through donation


24

The tax benefits available to a donor for making contribution to the hospital are not at

par with the tax benefits for donations to religious, educational, and other programs or

institutions. Therefore, it is difficult to attract donations.

Demographic factors

Due to uncontrolled population there is an increased demand for services for longer

periods. This is more critical for public hospitals, public sector industrial hospitals, and

missionary hospitals. Of course, private sector would benefit.

Inflation

Due to higher inflation there is an erosion of purchasing power. Financial resources of the

country are tight. The budgets of the public hospitals are not going, increased appreciably for

few years. The administrators would have to manage with tight budget. As a result, there

would be limited materials and equipment.

Increased demand and expectations.

Due to health education and awareness, there is an increased demand and expectations

on the [part of the pubic and employees in industrial hospitals. Since there is greater

possibility of treatment of chronic and degenerative diseases, open- heart surgeries, organ

transplantations, dialysis treatment, there is great demand and expectations for treatment.

Capital cost of building and materials

The capital cost of construction of buildings and materials have increased

considerably even the maintenance of the buildings require higher budget.

Maintenance of equipment, materials and vehicles

Cost of spare- part, serving of the equipment, diagnostic and therapeutic materials,

maintenance of the vehicles are continually increasing. The above are some of the factors

influencing the increased cost necessitating cost reduction.

Area of cost reduction in hospitals

There are 4 input variables in health care

1. physicians – professionals – technical inputs

2. patients and relatives of the patients as consumers

3. therapy- drugs, super equipment, ect- raw materials

4. Para-medical and administrative staff-support services


25

6. CRITICAL PATHWAYS

Clinical Pathways: multidisciplinary plans of best clinical practice. Many synonyms

exist for the term Clinical Pathways including: Integrated Care Pathways, Multidisciplinary

pathways of care, Pathways of Care, Care Maps, and Collaborative Care Pathways.

Clinical Pathways were introduced in the early 1990s in the UK and the USA, and are being

increasingly used throughout the developed world. Clinical Pathways are structured,

multidisplinary plans of care designed to support the implementation of clinical guidelines

and protocols. They are designed to support clinical management, clinical and non-clinical

resource management, clinical audit and also financial management. They provide detailed

guidance for each stage in the management of a patient (treatments, interventions etc. ....)

with a specific condition over a given time period, and include progress and outcomes details.

Clinical Pathways aim to improve, in particular, the continuity and co-ordination of care

across different disciplines and sectors. Care Pathways can be viewed as algorithms in as

much as they offer a flow chart format of the decisions to be made and the care to be

provided for a given patient or patient group for a given condition in a step-wise sequence.

Clinical Pathways have four main components (Hill, 1994, Hill 1998):

1. A timeline

2. The categories of care or activities and their interventions

3. Intermediate and long term outcome criteria

4. The variance record (to allow deviations to be documented and analysed).

Clinical Pathways differ from practice guidelines, protocols and algorithms as they are

utilised by a multidisciplinary team and have a focus on the quality and co-ordination of care.

Critical pathways, also known as critical paths, clinical pathways,

or care paths, are

management plans that display goals for patients and provide the sequence and timing of

actions necessary to achieve these goals with optimal efficiency. As competition in the

healthcare industry has increased, managers have embraced critical pathways as a method to

reduce variation in care, decrease resource utilization, and potentially improve healthcare

quality. Cardiovascular medicine in particular is an area in which critical pathways

have been

embraced. This is due in part to the high volume and high cost associated with cardiovascular

diseases and procedures.

In addition, the relatively mature guideline process has also

contributed to the growth in use of critical pathways in cardiology.

Clinical guidelines :Although anchored in clinical guidelines, the critical pathway is a

distinct tool that details processes of care and highlights inefficiencies regardless of whether

there is evidence to warrant changes in those processes. Clinical guidelines, on the other

hand, are consensus statements that are systematically developed to assist practitioners

in

making patient management decisions related to specific clinical circumstances. Although

clinical guidelines can and should be used in pathway development, the majority of processes

included in a pathway have not been rigorously tested and are generally

not addressed in

guidelines.


26

Clinical protocols: Another term that should also be distinguished from critical pathways is

clinical protocols.

Protocols are treatment recommendations that are often based on

guidelines. Like the critical pathway, the goal of the clinical protocol may be to decrease

treatment variation. However, protocols are most often focused on guideline compliance

rather than the identification of rate-limiting steps in the patient care process. In further

contrast to critical pathways, protocols may or may not include a continuous monitoring and

data-evaluation component.

Critical pathway techniques were first developed for use in industry as a tool to

identify and manage the rate-limiting steps in production processes. In industry, any variation

in production process is suboptimal. Thus, by defining the processes and timing of these

processes, managers could target areas that were critical, measure variation, and try to make

improvements.

Once steps were taken to improve the process, there would be

a

remeasurement. In time, variation would decrease, the time it took to complete the pathway

would decrease, costs would decrease, and quality of production would improve.

When applied to health care, the technique of critical pathways has obvious concerns.

First, unlike in manufacturing, not all variation in patient care is negative. Individual patient

factors may contribute to variation that cannot and should not be controlled

by the system. For

example, if postoperative extubation occurred within a prespecified time period based on a

pathway, there

would be early extubations with potential for harm. Also unlike

in

manufacturing, in which the products are standardized, patients are different and may not fit

within a pathway. Second, there exists concern that streamlining care may have a negative

impact on patient outcomes. For example, if a care pathway suggests

a 2-day stay in the

cardiac care unit, a provider may alter care against his or her best judgment to stay within the

plan. Finally, physicians have objected to "cookbook medicine" and

have felt an erosion of

professional autonomy with the critical pathways. Without physician support of the pathway,

it is unlikely to achieve any of the stated cost-saving or quality goals.

Despite these obvious limitations, the use of critical pathways is being embraced in

many systems. Although designed as a tool for both cost savings and improved quality of

care, it is the former that has been emphasized by managers. Interest in critical

pathways has

increased because anecdotal reports of cost savings have been disseminated. These reports are

best described as case studies and in general have not followed careful study

designs.

Implementation of the care pathways has not been tested in a scientific or controlled fashion

No controlled study has shown a critical pathway to reduce length of stay, decrease

resource

use, or improve patient satisfaction. Most importantly, no controlled study has shown

improvements in patient outcome.

Lack of careful evaluation has not limited the development and implementation of

critical pathways in multiple healthcare settings. It is

important for cardiovascular

practitioners to understand the goals, development, and implementation of critical pathways.

In addition, physicians must take an active role in the development of critical pathways. By

understanding the strengths and limitations of the critical pathway process, physicians and

other practitioners can ensure appropriate use of these methods. In a review of

critical


27

pathways, Pearson et al

examined the goals of critical

pathways, optimal pathway

development, and implementation strategies

Critical Pathway Development

Select a Topic .

Topic selection in general should concentrate on high-volume, high-cost diagnoses and

procedures. Critical pathway development has focused on several cardiovascular diseases and

procedures because of

volume and costs. These include bypass surgery, diagnostic

catheterization, coronary angioplasty, acute myocardial infarction, and unstable angina.

These

diagnoses and procedures tend to be more suitable for critical pathway development because

of the predictable course of events that occur during the hospitalization. In addition, marked

variation in care has been observed in these conditions, which makes the

goal of decreased

variation and reduction in resource utilization possible. Furthermore, there has been evidence

of noncompliance with guideline recommendations. In this case, the pathways might improve

guideline compliance and potentially improve quality of care.

Select a Team .

It is important to develop a multidisciplinary team for critical pathway development.

Historically, critical pathway development has been a nursing initiative. Although this has

been a successful model in some institutions, one fault of this process is lack of physician

commitment to the pathway. Active physician participation and leadership

is crucial to the

development and implementation of the pathway. In addition, it is important to include

representatives from all groups that would be affected by the pathway, for example,

house

staff, physical therapy personnel, and dietary personnel.

The lack of involvement of

physicians has been cited as a reason for failure of a pathway.

Evaluate the Current Process of Care .

In this step, data, rather than anecdotal reports, are key to understanding current

variation. For systems with electronic medical records, this process may be more automated.

For other systems, a careful review of medical records is necessary to identify the critical

intermediate outcomes, rate-limiting steps, and high-cost areas on which to focus.

Evaluate Medical Evidence and External Practices .

After key rate-limiting steps have been identified, the critical pathway team must

evaluate the literature to identify evidence of best practices. For most rate-limiting steps, there

are few data available to define optimal processes of care. The critical pathway development

team will often lack answers to specific questions such as appropriate observation

period or

length of stay. In the absence of evidence, comparison

with other institutions, or

"benchmarking," is the most reasonable method to use.

Determine the Critical Pathway Format .

The format of the pathway may vary widely. Important features include a task-time

matrix in which specific tasks are specified along a timeline. There is a spectrum of pathways

that range from a form that takes the place of the medical record to a simple

checklist. A

reduction in charting that may occur with more complicated pathways is a benefit. However,


28

if the pathway format is too difficult to follow, it will not be used. Critical pathways

have

become widely available in electronic format, where electronic

charting and pathway

compliance are obtained simultaneously. One disadvantage to this method is the absence of a

standard medical record. This may result in duplication of efforts and

possible noncompliance

with the pathway. This is particularly true among physicians who are likely to be resistant to

novel charting methods. For some systems, a simple checklist at the

front of the paper chart

may be an optimal method for implementing the pathway. These checklists would have areas

to be filled in by different staff members active in patient care.

Document and Analyze Variance .

Variances are patient outcomes or staff actions that do not meet the expectation of the

pathway. In general, variance in clinical pathways is a result of the omission of an action or

the performance of an action at an inappropriate (often, a late) time period. Because the

critical pathway is a series of time-associated actions, this analysis of variance can be

overwhelmed by multiple data points. Computer-assisted pathway analysis can help with

this

issue. Another approach is for the pathway team to concentrate on a few critical items in the

pathway that have been identified in advance, such as extubation time after cardiac surgery or

length of stay in the intensive care unit. These are critical intermediate outcomes that may

have a substantial number of important contributory factors. Arguably, the selection of areas

to analyze and the analysis of variance are among the most important processes

in the critical

pathway. Identification of factors that contribute to variance and interventions to improve

those factors are the key features in process improvement.

Critical Path Analysis and PERT Charts

Critical Path Analysis and PERT are powerful tools that help you to schedule and

manage complex projects. They were developed in the 1950s to control large defense

projects, and have been used routinely since then.

As with Gantt Charts, Critical Path Analysis (CPA) or the Critical Path Method (CPM) helps

you to plan all tasks that must be completed as part of a project. They act as the basis both for

preparation of a schedule, and of resource planning. During management of a project, they

allow you to monitor achievement of project goals. They help you to see where remedial

action needs to be taken to get a project back on course.

Within a project it is likely that you will display your final project plan as a Gantt Chart

(using Microsoft Project or other software for projects of medium complexity or an excel

spreadsheet for projects of low complexity).The benefit of using CPA within the planning

process is to help you develop and test your plan to ensure that it is robust. Critical Path

Analysis formally identifies tasks which must be completed on time for the whole project to

be completed on time. It also identifies which tasks can be delayed if resource needs to be

reallocated to catch up on missed or overrunning tasks. The disadvantage of CPA, if you use

it as the technique by which your project plans are communicated and managed against, is

that the relation of tasks to time is not as immediately obvious as with Gantt Charts. This can

make them more difficult to understand.

http://www.mindtools.com/pages/article/newPPM_03.htm


29

A further benefit of Critical Path Analysis is that it helps you to identify the minimum length

of time needed to complete a project. Where you need to run an accelerated project, it helps

you to identify which project steps you should accelerate to complete the project within the

available time.

How to Use the Tool:

As with Gantt Charts, the essential concept behind Critical Path Analysis is that you

cannot start some activities until others are finished. These activities need to be completed in

a sequence, with each stage being more-or-less completed before the next stage can begin.

These are 'sequential' activities.

Other activities are not dependent on completion of any other tasks. You can do these at any

time before or after a particular stage is reached. These are non-dependent or 'parallel' tasks.

Drawing a Critical Path Analysis Chart

Use the following steps to draw a CPA Chart:

Step 1. List all activities in the plan

For each activity, show the earliest start date, estimated length of time it will take, and

whether it is parallel or sequential. If tasks are sequential, show which stage they depend on.

For the project example used here, you will end up with the same task list as explained in the

article on Gantt Charts (we will use the same example as with Gantt Charts to compare the

two techniques). The chart is repeated in Figure 1 below:

Figure 1. Task List: Planning a custom-written computer project

Task Earliest

start

Length Type Dependent

on...

A. High level analysis Week 0 1 week Sequential

B. Selection of hardware platform Week 1 1 day Sequential A

C. Installation and commissioning of

hardware

Week 1.2 2 weeks Parallel B

D. Detailed analysis of core modules Week 1 2 weeks Sequential A

E. Detailed analysis of supporting

modules

Week 3 2 weeks Sequential D

F. Programming of core modules Week 3 2 weeks Sequential D

G. Programming of supporting

modules

Week 5 3 weeks Sequential E


30

H. Quality assurance of core modules Week 5 1 week Sequential F

I. Quality assurance of supporting

modules

Week 8 1 week Sequential G

J.Core module training Week 6 1 day Parallel C,H

K. Development and QA of

accounting reporting

Week 5 1 week Parallel E

L. Development and QA of

management reporting

Week 5 1 week Parallel E

M. Development of Management

Information System

Week 6 1 week Sequential L

N. Detailed training Week 9 1 week Sequential I, J, K, M

Step 2. Plot the activities as a circle and arrow diagram

Critical Path Analyses are presented using circle and arrow diagrams.

In these, circles show events within the project, such as the start and finish of tasks. The

number shown in the left hand half of the circle allows you to identify each one easily.

Circles are sometimes known as nodes.

An arrow running between two event circles shows the activity needed to complete that task.

A description of the task is written underneath the arrow. The length of the task is shown

above it. By convention, all arrows run left to right. Arrows are also sometimes called arcs.

An example of a very simple diagram is shown below:

This shows the start event (circle 1), and the completion of the 'High Level Analysis' task

(circle 2). The arrow between them shows the activity of carrying out the High Level

Analysis. This activity should take 1 week.

Where one activity cannot start until another has been completed, we start the arrow for the

dependent activity at the completion event circle of the previous activity. An example of this

is shown below:


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Here the activities of 'Select Hardware' and 'Core Module Analysis' cannot be started until

'High Level Analysis' has been completed. This diagram also brings out a number of other

important points:

Within Critical Path Analysis, we refer to activities by the numbers in the circles at

each end. For example, the task 'Core Module Analysis' would be called activity 2 to

3. 'Select Hardware' would be activity 2 to 9.

Activities are not drawn to scale. In the diagram above, activities are 1 week long, 2

weeks long, and 1 day long. Arrows in this case are all the same length.

In the example above, you can see a second number in the top, right hand quadrant of

each circle. This shows the earliest start time for the following activity. It is

conventional to start at 0. Here units are whole weeks.

A different case is shown below:

Here activity 6 to 7 cannot start until the other four activities (11 to 6, 5 to 6, 4 to 6, and 8 to

6) have been completed.


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Click the link below for the full circle and arrow diagram for the computer project we are

using as an example.

Figure 5: Full Critical Path Diagram

This shows all the activities that will take place as part of the project. Notice that each

event circle also has a figure in the bottom, right hand quadrant. This shows the latest finish

time that's permissible for the preceeding activity if the project is to be completed in the

minimum time possible. You can calculate this by starting at the last event and working

backwards.The latest finish time of the preceeding event and the earliest start time of the

following even will be the same for ciircles on the critical path.

You can see that event M can start any time between weeks 6 and 8. The timing of

this event is not critical. Events 1 to 2, 2 to 3, 3 to 4, 4 to 5, 5 to 6 and 6 to 7 must be started

and completed on time if the project is to be completed in 10 weeks. This is the 'critical path'

– these activities must be very closely managed to ensure that activities are completed on

time. If jobs on the critical path slip, immediate action should be taken to get the project back

on schedule. Otherwise completion of the whole project will slip.

'Crash Action'

It is the need to complete a project earlier than the plan Critical Path Analysis says is

possible. In this case one need to re-plan the project.

Here, one has a number of options and would need to assess the impact of each on the

project’s cost, quality and time required to complete it. For example, one could increase

resource available for each project activity to bring down time spent on each but the impact

of some of this would be insignificant and a more efficient way of doing this would be to

look only at activities on the critical path.

As an example, it may be necessary to complete the computer project in Figure 5 in 8

weeks rather than 10 weeks. In this case one could look at using two analysts in activities 2 to

3 and 3 to 4. This would shorten the project by two weeks, but may raise the project cost –

doubling resources at any stage may only improve productivity by, say, 50% as additional

time may need to be spent getting the team members up to speed on what is required,

coordinating tasks split between them, integrating their contributions etc.

In some situations, shortening the original critical path of a project can lead to a

different series of activities becoming the critical path. For example, if activity 4 to 5 were

reduced to 1 week, activities 4 to 8 and 8 to 6 would come onto the critical path.

As with Gantt Charts, in practice project managers use software tools like Microsoft

Project to create CPA Charts. Not only do these make them easier to draw, they also make

modification of plans easier and provide facilities for monitoring progress against plans.

http://www.mindtools.com/pages/article/newPPM_99.htm

http://www.amazon.com/exec/obidos/ASIN/B000059L47/qid=1012562020/sr=8-4/mindtools




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PERT (Program Evaluation and Review Technique)

PERT is a variation on Critical Path Analysis that takes a slightly more skeptical view

of time estimates made for each project stage. To use it, estimate the shortest possible time

each activity will take, the most likely length of time, and the longest time that might be

taken if the activity takes longer than expected.

Use the formula below to calculate the time to use for each project stage:

shortest time + 4 x likely time + longest time - 6

This helps to bias time estimates away from the unrealistically short time-scales normally

assumed.

Importance

Critical Path Analysis is an effective and powerful method of assessing:

What tasks must be carried out.

Where parallel activity can be performed.

The shortest time in which you can complete a project.

Resources needed to execute a project.

The sequence of activities, scheduling and timings involved.

Task priorities.

The most efficient way of shortening time on urgent projects.

An effective Critical Path Analysis can make the difference between success and failure on

complex projects. It can be very useful for assessing the importance of problems faced during

the implementation of the plan.

PERT is a variant of Critical Path Analysis that takes a more skeptical view of the time

needed to complete each project stage.

CPM - Critical Path Method

In 1957, DuPont developed a project management method designed to address the

challenge of shutting down chemical plants for maintenance and then restarting the plants

once the maintenance had been completed. Given the complexity of the process, they

developed the Critical Path Method (CPM) for managing such projects.

CPM provides the following benefits:

Provides a graphical view of the project.

Predicts the time required to complete the project.

Shows which activities are critical to maintaining the schedule and which are not.


34

CPM models the activities and events of a project as a network. Activities are depicted as

nodes on the network and events that signify the beginning or ending of activities are

depicted as arcs or lines between the nodes. The following is an example of a CPM network

diagram:

CPM Diagram

Steps in CPM Project Planning

1. Specify the individual activities.

2. Determine the sequence of those activities.

3. Draw a network diagram.

4. Estimate the completion time for each activity.

5. Identify the critical path (longest path through the network)

6. Update the CPM diagram as the project progresses.

1. Specify the Individual Activities

From the work breakdown structure, a listing can be made of all the activities in the project.

This listing can be used as the basis for adding sequence and duration information in later

steps.

2. Determine the Sequence of the Activities

Some activities are dependent on the completion of others. A listing of the immediate

predecessors of each activity is useful for constructing the CPM network diagram.

3. Draw the Network Diagram

Once the activities and their sequencing have been defined, the CPM diagram can be drawn.

CPM originally was developed as an activity on node (AON) network, but some project

planners prefer to specify the activities on the arcs.


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4. Estimate Activity Completion Time

The time required to complete each activity can be estimated using past experience or the

estimates of knowledgeable persons. CPM is a deterministic model that does not take into

account variation in the completion time, so only one number is used for an activity's time

estimate.

5. Identify the Critical Path

The critical path is the longest-duration path through the network. The significance of the

critical path is that the activities that lie on it cannot be delayed without delaying the project.

Because of its impact on the entire project, critical path analysis is an important aspect of

project planning.

The critical path can be identified by determining the following four parameters for each

activity:

ES - earliest start time: the earliest time at which the activity can start given that its

precedent activities must be completed first.

EF - earliest finish time, equal to the earliest start time for the activity plus the time

required to complete the activity.

LF - latest finish time: the latest time at which the activity can be completed without

delaying the project.

LS - latest start time, equal to the latest finish time minus the time required to

complete the activity.

The slack time for an activity is the time between its earliest and latest start time, or between

its earliest and latest finish time. Slack is the amount of time that an activity can be delayed

past its earliest start or earliest finish without delaying the project.

The critical path is the path through the project network in which none of the activities have

slack, that is, the path for which ES=LS and EF=LF for all activities in the path. A delay in

the critical path delays the project. Similarly, to accelerate the project it is necessary to reduce

the total time required for the activities in the critical path.

6. Update CPM Diagram

As the project progresses, the actual task completion times will be known and the network

diagram can be updated to include this information. A new critical path may emerge, and

structural changes may be made in the network if project requirements change.

CPM Limitations

CPM was developed for complex but fairly routine projects with minimal uncertainty in the

project completion times. For less routine projects there is more uncertainty in the completion

times, and this uncertainty limits the usefulness of the deterministic CPM model. An


36

alternative to CPM is the PERT project planning model, which allows a range of durations to

be specified for each activity.

Benefits

Support the introduction of evidence-based medicine and use of clinical guidelines

Support clinical effectiveness, risk management and clinical audit

Improve multidisciplinary communication, teamwork and care planning

Can support continuity and co-ordination of care across different clinical disciplines

and sectors;

Provide explicit and well-defined standards for care;

Help reduce variations in patient care (by promoting standardisation);

Help improve clinical outcomes;

Help improve and even reduce patient documentation

Support training;

Optimise the management of resources;

Can help ensure quality of care and provide a means of continuous quality

improvement;

Support the implementation of continuous clinical audit in clinical practice

Support the use of guidelines in clinical practice;

Help empower patients;

Help manage clinical risk;

Help improve communications between different care sectors;

Disseminate accepted standards of care;

Provide a baseline for future initiatives;

Not prescriptive: don't override clinical judgement;

Expected to help reduce risk;

Expected to help reduce costs by shortening hospital stays

Issues with Critical Pathways

There are many issues in critical pathway development and implementation that are of

concern to practitioners who care for patients with cardiovascular disease. The first issue is

that critical pathways address processes in the "ideal" patient and in some cases do

not

address issues in the majority of patients who enter the path. Identification of appropriate

patients to enter the pathway is an important issue in implementation. In general,

critical

pathways are more applicable to patients with uncomplicated illnesses who are undergoing

procedures or surgery. For patients treated with medical conditions such as acute coronary

syndromes, it is difficult to define "appropriate" treatment for the majority

of patients.

Therefore, critical pathways will tend to identify a great deal of variance in the care of these

patients that may or may not be wasteful or potentially harmful. The goal

of placing most

patients within pathways may not benefit the individual patient.

A second issue is how to evaluate critical pathways as an effective tool in improving patient

care. As we have mentioned, little controlled research

has been performed on the

effectiveness of pathways. One reason for this is that at any one medical center, "pathway"

http://www.netmba.com/operations/project/pert/


37

care cannot be easily differentiated from "usual" care because of contamination

from the

pathway intervention. Randomized trials with the unit of randomization at the medical center

would be the optimal evaluation method.

Finally, it is important that physicians and practitioners be key players in any pathway

development and implementation. There is a real danger when critical pathways are brought

in from external sources and implemented on the basis of administrative

attempts to reduce

costs.

Issues - potential problems and barriers to the introduction of ICPs

May appear to discourage personalized care

Risk increasing litigation

Don't respond well to unexpected changes in a patient's condition

Suit standard conditions better than unusual or unpredictable ones

Require commitment from staff and establishment of an adequate organizational

structure

Problems of introduction of new technology

May take time to be accepted in the workplace

Need to ensure variance and outcomes are properly recorded, audited and acted upon

Conclusions

Critical pathways are being implemented in a broad range of patients with cardiovascular

disease.

Although cost savings can and should be evaluated with the critical pathway,

the goal

of

improving guideline compliance and overall quality of care

should be the primary focus.

Additional rigorous research into the cost of pathway development

and implementation, as

well as the outcomes of critical pathway use, is essential before

further dissemination of this

tool.

Clinical protocols can and should be used to decrease variation

in care, improve guideline

compliance, and potentially improve overall quality of care

in patients with cardiovascular

disease.

Practitioners and administrators should work together to incorporate

similar and

compatible

features of clinical protocols and critical pathways.

This may result in improved quality and

reduced costs.

Issues for discussion

The differences between clinical practice guidelines and care pathways

Paper-based ICPs versus electronic ICPs


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7. HEALTH CARE REFORMS

Health care reform is a general rubric used for discussing major health policy creation

or changes—for the most part, governmental policy that affects health care delivery in a

given place. Health care reform typically attempts to:

Broaden the population that receives health care coverage through either public sector

insurance programs or private sector insurance companies. Expand the array of health care

providers consumers may choose among

Improve the access to health care specialists

Improve the quality of health care

Decrease the cost of health care

Health care reforms in India

The Ministry of Health and Family Welfare is the Indian government ministry charged with

health policy in India. It is also responsible for all government programs relating to family

planning in India.

The Minister of Health and Family Welfare holds cabinet rank as a member of the Council of

Ministers. The current minister is Shri. Ghulam Nabi Azad, who is assisted by a Minister of

States for Health and Family Welfare, Shri. Dinesh Trivedi & Shri. S. Gandhiselvan.

The ministry is composed of three departments:

1 Department of Health

2 Department of Family Welfare

3 Department of AYUSH

1. Department of Health

The Department of Health deals with health care, including awareness campaigns,

immunization campaigns, preventive medicine, and public health. Bodies under the

administrative control of this department are:

1) National AIDS Control Programme (AIDS)

2) National Cancer Control Programme (cancer)

3) National Filaria Control Programme (filariasis)

4) National Iodine Deficiency Disorders Control Programme (iodine deficiency)

5) National Leprosy Eradication Programme (leprosy)

6) National Mental Health Programme (mental health)

7) National Programme for Control of Blindness (blindness)

8) National Programme for Prevention and Control of Deafness (deafness)

9) National Tobacco Control Programme (tobacco control)

10) National Vector Borne Disease Control Programme (NVBDCP) (vector-born

disease)

11) Pilot Programme on Prevention and Control of Diabetes, CVD and Stroke

(diabetes, cardiovascular disease, stroke)

12) Revised National TB Control Programme (tuberculosis)

13) Universal Immunization Programme

14) Medical Council of India

http://en.wikipedia.org/wiki/Rubric

http://en.wikipedia.org/wiki/Health_policy

http://en.wikipedia.org/wiki/Health_care_system

http://en.wikipedia.org/wiki/Health_care

http://en.wikipedia.org/wiki/Public_sector

http://en.wikipedia.org/wiki/Private_sector

http://en.wikipedia.org/wiki/Insurance_companies

http://en.wikipedia.org/wiki/Government_of_India

http://en.wikipedia.org/wiki/Ministry_(government_department)

http://en.wikipedia.org/wiki/Health_policy

http://en.wikipedia.org/wiki/India

http://en.wikipedia.org/wiki/Family_planning_in_India



http://en.wikipedia.org/wiki/Cabinet_(government)

http://en.wikipedia.org/wiki/Council_of_Ministers_of_the_Republic_of_India



http://en.wikipedia.org/wiki/Ghulam_Nabi_Azad

http://en.wikipedia.org/w/index.php?title=Minister_of_States&action=edit&redlink=1



http://en.wikipedia.org/w/index.php?title=Shri._Dinesh_Trivedi&action=edit&redlink=1

http://en.wikipedia.org/w/index.php?title=Shri._S._Gandhiselvan&action=edit&redlink=1

http://en.wikipedia.org/wiki/Department

http://en.wikipedia.org/wiki/Ministry_of_Health_and_Family_Welfare_(India)#Department_of_Health

http://en.wikipedia.org/wiki/Ministry_of_Health_and_Family_Welfare_(India)#Department_of_Family_Welfare

http://en.wikipedia.org/wiki/Ministry_of_Health_and_Family_Welfare_(India)#Department_of_AYUSH


http://en.wikipedia.org/wiki/Immunization

http://en.wikipedia.org/wiki/Preventive_medicine

http://en.wikipedia.org/wiki/Public_health

http://en.wikipedia.org/wiki/AIDS

http://en.wikipedia.org/wiki/Cancer

http://en.wikipedia.org/wiki/Filariasis

http://en.wikipedia.org/wiki/Iodine_deficiency

http://en.wikipedia.org/wiki/Leprosy

http://en.wikipedia.org/wiki/Mental_health

http://en.wikipedia.org/wiki/Blindness

http://en.wikipedia.org/wiki/Deafness

http://en.wikipedia.org/wiki/Tobacco_and_health

http://en.wikipedia.org/wiki/Blood-borne_disease

http://en.wikipedia.org/wiki/Blood-borne_disease

http://en.wikipedia.org/wiki/Diabetes

http://en.wikipedia.org/wiki/Cardiovascular_disease

http://en.wikipedia.org/wiki/Stroke

http://en.wikipedia.org/wiki/Tuberculosis

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15) Dental Council of India

16) Pharmacy Council of India

17) Indian Nursing Council

18) All India Institute of Speech and Hearing (AIISH), Mysore

19) All India Institute of Physical Medicine and Rehabilitation (AIIPMR),

Mumbai

20) Hospital Services Consultancy Corporation Limited (HSCC)

2. Department of Family Welfare

The Department of Family Welfare (FW) is responsible for aspects relating to family welfare,

especially in reproductive health, maternal health, pediatrics, information, education and

communications; cooperation with NGOs and international aid groups; and rural health

services. The Department of Family Welfare is responsible for:

18 Population Research Centres (PRCs) at six universities and six other institutions

across 17 states

National Institute of Health and Family Welfare (NIHFW), South Delhi

International Institute for Population Sciences (IIPS), Mumbai

Central Drug Research Institute (CDRI), Lucknow

Indian Council of Medical Research (ICMR), New Delhi - founded in 1991, it is one

of the oldest medical research bodies in the world

3. Department of AYUSH

The Department of Ayurveda, Yoga and Naturopathy, Unani, Siddha and Homoeopathy

(AYUSH) deals with ayurveda (Indian traditional medicine), and other yoga, naturopathy,

unani, siddha, and homoeopathy, and other alternative medicine systems.

The department was established in March 1995 as the Department of Indian Systems of

Medicines and Homoeopathy (ISM&H).The department is charged with upholding

educational standards in the Indian Systems of Medicines and Homoeopathy colleges,

strengthening research, promoting the cultivation of medicinal plants used, and working on

Pharmacopoeia standards. Bodies under the control of the Department of AYUSH are:

Various research councils

1) Central Council for Research in Ayurveda and Siddha (CCRAS)

2) Central Council for Research in Unani Medicine (CCRUM)

3) Central Council for Research in Homoeopathy (CCRH)

4) Central Council for Research in Yoga and Naturopathy (CCRYN)

5) Several educational institutions:

6) National Institute of Ayurveda, Jaipur (NIA)

7) National Institute of Siddha, Chennai (NIS)

8) National Institute of Homoeopathy, Kolkata (NIH)

9) National Institute of Naturopathy, Pune (NIN)

10) National Institute of Unani Medicine, Bangalore (NIUM)

11) Institute of Post Graduate Teaching and Research in Ayurveda, Jamnagar,Gujarat

(IPGTR)

12) Rashtriya Ayurveda Vidyapeeth, New Delhi (RAV)

http://en.wikipedia.org/wiki/Dental_Council_of_India

http://en.wikipedia.org/wiki/Pharmacy_Council_of_India

http://en.wikipedia.org/wiki/Indian_Nursing_Council

http://en.wikipedia.org/wiki/All_India_Institute_of_Speech_and_Hearing

http://en.wikipedia.org/wiki/Mysore

http://en.wikipedia.org/wiki/Mumbai

http://en.wikipedia.org/wiki/Family

http://en.wikipedia.org/wiki/Quality_of_life

http://en.wikipedia.org/wiki/Reproductive_health

http://en.wikipedia.org/wiki/Maternal_health

http://en.wikipedia.org/wiki/Pediatrics

http://en.wikipedia.org/wiki/Non-governmental_organization

http://en.wikipedia.org/wiki/International_aid

http://en.wikipedia.org/wiki/List_of_universities_in_India

http://en.wikipedia.org/wiki/States_and_territories_of_India

http://en.wikipedia.org/wiki/South_Delhi

http://en.wikipedia.org/wiki/Mumbai

http://en.wikipedia.org/wiki/Central_Drug_Research_Institute

http://en.wikipedia.org/wiki/Lucknow

http://en.wikipedia.org/wiki/Indian_Council_of_Medical_Research

http://en.wikipedia.org/wiki/New_Delhi

http://en.wikipedia.org/wiki/Ayurveda

http://en.wikipedia.org/wiki/Traditional_medicine

http://en.wikipedia.org/wiki/Yoga

http://en.wikipedia.org/wiki/Naturopathy

http://en.wikipedia.org/wiki/Unani

http://en.wikipedia.org/wiki/Siddha

http://en.wikipedia.org/wiki/Homoeopathy

http://en.wikipedia.org/wiki/Alternative_medicine

http://en.wikipedia.org/wiki/Medicinal_plant

http://en.wikipedia.org/wiki/Pharmacopoeia

http://en.wikipedia.org/wiki/Central_Council_for_Research_in_Ayurveda_and_Siddha

http://unanimedicine.com/

http://ccrhindia.org/

http://en.wikipedia.org/wiki/National_Institute_of_Homoeopathy

http://en.wikipedia.org/wiki/Kolkata


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13) Morarji Desai National Institute of Yoga, New Delhi (MDNIY)

14) Indian Medicine Pharmaceutical Corporation Limited (IMPCL), Mohan, Uttaranchal

(a public sector undertaking)

15) Professional councils

16) Central Council of Homoeopathy (CCH)

17) Central Council of Indian Medicine (CCIM)

Healthcare in India

India has a universal health care system run by the local (state or territorial)

governments. Government hospitals, some of which are among the best hospitals in India,

provide treatment at taxpayer expense. Most essential drugs are offered free of charge in

these hospitals. However, the fact that the government sector is understaffed, underfinanced

and that these hospitals maintain very poor standards of hygiene forces many people to visit

private medical practitioners.

The charges for basic in-hospital treatment and investigations are much less compared

to the private sector. The cost for these subsidies comes from annual allocations from the

central and state governments. For example, an outpatient card at AIIMS (one of the best

hospitals in India) costs a one-time fee of 10 rupees (around 20 cents U.S.) and thereafter

outpatient medical advice is free. In-hospital treatment costs depend on financial condition of

the patient and facilities utilized, but are usually much less than the private sector. For

instance, a patient is waived treatment costs if their income is below the poverty line. Another

patient may seek an air-conditioned room for an additional fee.

Primary health care is provided by city and district hospitals and rural primary health

centres (PHCs). These hospitals provide treatment free of cost. Primary care is focused on

immunization, prevention of malnutrition, pregnancy, child birth, postnatal care, and

treatment of common illnesses.[citation needed] Patients who receive specialized care or have

complicated illnesses are referred to secondary (often located in district and taluk

headquarters) and tertiary care hospitals (located in district and state headquarters or those

that are teaching hospitals).

Now organizations like Hindustan Latex Family Planning Promotional Trust and

other private organizations have started creating hospitals and clinics in India, which also

provide free or subsidized health care and subsidized insurance plans.

Health care economics

Funding models

Universal health care in most countries has been achieved by a mixed model of funding.

General taxation revenue is the primary source of funding, but in many countries it is

supplemented by specific levies (which may be charged to the individual and/or an employer)

or with the option of private payments (either direct or via optional insurance) for services

beyond that covered by the public system.

Almost all European systems are financed through a mix of public and private

contributions. The majority of universal health care systems are funded primarily by tax

revenue (e.g. Portugal, Spain, Denmark and Sweden). Some nations, such as Germany,

France and Japan employ a multi-payer system in which health care is funded by private and

public contributions. However, much of the non-government funding is by defined

http://en.wikipedia.org/wiki/Public_sector_undertaking

http://en.wikipedia.org/wiki/Central_Council_of_Homoeopathy

http://en.wikipedia.org/wiki/Central_Council_of_Indian_Medicine

http://en.wikipedia.org/wiki/Healthcare_in_India

http://en.wikipedia.org/wiki/India

http://en.wikipedia.org/wiki/AIIMS

http://en.wikipedia.org/wiki/Wikipedia:Citation_needed

http://en.wikipedia.org/wiki/Districts_of_India

http://en.wikipedia.org/wiki/Tehsil

http://en.wikipedia.org/wiki/Health_care_economics

http://en.wikipedia.org/wiki/Tax_revenue



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contributions by employers and employees to regulated non-profit sickness funds. These

contributions are compulsory and vary according to a person's salary, and are effectively a

form of hypothecated taxation.

A distinction is also made between municipal and national healthcare funding. For

example, one model is that the bulk of the healthcare is funded by the municipality, speciality

healthcare is provided and possibly funded by a larger entity, such as a municipal co-

operation board or the state, and the medications are paid by a state agency.

Universal health care systems are modestly redistributive. Progressivity of health care

financing has limited implications for overall income inequality.

Single payer

The term single-payer health care is used in the United States to describe a funding

mechanism meeting the costs of medical care from a single fund. Although the fund holder is

usually the government, some forms of single-payer employ a public-private system.

Public

Some countries (notably the United Kingdom, Italy, Spain and the Nordic countries) choose

to fund health care directly from taxation alone. Other countries with insurance-based

systems effectively meet the cost of insuring those unable to insure themselves via social

security arrangements funded from taxation, either by directly paying their medical bills or by

paying for insurance premiums for those affected.

Compulsory insurance

This is usually enforced via legislation requiring residents to purchase insurance, though

sometimes, in effect, the government provides the insurance. Sometimes there may be a

choice of multiple public and private funds providing a standard service (e.g. as in Germany)

or sometimes just a single public fund (as in Canada). The U.S. Patient Protection and

Affordable Care Act is a law based on compulsory insurance.

In some European countries where there is private insurance and universal health

care, such as Germany, Belgium, and The Netherlands, the problem of adverse selection

,vercome using a risk compensation pool to equalize, as far as possible, the risks between

funds. Thus a fund with a predominantly healthy, younger population has to pay into a

compensation pool and a fund with an older and predominantly less healthy population would

receive funds from the pool. In this way, sickness funds compete on price and there is no

advantage to eliminate people with higher risks because they are compensated for by means

of risk-adjusted capitation payments. Funds are not allowed to pick and choose their

policyholders or deny coverage, but then mainly compete on price and service. In some

countries the basic coverage level is set by the government and cannot be modified.

Ireland at one time had a "community rating" system through VHI, effectively a single-

payer or common risk pool. The government later opened VHI to competition but without a

compensation pool. This resulted in foreign insurance companies entering the Irish market

and offering cheap health insurance to relatively healthy segments of the market which then

made higher profits at VHI's expense. The government later re-introduced community rating

through a pooling arrangement and at least one main major insurance company, BUPA, then

withdrew from the Irish market.

http://en.wikipedia.org/wiki/Social_security



http://en.wikipedia.org/wiki/Patient_Protection_and_Affordable_Care_Act



http://en.wikipedia.org/wiki/VHI

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Private insurance

In some countries with universal coverage, private insurance often excludes many health

conditions which are expensive and which the state health care system can provide. For

example in the UK, one of the largest private health care providers is BUPA which has a long

list of general exclusions even in its highest coverage policy. In the USA (which tried to

transition towards universal health care, but is being challenged through the court systems as

unconstitutional, because of the mandatory purchasing requirement) dialysis treatment for

end stage renal failure is generally paid for by government and not by the insurance industry.

Persons with privatized Medicare (Medicare Advantage) are the exception and must get their

dialysis paid through their insurance company, but persons with end stage renal failure

generally cannot buy Medicare Advantage plans.

Among the potential solutions posited by economists are single payer systems as well

as other methods of ensuring that health insurance is universal, such as by requiring all

citizens to purchase insurance and limiting the ability of insurance companies to deny

insurance to individuals or vary price between individuals.

Indian healthcare reforms

In India, reforms can develop on sound principles on the basis of the learning of all available

systems, our strengths and needs. To make the common man healthy in the Indian scenario,

we need a different approach.

37% of Indian population is undernourished. They have difficulty in meeting even

basic needs. 55 percent of the population have a diet which is calorie sufficient but

nutrient deficient whereas eight percent of the population is over-nourished. Hence,

there is a total imbalance of nutrition which leads to anaemia, TB and many other

diseases which increases the disease burden of India.

Statistics tells us that arthritis, hypertension, diabetes, CVD, cancer patients and

elderly patients are major part of our disease burden. Besides acute diseases, almost

all of them trace their origin to (a lack of) nutrition.

As Indian population is getting increasingly health conscious, almost 64 percent of

out-of-pocket expenditure in India constitutes healthcare expenditure as compared to

18 percent globally. This population can be called as 'Healthy Boomers'. They need

to be properly directed towards maintaining their health, in the same way as they

have career and financial plans.

All nations have a significant role of Health Insurance in healthcare. In India, both

the patient and the payer is almost same. Here, a sharing model between Health

Insurance and patient can be adopted. 70 to 75 percent of the burden can be still

borne by patient or medical consumer, depending on the nature of disease. Therefore,

I am of the opinion that this sharing ratio should even be reversed as the severity of

the disease increases, for example in the case of cancer, where the institution should

bear 70 percent of the expenses otherwise the patient will die of the cost before the

disease kills him.

http://en.wikipedia.org/wiki/BUPA


43

65 percent of Indian population lives in rural areas while only two percent qualified

medical doctors are available in these areas. Indian healthcare today is urban centric.

It needs to be reformed through medical infrastructure inclusive of doctors, nurses,

paramedicos, etc.

Indian healthcare system should start from preventive care through nutrition.

Reforms must provide impetus to lift the population which is at the bottom of the

pyramid.

'Health is Wealth' is an old paradigm of India, as people were in 'scarcity thinking'

mode, as they were completely dependent on their livelihood to provide for their

family's health and well being. Resources were earlier scarce and people were driven

to planning. This mentality has given way to the 'abundant mentality' as today's

generation has not seen these scaricity of resources. Demographics are changing as

well, and today 60 percent of population does not have the responsibilities of a

family to look after. For them this paradigm needs to be inculcated through

education. This new paradigm should originate from nutrition to exercises to

preventive healthcare to healthcare. It should be proactive rather than reactive in

terms of its reforms.

As quickly as possible, health must become a priority issue for the Government of

India. Though the Department of Pharmaceuticals today comes under the Ministry of

Chemicals and Fertilizers Food, it deals with issues concerning our health like Food

Safety & Standards (FSS), Ayush and related bodies. Therefore, it should be

appropriately part of Ministry of Health and Family Welfare or in any other suitable

ministry. Government has taken up health issues like HIV, TB and tobacco through

massive government programs.

Overall, India needs to reform its healthcare system through policies, medical

infrastructure, education and realization of right nutrition to lifestyle management.

Acute diseases over time will be at reactive end of the reforms.

Reference

1. http://en.wikipedia.org/wiki/Health_care_reform

2. http://en.wikipedia.org/wiki/Ministry_of_Health_and_Family_Welfare_(India)

3. http://en.wikipedia.org/wiki/Universal_health_care

4. http://www.expresspharmaonline.com/20100131/2010businessagenda06.shtml

5. http://en.wikipedia.org/wiki/Critical_path_method

6. http://circ.ahajournals.org/cgi/content/full/101/4/461

7. http://www.openclinical.org/clinicalpathways.html

8. http://www.mindtools.com/critpath.html

http://en.wikipedia.org/wiki/Health_care_reform

http://en.wikipedia.org/wiki/Ministry_of_Health_and_Family_Welfare_(India)

http://en.wikipedia.org/wiki/Universal_health_care

http://www.expresspharmaonline.com/20100131/2010businessagenda06.shtml

http://en.wikipedia.org/wiki/Critical_path_method

http://circ.ahajournals.org/cgi/content/full/101/4/461

http://www.openclinical.org/clinicalpathways.html

http://www.mindtools.com/critpath.html


44

8. HEALTH ECONOMICS

INTRODUCTION:

Health economics lies at the interface of economics and medicine and applies to the

discipline of economics to the topic of health. A seminal 1963 article by Kenneth Arrow,

often credited with giving rise to the health economics as a discipline, drew conceptual

distinctions between health and other goals. Factors that distinguish health economics from

other areas include extensive government intervention, intractable uncertainty in several

dimensions, asymmetric information, and externalities

DEFINITION:

Health economics is a branch of economics concerned with issues related to scarcity in the

allocation of health and health care.

In broad terms, health economists study the functioning of the health care system

and the private and social causes of health-affecting behaviors such as smoking.

1) A social system that studies the supply and demand of health care resources and the

effect of health services on a population.

2) The study of how scarce resources are allocated among alternative uses for the care of

sickness and the promotion, maintenance and improvement of health, including the

study of how healthcare and health-related services, their costs and benefits, and

health itself are distributed among individuals and groups in society.

AIM OF ECONOMICS:

The aim of economics is to ensure that the chosen activities have benefits that

outweigh their opportunity costs or the most beneficial activities are chosen within

the resources available.

SCOPE:

The scope of health economics is neatly encapsulated by Alan Williams' "plumbing diagram"

dividing the discipline into eight distinct topics:

What influences health? (other than health care)

What is health and what is its value

The demand for health care

The supply of health care

Micro-economic evaluation at treatment level

Market equilibrium

Evaluation at whole system level; and,

Planning, budgeting and monitoring mechanisms.

http://en.wikipedia.org/wiki/Kenneth_Arrow

http://en.wikipedia.org/wiki/Government_intervention

http://en.wikipedia.org/wiki/Uncertainty

http://en.wikipedia.org/wiki/Information_asymmetry

http://en.wikipedia.org/wiki/Externalities

http://en.wikipedia.org/wiki/Economics

http://en.wikipedia.org/wiki/Health


http://en.wikipedia.org/wiki/Demand_%28economics%29

http://en.wikipedia.org/wiki/Supply_%28economics%29

http://en.wikipedia.org/wiki/Micro-economic

http://en.wikipedia.org/wiki/Therapy

http://en.wikipedia.org/wiki/Market_equilibrium

http://en.wikipedia.org/wiki/Budgeting


45

FIELDS INCORPORATED WITH HEALTH ECONOMICS:

Beyond health: Within the health arena:

Pure economics.

Finance and insurance.

Industrial organization.

Labor economics.

Public policy.

Sociology

Health services research

Medicine

Medical ethics

Psychology

Public health/ epidemiology

IMPORTANCE TO LOOK AT ECONOMICS AT HEALTH:

Health resources are finite. A choice must be made which resource to use for which

activity.

Economics is concerned with efficiency.

Equity or fair distribution of resources.

It provides a framework which aims at maximizing benefits within available

resources.

FOCUS OF HEALTH ECONOMICS:

The health economics mainly concentrates on how to extract maximum benefits from

health industry with the least cost combination.

Health economics explains the infrastructure as a means of health care industry. It

applies theories, techniques, models and other relevant tools to health services. It means

health economics focuses on the use of application of material things like medicines, surgical

instruments, lab equipments, drugs, vaccinations, family planning tools.

KEY SOURCES AND TOOLS FOR ACCESSING INFORMATION FOR HEALTH

ECONOMICS:

The sources of information will be considered under the following categories:

a) Journals.

b) Bibliographic databases

c) Value added information

d) Literature

e) Research works

f) Statistical data

g) Internet sources.

AREAS OF HEALTH ECONOMICS:

The study of health economics include the following areas:

1) Costs of health care:


46

Cost refers to expenses incurred to produce or create anything which satisfies human

wants.

2) Health problems:

The study of health economics also concentrates on health as an important economic

indicator of economic development.

3) Demand for health care:

Demand refers to desire accompanied by ability to pay and willingness to pay for a

product or service in the market.

4) Supply analysis in health care:

Supply refers to anything material or non material which is offered for sale at a

particular level of price and at a given period of time.

5) Health care services market:

Market is an economic environment where buyers and sellers of goods and services

interact for purchase and sale for mutual benefits.

6) Financing for health care industry:

Finance here refers to money invested in health care services.

7) Health plans and outlays:

One of the primary motives of every country is to give primary importance to health

services to make citizens healthy both physically and mentally.

8) Optimum of utilization of resources:

The optimum allocation of resources is an important element of health economics.

Economic Evaluation:

A large focus of health economics is the microeconomic evaluation of individual

treatments. In the UK, the National Institute for Health and Clinical Excellence (NICE)

appraises certain new and existing pharmaceuticals and devices using economic evaluation.

Definition:

―Economic evaluation is the comparison of two or more alternative courses of action in terms

of both their costs and consequences (Drummond et al.).‖

Types of Economic Evaluation:

Economists usually distinguish several types of economic evaluation, differing in how

consequences are measured:

Cost-minimization analysis: In cost minimization analysis (CMA), the effectiveness

of the comparators in question must be proven to be equivalent. The 'cost-effective'

comparator is simply the one which costs less (as it achieves the same outcome).

Cost benefit analysis: In cost-benefit analysis (CBA), costs and benefits are both

valued in cash terms.

http://en.wikipedia.org/wiki/National_Institute_for_Health_and_Clinical_Excellence

http://en.wikipedia.org/wiki/Cost-minimization_analysis

http://en.wikipedia.org/wiki/Cost_benefit_analysis


47

Cost-effectiveness analysis: Cost effectiveness analysis (CEA) measures outcomes

in 'natural units', such as mmHg, symptom free days, life years gained.

Cost-utility analysis: Cost-utility analysis (CUA) measures outcomes in a composite

metric of both length and quality of life, the Quality-adjusted life year (QALY).

Cost of illness study: This is not a true economic evaluation as it does not compare

the costs and outcomes of alternative courses of action. Instead, it attempts to

measure all the costs associated with a particular disease or condition. These will

include direct costs (where money actually changes hands, e.g. health service use,

patient co-payments and out of pocket expenses), indirect costs (the value of lost

productivity from time off work due to illness), and intangible costs (the 'disvalue' to

an individual of pain and suffering).

SOURCES OF HEALTH FINANCE IN INDIA:

1) Commercial banks.

a) Public sector banks.

State bank of India.

b) Private Banks.

2) Private foreign banks.

3) Cooperative sector.

4) Reserve bank of India.

MACHINERY FOR ECONOMIC PLANNING IN INDIA:

The Planning Commission of India, as National Planning Authority has been

constituted in the year 1950 under the chairmanship of the former Prime Minister of India,

Jawaharlal Nehru. It consists of Prime Minister as chairman, deputy chairman and members

include finance minister, Railway Minister and Minister For Human Resource

Development, and others.

Function:-

To estimate the National Resources and to prepare plans for wise allocation of those

to achieve targeted growth in the economy within a specific period of time.

SUMMARY:

Topics related to various aspects of health economics include the meaning and

measurement of health status, the production of health and health care, the demand for health

and health services, health economic evaluation, health insurance, the analysis of health care

markets, health care financing, and hospital economics.

http://en.wikipedia.org/wiki/Cost-effectiveness_analysis

http://en.wikipedia.org/wiki/Cost-utility_analysis

http://en.wikipedia.org/wiki/Quality-adjusted_life_year

http://en.wikipedia.org/w/index.php?title=Cost_of_illness&action=edit&redlink=1

http://en.wikipedia.org/wiki/Direct_costs

http://en.wikipedia.org/wiki/Indirect_costs

http://en.wikipedia.org/w/index.php?title=Intangible_costs&action=edit&redlink=1


48

9. HEALTH INSURANCE

INTRODUCTION:

Starting in the 1930s, insurance companies gradually began to pay a greater share of

medical fees. The basic framework of insurance coverage is that of shared risk of having high

cost health care needs. Individuals pay for coverage whether or not they incur health care

costs; when an insured individual requires health care, the insurance pays for that care. Thus

the individual has a stable health care cost without the risk of incurring high costs that are

difficult to meet from ordinary income and the insurance company stays financially solvent

because more money is coming in than is going out. Historically, health insurance was for

hospital care and related services only. Outpatient visits, immunizations, costs of drugs, and

other such benefits were not covered by insurance policies.

DEFINITION:

1) Promise of reimbursement in the case of illness; paid to people or companies so

concerned about hazards that they have made prepayments to an insurance company.

2) “Health insurance, like other forms of insurance, is a form of collectivism by means of

which people collectively pool their risk, in this case the risk of incurring medical

expenses.‖

By estimating the overall risk of healthcare expenses, a routine finance structure

(such as a monthly premium or annual tax) can be developed, ensuring that money is

available to pay for the healthcare benefits specified in the insurance agreement. The benefit

is administered by a central organization such as a government agency, private business, or

not-for-profit entity.

HISTORY AND EVOLUTION:

The concept of health insurance was proposed in 1694 by Hugh the Elder

Chamberlen. In the late 19th century, "accident insurance" began to be available, which

operated much like modern disability insurance. Accident insurance was first offered in the

United States by the Franklin Health Assurance Company of Massachusetts. This firm,

founded in 1850, offered insurance against injuries arising from railroad and steamboat

accidents. The first employer-sponsored group disability policy was issued in 1911.

Before the development of medical expense insurance, patients were expected to pay

all other health care costs out of their own pockets, under what is known as the fee-for-

service business model. During the middle to late 20th century, traditional disability

insurance evolved into modern health insurance programs. Today, most comprehensive

private health insurance programs cover the cost of routine, preventive, and emergency

health care procedures, and most prescription drugs, but this is not always the case.

Hospital and medical expense policies were introduced during the first half of the 20th

century. During the 1920s, individual hospitals began offering services to individuals on a

pre-paid basis, eventually leading to the development of Blue Cross organizations. The

http://en.wikipedia.org/wiki/Insurance

http://en.wikipedia.org/wiki/Collectivism

http://en.wikipedia.org/wiki/Fee-for-service

http://en.wikipedia.org/wiki/Fee-for-service

http://en.wikipedia.org/wiki/Blue_Cross


49

predecessors of today's Health Maintenance Organizations (HMOs) originated beginning in

1929, through the 1930s and on during World War II.

How health insurance works:

A health insurance policy is a contract between an insurance company and an

individual or his sponsor (e.g. an employer). The contract can be renewable annually or

monthly. The type and amount of health care costs that will be covered by the health

insurance company are specified in advance, in the member contract or "Evidence of

Coverage" booklet. The individual insured person's obligations may take several forms:

Premium: The amount the policy-holder or his sponsor (e.g. an employer) pays to

the health plan each month to purchase health coverage.

Deductible: The amount that the insured must pay out-of-pocket before the health

insurer pays its share.

Coinsurance: Instead of, or in addition to, paying a fixed amount up front (a co-

payment), the co-insurance is a percentage of the total cost that insured person may

also pay. For example, the member might have to pay 20% of the cost of a surgery

over and above a co-payment, while the insurance company pays the other 80.

Exclusions: Not all services are covered. The insured person is generally expected to

pay the full cost of non-covered services out of their own pocket.

Coverage limits: Some health insurance policies only pay for health care up to a

certain amount. The insured person may be expected to pay any charges in excess of

the health plan's maximum payment for a specific service. Capitation: An amount

paid by an insurer to a health care provider, for which the provider agrees to treat all

members of the insurer.

In-Network Provider: (U.S. term) A health care provider on a list of providers

preselected by the insurer.

Explanation of Benefits: A document sent by an insurer to a patient explaining what

was covered for a medical service, and how they arrived at the payment amount and

patient responsibility amount.

Types of health insurance:

Accidental death and dismemberment insurance

Dental insurance

Disability insurance

Total permanent disability insurance

Long term care insurance

Vision insurance

Disadvantage of this system:

1) Consumers had no incentive to reduce their use of services; they paid the same

regardless of their needs or use of the system. People sought to have care delivered on

an inpatient basis to obtain reimbursement.

2) Individuals often neglected preventive health care that had to be paid for out-of-

pocket.

http://en.wikipedia.org/wiki/Health_Maintenance_Organization

http://en.wikipedia.org/wiki/World_War_II

http://en.wikipedia.org/wiki/Health

http://en.wikipedia.org/wiki/Insurance

http://en.wikipedia.org/wiki/Insurance_contract

http://en.wikipedia.org/wiki/Deductible

http://en.wikipedia.org/wiki/Out-of-pocket_expenses

http://en.wikipedia.org/wiki/Coinsurance

http://en.wikipedia.org/wiki/Capitated_reimbursement

http://en.wikipedia.org/wiki/Explanation_of_Benefits

http://en.wikipedia.org/wiki/Accidental_death_and_dismemberment_insurance

http://en.wikipedia.org/wiki/Dental_insurance

http://en.wikipedia.org/wiki/Disability_insurance

http://en.wikipedia.org/wiki/Total_permanent_disability_insurance

http://en.wikipedia.org/wiki/Long_term_care_insurance

http://en.wikipedia.org/wiki/Vision_insurance


50

3) As the cost of health care has increased, insurance premiums also have increased

greatly.

4) An additional public concern is that health insurance is unobtainable for

individuals with existing health problems and often economically beyond the means

of those who are not insured as part of an employee group

The Health Insurance Portability and Accountability Act (HIPAA) of 1996 [HIPAA] :

It was enacted by the U.S. Congress in 1996. It was originally sponsored by Sen.

Edward Kennedy and Sen. Nancy Kassebaum .

Title I of HIPAA protects health insurance coverage for workers and their families when

they change or lose their jobs. Title II of HIPAA, known as the Administrative

Simplification (AS) provisions, requires the establishment of national standards for electronic

health care transactions and national identifiers for providers, health insurance plans, and

employers. It also addresses the security and privacy of health data.

HEALTH INSURANCE IN INDIA:

There is no universal health insurance in India. Health insurance is at present limited

to industrial workers and their families. The Central Government employees are also covered

by the health insurance under, under the banner ―Central Govt. Health Scheme‖.

1) Employees State Insurance Scheme. (ESI)

The ESI scheme, introduced by an Act of Parliament in 1948(amended in 1975, 1984

and 1989), is a unique piece of social legislation in India. It has introduced for the first time

in India the principle of contribution by the employer and employee. The Act covers

employees drawing wages not exceeding Rs.10, 000 per month.

Mission Statement:

To provide for certain benefits to Employees in case of sickness, maternity and employment

injury and to make provisions for related matters.

Scope : The Act extends to the whole of India. The ESI Act of 1948 covered all power- using

factories other than seasonal factories wherein 20 or more persons were employed

(excluding mines, railways and defence establishment).the provisions of the ESI

(Amendment) Act of 1975 were extended to the following new classes of establishments:

1. Small power-using factories employing 10 to19 persons, and non-power-using

factories employing 20 or more persons.

2. Shops;

3. Hotels and restaurants;

4. Cinemas and theatres;

5. Road-motor transport establishments;

6. Newspaper establishments.

With effect from 1.10.2006.the Act covers all employees manual, clerical, supervisory

and technical are getting unto Rs.10, 000 per month. The provisions of the Act can be

extended to any other agricultural or commercial establishment.

http://en.wikipedia.org/wiki/U.S._Congress

http://en.wikipedia.org/wiki/Edward_Kennedy

http://en.wikipedia.org/wiki/Nancy_Kassebaum

http://en.wikipedia.org/wiki/Health_insurance_in_the_United_States


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Administration

The administration of the ESI Scheme under the Act is entrusted to an autonomous

body called the ESI Corporation. It is comprised of the following members:

1. Minister of labour - chairperson.

2. The secretary - Minister of labour - vice chairperson.

3. Representatives of central Govt - 5 members.

4. Representatives from the states - one from each state.

5. Representatives from union territories - one member from each UT.

6. Representatives of Employees - 5 members.

7. Representatives of Employers - 5 members.

8. Representatives of medical profession - 2 members.

9. Representatives of parliament - 3 members.

10. Director General of the ESI - member.

The ESI Corporation is an autonomous body. It formulates policies and coordinates their

proper implementation. The corporation meets at least twice in the year.

The ESI Corporation has a Medical Benefit council which is headed by Director General

of Health Services. The other members are:

1. Deputy Director General of Health Services.

2. Medical Commissioner – ESI Corporation.

3. One member from each state.

4. Employees Representatives -3.

5. Employees Representatives -3.

6. Medical profession – A few members (at least one woman).

The Corporation has appointed Regional Boards in the States, local committees and

Reginal and local Medical Benefits councils with the power to administer the scheme in the

States.

The head office in New Delhi, the corporation has 23 regional offices and 12 sub-

regional offices at Vijaywada,Vadodara,Surat,Hubli,Pune,Nagpur, Coimbatore, Madurai

Tirunelveli,Noida,Varanasi and Barrackpore, and 844 local offices and cash offices all over

the country for administration of the scheme. It also has appointed inspector to According

to1984 amendments it is extended to worker of all categories i.e.Manual clerical, technical

or supervisory earning unto Rs.3000/-.the act covers the following benefits:

FINANCE :

The ESI scheme is financially supported jointly by the contributions of employer,

employees, ESI Corporation, state governments and the central government. The pattern of

financial support is as under:

1. The employer pays 4.75 percent of total wages.

2. The employer contributes 1.75 percent of his/her wage.

3. The state Governments shares 1/8th

of the total expenditure on the medical care.

4. The ESI Corporation shares 7/8th

of the total expenditure on medical care.

As far the central Government is concerned it supports 2/3 of the administrative expenditure.


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Benefits

The section 46 of the Act envisages following six social security benefits :-

(a) Medical Benefit:

Medical benefits consist of‖ full medical care‖ including hospilitation, free of cost, to the

injured persons in case of sickness, employment injury and maternity. The services comprise

1. Out –patient care

2. Supply of drugs and dressings

3. Specialist services in all branches of medicine

4. Pathological and radiological investigations

5. Domiciliary services

6. Antenatal, natal and postnatal

7. Immunization services

8. Family planning services

9. Emergency services

10. Ambulance services

11. Health education

12. In-patient treatment.

If specialized treatment is necessary, patient are sent for institutional treatment even

outside their state at the expense of the ESI Corporation.

Medical care is provided either directly through the agency of ESI hospitals and

dispensaries, or indirectly through a panel of private medical practioners (panel system)

appointed as‖ insurance medical practioners‖.

Direct pattern:

i. In areas having a concentration of 1,000 or more employees’ family unites, service

dispensaries are established with full-time medical and Para –medical personnel. On

an average, a doctor will attend to about 80 cases in the out-patient department per

day, and makes one home visit a day.

ii. In area where the employees are less than 750, part time ESI dispensaries are

established.

iii. If the residential concentration of employees is scattered over a long distance, mobile

dispensaries are established.

INDIRECT PATTERN:

This is known as‖ panel system‖. Registered medical practitioners designated as

insurance medical practitioners are appointed to provide medical care.

Medical care is also extended to families of workers where requisite arrangements could be

made. A start has been made by providing ―restricted medical care,‖i.e., only out-patient

cares. Where facilities are available ―expanded medical care‖i.e, full medical care short of

hospitalization is given.

http://esic.nic.in/benefits_mb.htm


53

Other medical facilities:

i. Dentures, spectacles and hearing aids are provided free to patients who are

incapacitated due to employment injury.

ii. Artificial limbs are provided free to insured persons who lose their limbs in

employment injury or otherwise.

iii. Special appliances such as hernia belts, walking callipers, surgical boots, spinals

braces and jackets are provided as prescribed by specialists.

b. Sickness benefit:

It consists of periodical cash payment to an insured person in case of sickness, if his

sickness is duly certified by an insurance medical practitiner.The benefit is payable for a

maximum period of 91days,in any continuous period of 365 days, the daily rate being about

50% of the average daily wages. A person receiving the sickness benefit is required to remain

under medical treatment provided under the act.

Extended sickness benefit:

In addition to 91 days of sickness benefit insured persons suffering from certain

long-term disease are entitled to extended sickness benefit as show below, for a maximum

period of two years.

34 diseases for which extended sickness benefit with effect from 1.1.2000 is payable, in case

where the insured person has been in continuous employment for 2 years:

The insured person is protected from dismissal or discharge from service by the employer

during the period of sickness.

Enhanced sickness benefit is payable to insured women for 14 days for tubectomy

and for 7 days in case of vasectomy in respect of male IPs.

The amount payable is double the standard sickness benefit rate, that is, equal to full

wages.

(b) Maternity Benefit(MB):

The benefit is payable in cash to an insured women for confinement/miscarriage or

sickness arising out of pregnancy/confinement or premature birth of child or miscarriage.

The duration of benefit is 12 weeks, for miscarriage 6weeks and for sickness arising out of

confinement etc.30 days. The benefit is allowed at about full wages

(c) Disablement Benefit:

Disablement benefit is payable to insured employees suffering from physical

disablement due to employment injury or occupation disease.

1. Temporary disablement benefit(TDB):

Temporary disablement benefit at 70% of the wages is payable till temporary disablement

lasts and is duly certified by authorized insurance medical officer.

2. Permanent disablement benefit(PDB) :

http://esic.nic.in/benefits_maternity.htm

http://esic.nic.in/benefits_temp.htm

http://esic.nic.in/benefits_pdb.htm


54

Temporary disablement benefit at 70% of the wages is payable till temporary disablement

lasts and is duly certified by authorized insurance medical officer.

(d) Dependants’ Benefit(DB):

In case of death, as a result of employment injury, the dependants of an insured

person are eligible for periodical payments. Pension at the rate of 70 percent of wages is

payable, shared by dependants in a fixed ratio, on monthly basis in accordance with the

prescribed share. An eligible son or daughter is entitled to dependant’s benefit up to the age

of 18; the benefit is withdrawn if the daughter marries earlier.

f) Other benefits

i. Funeral expenses - An amount of Rs. 5000/- is payable to the dependents or to the

person who performs last rites.

ii. Vocational rehabilitation - In case of disabled insured persons less than 45 years

of age with 40% or more disablement.

iii. Free supply of physical aids and appliances such as crutches, wheelchairs,

spectacles and other

such physical aids.

iv. Preventive health care services such as immunization, family welfare services,

HIV/AIDS

detection, treatment etc.

v. Medical bonus Rs250 is paid to an insured woman or in respect of the wife of an

insured person in

case she does not avail hospital facilities of the scheme for child delivery.

Benefits to employers:

a. Exemption from the applicability of Workmen’s compensation Act1923.

b. Exemption from maternity benefit Act 1961.

c. Exemption from payment of medical allowance to employees and their

dependants or arranging for their medical care.

d. Rebate under the income tax Act on contribution deposited in the ESI account.

(g) Rajiv Gandhi Shramik Kalyan Yojana - This scheme of Unemployment allowance

was introduced w.e.f. 01-04-2005. An Insured Person who become unemployed after being

insured three or more years, due to closure of factory/establishment, retrenchment or

permanent invalidity are entitled to :-

Unemployment Allowance equal to 50% of wage for a maximum period of upto one

year.

Medical care for self and family from ESI Hospitals/Dispensaries during the period IP

receives unemployment allowance.

Vocational Training provided for upgrading skills - Expenditure on fee/travelling

allowance borne by ESIC.

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3) CENTRAL GOVERNMENT HEALTH SCHEME (CGHS)

Established in 1954, the CGHS covers employees and retirees of the Central

Government, and certain autonomous, semi autonomous and semi-government organizations.

It also covers Members of Parliament, retired central government servants, widows receiving

family pensions, accredited journalists and members of the general public in some specified

areas. The families of the employees are also covered under the scheme. Benefits under the

scheme include medical care at all levels and home visits/care as well as free medicines and

diagnostic services. These services are provided through public facilities (including CGHS-

exclusive allopathic, ayurvedic, Homeopathic and unani dispensaries) with some specialized

treatment (with reimbursement ceilings) being permissible at private facilities. Of the total

expenditure, about a third is spent on wages and salaries of the CGHS staff.

The scheme is on the cooperative efforts and contribution basis from the employees

and employer for their mutual benefits. The services are given through a network of

dispensaries, government hospitals, and identified private specialised hospitals in various

systems of medicine.

The CGHS provides services are:

Emergency treatment,

Outdoor services,

Indoor services,

Domiciliary visits,

Specialist’s consultation,

Antenatal, natal and postnatal services

Family welfare services.

Supplies optical and dental aids at reasonable rates.

Laboratory and x-ray investigation

Paediatric services including immunization

The ESI and CGHS cover two large groups’ wage earners in the country. They are well-

organized health insurance schemes, and are providing reasonable medical care plus some

essential preventive and promotive health services. Experience in other countries has shown

that health insurance is logical step towards nationalization of health services.

OTHER AGENCIES:

Defence medical services:

It is own organization for medical care defence personnel under the banner ―Armed

Forces Medical Services‖. The services provided are integrated and comprehensive

embracing preventive, promotive and curative services.

Health care of Railway Employees:

The Railway provides comprehensive health care services through the agency of

Railway Hospital, Health Unite and clinics. Environmental sanitation is taken care of by

Health Inspectors in big stations .A chief Health Inspector supervises the division’s work.

Health check up of employees is provided at the time of entry into service, and thereafter at

yearly intervals. There is lady medical officer, health visitors and midwives who look after

the MCH and school health program services. Specialist’s services are also available at the

divisional hospitals.


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Private agencies:

In a mixed economy such as India’s private practice of medicine provides a large

share of the health services available. It is rapid expansion in the number of qualified

allopathic physicians from about 50,000 at the time of independence to about 7.67 lakhs in

2005 and the doctor population ratio for the country as a whole is 1:1428.the private sector of

the health care services is not organized. Some statutory bodies like the medical council of

India and the Indian medical Association regulate some of the functions and activities of the

large body of private registered medical practitioners.

4) Community health insurance in India: (CHI)

CHI is seen as an innovative mechanism meant for financing health care expenditure of

the people.

Types of CHI:

3. Provider model: NGOs act both as insurer and provider of health care services.

4. Insurance model: NGOs is the insurer and care is purchased from a private provider.

5. Intermediary model: NGOs is neither the insurer nor care provider. It acts as an

intermediary between the target population and the insurance provider.

Rashtriya Swasthya Bima Yojana: (RSBY)

It is the 3rd

health insurance scheme from the Govt of India. The earlier ones are –

Universal health Insurance Scheme and the NRHM. The RSBY is supposed to become

operational from 2008-2009 and all 600 districts of the country to be covered by 2012.

Objective: To provide health security for the Below Poverty Line (BPL) workers in the

unorganized sector and their families through an insurance that cover for hospital expenses.

Provider: public and private sector.

Claims and Reimbursement: through smart cards

Maximum Benefits: Rs. 30,000 per family

Transportation cost: Rs. 100/trip/hospitalization.

Post hospital transportation expenses (5 days): Rs. 1000 minimum

Implementing agency: An insurance company.

Community: All BPL families both rural and urban.

Premium: 75% of the premium for the basic package will be paid by the Government of

India and 25% by the State government.

Implementation of the scheme: By the state government.


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CONCLUSION:

Although insurance companies originally focused on paying for health care, they now

are involved in establishing standards for care, evaluating care, and negotiating charges.

They are active participants in all areas of health care and, because of the economic power

they wield,have great influence. Insurance companies determine whom they will pay and

what procedures they will reimburse. Thus, insurance companies can and do limit health care

choices.

BIBLIOGRAPHY:

1) Harish Basavaih ―Nursing Health Economics‖, 1st edition 2009, Jaypee Publications.

Pp. 20-28, 64-72.

2) Park.K, ―Preventive And Social Medicine‖, 19th

edition, Banarsidas Bhanot Publishers,

Jabalpur. Pp: 758

3) Definition of health economics. Peter’s business and economic issues.

4) BNS Rao, ―Sociology for Nurses‖, 6th

edition, 2004, Gajana Publishers, pp.171-176.

5) Mosby's Medical Dictionary, 8th edition. © 2009, Elsevier.

6) http. // Wikipedia. Health economics.

7) Kightlinger, R. (1999). Sloppy records: The kiss of death for a malpractice defense.

Medical Economics 76(8): 109–113.

8) Porter-O’Grady, T. (1987). Shared governance and new organizational models. Nursing

Economics 5(6):281–286.

9) Department of Health and Human Services (DHHS), Health Insurance and Portability

Act, Available at http://cms.hhs.gov/hipaa/. Accessed August 4, 2002.

10) Janice Rider Ellis, Celia Love Hartley, ―Nursing in Today’s World‖, 8th

edition, pp. 48-

53, 111-120, 140-143.

11) Nahomi Clement, Community Based Health Insurance, ―Nightingale Nursing Times‖;

5(5):28-29:2009.


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11. BUDGETTING FOR VARIOUS UNNITS AND LEVELS

A. FOR HOSPITAL

INTRODUCTION

The term budget is derived from a French word baguette means purse. Budget is

generally a list of all planned expenses and revenues. It is a plan for saving and spending. A

budget is an important concept in microeconomics, which uses a budget line to illustrate the

trade-offs between two or more goods. The budget is an annual plan intended to guide

effective use of human and material recourses, products or services and to manage the

environment to improve productivity. The budget is a powerful tool because it serves as a

guide for nursing care activities and allocation of recourses, supplies, support services and

facilities.

DEFINITION

According to TN Chhabra ―a budget is an estimation of future needs

arranged according to orderly basis covering some or all activities of an enterprise for a

definite period of time‖

According to Dimock ―Budget is a balance estimated expenditure and receipts for a

given period of time. In the hands of the administrator the budget is the record of the past

performance, a method of current control and projection of future pans‖.

NURSING BUDGET

Nursing budget is defined as a systematic plan that is an informed best estimate by

nurse administrators of revenues and nursing expenses.

HOSPITAL BUDGET

Hospital budgeting is the process of estimating proposed expenditures and the means

of financing these expenditure.

IMPORTANCE OF BUDGET

Budget is a numerical description of expected income and planned expenditure for an

organization for a specified period of time. It is a concrete, picture of the total operation of an

enterprise/ organization/ institution in monetary term, i.e., finance

The following point serves the importance of budget:

- Budget is needed for planning for future course of action and to have a control over

all activities in the organization

- Budget facilities co coordinating operation of various departments and sections for

realizing organizational objectives.

- Budget serves as a guide for action in the organization

- Budget helps one to weigh the values and to make decision when necessary on

whether one is of a greater value in the programme than the other.

http://en.wikipedia.org/wiki/Microeconomics

http://en.wikipedia.org/wiki/Budget_line

http://en.wikipedia.org/wiki/Good_(economics)


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BUDGET-HOSPITAL

Different types of approaches are used in preparing the budget for a hospital. The

basic reason for preparing a budget is to enable the hospital to effectively meet its financial

requirements. An effective budget is a summary of the carefully conceived financial plans of

all departments. Therefore, it should be clear to the administration as to what the hospital’s

financial requirements are going to be.

FINANCIAL REQUIREMENTS OF HOSPITALS

For any hospital, funds are required for the following:

1. Capital funding

For preservation, upgrading, and replacement of physical facilities and equipment

For new technology

For expansion

2. Operating needs

For working capital and operating expenses –salaries, materials and supplies,

maintenance, utilities etc.

3. Reserves

For emergency needs

THE BASIC INPUTS

An effective budget presupposes the following-

1. Clear understanding of the hospitals financial and service goals.

2. A hospital organization with clearly defined responsibility for each dept.

3. A system of accounting designed to provide a measure of performance

4. Active participation of staff members in the preparation of the budgets.

TYPES OF BUDGET IN HOSPITAL

The budgetary plan results from the accounting plan, and includes:

The capital budget

The cash budget

The operating budget

The capital budget

Capital budget is the estimated fund requirement for capital items needed for growth,

for providing new facilities, and for replacement of worn out equipment, machinery, and

furniture.


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The decision on capital budgeting is primarily based on:

i. Needs of patients and existing alternatives available

ii. Upgradation of technology

iii. Effects of additional equipment on income and expenditure

iv. Availability of funds

There will always be competing demands from various departments vis-à-vis the common

requirements for the hospital as a whole, and funds are not generally available for meeting all

the demands. The request of funds for capital assets are generally met from general funds if

there is a surplus, by raising funds from outside, or obtaining capital funds from agencies.

Therefore, it is desirable to identify the sources of funds in each item in the capital budget.

The cash budget

Because enough cash must be available to meet financial obligation on day-to-day

basis or they arise, there is a need to maintain the right flow of cash. Cash budget is the

budget that records the forecasted cash inflows from various sources and also records the

forecasted demands for cash. It translates the expense and revenue budget into statement of

cash inflow and outflow. Steady inflow of cash comes from settling the patient’s accounts at

the time of discharge. However, If hospital is unable to collect cash for service rendered at

the time of discharge, accounts receivable are to be created.

Cash budget takes in to consideration projections for cash receipts, disbursement and

balances for a given future period of time. It enables management to predict the timing and

cash surpluses. The cash budget is usually broken down by monthly or quarterly periods.

While forecasting cash inflow, seasonal fluctuation based on past experience should

be taken note of. Keeping a safety margin, it would be worth investing surplus funds if any,

in term deposits- the period of investment depending upon requirement of liquid cash.

The operating budget

A satisfactory budget is based on knowledge of past performance and experience,

extended to future needs and requirements. Accurate statistical information is a guide to

future needs and requirements. Internal as well as external factors influencing the operation

of the hospital have to be studied. Any change in workload due to activities of other

neighboring hospitals or population trends will affect revenues. Internal constraints, policy

decisions, paucity of funds to maintain modernization and similar factors must be identified.

Even with good quality data, the prediction of revenues is somewhat unpredictable although

expenditure forecasts may be more realistic.

Forecast of operating expenditure

Operating expenditure is incurred on salaries, supplies, general utilities, maintenance

and some overheads.

Salaries and wages: Manpower requirement are determined by workload. Staff to workload

ratios must be reviewed yearly. Salaries and wages account for 50 to 70 percent of the total

expenditure. Additional staff requirements, if any, have to be grouped separately and


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justification for the same must be indicated. In additional to salaries, provision will have to be

made for provident fund, gratuity or other personnel benefits schemes.

Materials and supplies: Food, drugs, dressings, and other consumables are directly related

to workload or volume of service.

Utilities: These cover expenditure items in such as electrical, power, petrol, diesel, and other

fuels, water, telephones, and other services. AC plant, laundry, kitchen, CSSD, and

incinerators accounts for a high expenditure on utilities.

Maintenance: Expenditure on routine maintenance of plant and equipments are generally

well-predicted. Expenditure on breakdown maintenance should be curtailed as much as

possible by preventive maintenance of planned and machinery, and by maintenance contacts

for costly medical equipments.

Forecasting of operating revenues

Forecasts of operating revenues is somewhat speculative even with good historical

and recent data. Operating revenue income is directly related to the volume of services

provided. The largest part of the revenue is non-government hospitals is from patient

services.

Operating revenue generates from:

1. Direct patient care

Inpatient services- medical, surgical, OBG, Pediatrics, cardiology etc.

Outpatient consultations

2. Special professional services

OT, labor room, ICU

Physiotherapy etc

3. Supportive professional services

X-ray and imaging, pathology laboratory,

EEG EMG

4. Hotel service

Room

Food

Income from other sources comprises of interest income from investments and

income from donations and grants, rent and recoveries.


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BUDGET PROCESS OR STEPS IN BUDGETTING

ASSESSMENT

Assessment is the first step involved in the budgeting process. It consists of need

identification, a composite of unit needs in terms of manpower, equipment and operating

expenses should be identified during this phase.

Requisites for Budget Preparation

Sound forecasting

Adequate conceived accounting system

Adequate cost accounting system

Fixed line of authority

Formation of budget committee

Statistical information

Support of top management

Length of budget period

How to Make a Hospital Budget

Making a hospital budget is only second to medical delivery systems in for a hospital.

In fact, if a budget is not properly written, the hospital may be unable to deliver medical

services at all. So many expenses and sources of revenue must be taken into consideration, so

the budget process takes an expert to get through it successfully. Let's find out how to start.

ASSESSMENT

PLANNING

IMPLEMENTATION

EVALUATION


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Instructions

Determine hospital revenue. Revenue can come from patient payments, tax

dollars, donations, insurance credits. Be sure to deduct a percentage of the

patient bills that will remain uncollected, the charity work expected by the

hospital and the pro bono work it does.

Figure out expenses. Start with the physical facility. How much does it cost to

keep up the building or buildings. What is the maintenance cost of each

department, engineering, air-conditioning, heat, water, other utilities. Know

what equipment costs, how much must be replaced per patient day, and if any

can be recycled. Include the non-medical cost of each bed in the hospital.

Include advertising.

Know the cost of personnel, all employees and ancillary staff, including

consultants, outsourced contracts, perhaps laundry or nurse staffing services. For

all employees of the hospital, from janitorial to hospitalists, figure the fringe

benefits the hospital must pay for each.

Add all medical equipment costs, ongoing and expected expansion or

replacement of new diagnostic equipment.

Know the medical costs of each bed. How many staff hours are spent on each

bed, occupied or not. Use this figure as an average to get a cost per patient year.

Add to that the non medical costs per bed. Include every possible cost that keeps

that bed in the hospital. Don't forget replacement costs per annum for any and

all patient needs.

Don't forget parking garages, lots, landscaping, groundskeeping or window

washing.

Include all insurance for the facility and personnel.

Write in an emergency expense fund. Disasters occur and the hospital must be

prepared for them when they arrive.

PLANNING

A budget plan may be developed in many ways. A budgeting cycle that is set for 12

months is called a fiscal year budget. Most budgets are developed for one year period. But a

perpetual budget may be done on a continual basis each month so that 12 months of future

budget are always available.

Tips on Hospital Budget Planning

Budget planning is a dirty word in most hospitals, but it must be done each year. The

process is usually an iterative one that requires full consensus between administration and

hospital operations. The following provides tips on ways to reduce the frustrations and

improve the effectiveness of the hospital budget planning process.

1. Paradigm of Shift: Plan the entire budget at once. One reason budget planning can

be difficult is a splintered approach. Developing a budget in silos will undoubtedly

create problems as each department is pitted against the other in the fight for funds. If


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planners look at overall volumes and net revenues in conjunction with labor and non

labor costs, the entire hospital can be assessed as a whole. Each department is given

due consideration and decisions are made on the basis of objective rather than

subjective arguments.

2. Be Flexible: Traditional budgeting can be obtuse and inflexible. Using volume

forecasts to drive the budget provides a basis for both material and labor forecasts.

Planners should look at the budget from a holistic perspective. Forecasting revenues

and expenses per unit of service. This also gives each department more control over

the budget process and empowers each to create arguments for funds based on future

patient levels and services.

3. Benchmarking: Use volume benchmarks to help determine optimal revenue and

expense levels. Benchmarks can come from competing hospitals, prior years' budgets

or best-practice departments. See "Resources" for a listing. Predicting volumes is one

of the biggest challenges hospital budget planners face; however, in a variable budget,

volumes are the primary drivers of revenues and expenses. Only fixed expenses such

as rents or lease payments are unaffected by volume.

4. Accountability: Hold staff accountable for the budget. Develop a system of

reinforcement that includes both positive and negative feedback. One way to reinforce

the budget while making the process easier is to budget more than once a year. Ideally

budgeting should be an all-year process, with multiyear checkpoints for

accountability. The monthly and quarterly closes make perfect checkpoints. From an

operations and marketing viewpoint, this allows planners to budget more effectively

over a longer period of time. Instead of just looking at the next year, planners can look

at budgeting over a five-year period, which is better for capital-intensive units.

The steps of planning budget for nursing unit are as follows;

Assistance of her/ his subordinates

Nursing administrator requires the assistance of nursing superintendents and nursing

supervisors to present the needs of the coming year within the specified data and confer with

those who presented such need.

Review of the budget

Nursing administrator should review the budget appropriation and actual expenditure

of the current year.

Preparing requirements

He/ she should prepare requirements with the assistance of their subordinate officials

for the coming year from the supplied information by them.

Summary of new needs

He/ she should prepare a summary of new needs and requirements both personnel and

material with the proper data supports of the requirements.

Submitting to institutional administrator

Budget should be submitted to the administrator of the institute/ hospital for review,

decision and to incorporate into the master budget required for the hospital. In any change

made by either the administrator or the committee on budget, report should be furnished to

her to be used in the control of expenditure.


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A copy of the nursing department appropriation is sent to the director after

adaptation of the budget these statements generally proved the budget for the period and

difference between the budget appropriation and actual expenditure. These reports should be

kept reviewed by the director and her associates and if expenditure exceeds the appropriation,

the cause should be determined.

IMPLEMENTATION

In implementation ongoing monitoring and analysis occur to avoid inadequate or

excess funds at the end of a fiscal year. In most health care institutions monthly computerized

statements outline each department projected budgets and any deviations from that budget.

Each unit manager is accountable for the budget deviations in their unit. If a major change is

indicated, the entire budgeting process must be repeated.

EVALUATION

The budget must be reviewed periodically and modified as needed throughout the

fiscal year.

STEPS IN PREPARATION OF NURSING BUDGET

Review the goals of the hospital

Review the objectives of the existing programmes

Prepare a budget proposal

Revise the existing programme with the revised proposal

Compute the expense for each programme

Adopt the alternative approach for realizing the proposed plan

Compare the proposal to identify the effective one

Prepare a budget request which details a fiscal plan for the preferred programme

Present the need of required staffs

Review the budget appropriation and actual expenditure for the current year

conjunction with current hospital statistics

Prepare a new budget is to cover in terms of nursing service required

Determine the percentage of salaries in various department of nursing based on the

time allocated


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Estimate the requirement for the coming year

Prepare the summary of new needs to support the request

Submit the report to the head of the department

BUDGET MANUAL

Since the budget is formulated at the instance of the top management, and its

compliance ensured by the subordinates, there has to be a formal communication channel

between the two. This could be in the form of oral or written instruction or directives. The

Budget Officer initiates the work relating to preparation of Budget Manual. Heads of

departments provide the details. The top management approves the first draft and subsequent

changes. The policies and procedures are continuously updated and revalidated. If this is not

done, the manual will have several obsolete procedures. It will lose focus.

A Budget Manual is tailored to fit the needs of each hospital or group of hospitals, where

it is to be used. The content of a typical budget manual is outlined below:

General statement of hospital objectives and budget procedure

Identification of persons involved in the exercise and definition of their authority,

duties and responsibilities.

Routine of departmental budget preparation, their review and approval.

Time schedule

Budget revision- formation and implementation

Budget report

Review of performance

BUDGET ADMINISTRATION

The method that an organization uses to create the budget will depend upon the type

and quality of information sources, the availability motivated and knowledgeable staff, and

the importance that the organization places on budgeting function. The budget exercise starts

with appointment of budget officer and constitution of a budget committee. Hospitals may

not aim at profit but they should be clear as to what portion of the total cost that will not be

paid by the hospital patients and which hospital management will have to meet out of grants,

donations and from other sources. On receipt of these, manager of each responsibility centre

initiates action within his functional area to develop a long term strategic plan. The

presentation of his plan is followed by discussions with the members of the hospital executive

committee. It provides an opportunity to the executive committee members to discuss

departmental plans with respective managers and amongst themselves. A best possible plan

combining the talents of entire group thus emerges. This approach enhances communication,

co-ordination, and harmony of various operational plans and efforts. The exercise is not

complete unless actual performance is compared with the target set in the budget, the reasons

for variations between the two are analyzed and corrective action where taken.


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Budget committee

The budget committee generally consists of a representative cross section of the major

functional areas or divisions within the institution, with the designated budget director

usually serving as the chairperson. Budget committees frequently include, among others

those who hold the following positions:

Director of Nursing

Director of Human Resources

Director of Material Management

Director of Engineering and Plant Operations

Chief of Medical Staff

Chief Executive Officer, Chief Operating Officer, and/or chief Financial Officer

Director of Nursing: This position is responsible for the major function of the most health

care institution and also accounts for one of the largest, proportion of the institution’s and

revenues.

Director of Human Resources: This position is responsible for administering the institutions

salary and wage program, including its hiring and firing policies. Since in most health care

institutions salaries and wages constitute well over 50% of the organization’s total operating

expenses, the director of human resources is a valuable member of the budget committee.

Director of Material Management: This position represents the other half of the operating

expense equation, the non-salary-and-wage expenses. The director of material management

provides knowledge of inflation trends; new market products; purchase and trade discounts;

fixed asset requirements; and the requirements for receiving, storing, processing, pricing and

distributing the institution’s operating supplies.

Director of Engineering and Plant Operations: This position is responsible for the

institution’s buildings and equipment, including repair and maintenance. The director of

engineering and plant operations can provide a wealth of information about such things, as

well as experience in new construction, remodeling, utilities efficiency, and other areas of

concern.

Chief of Medical Staff: This positions represents the other half of the patient care equation,

the medical staff. It is imperative that the physicians be represented in the budgetary planning

and control process. They are not only the institution’s major consumers, but they can be its

best marketers and salespersons . the medical staff, who are on or near the cutting edge of the

medical technology and therapy, can assist in identifying new procedures, treatments, and

other related services that can benefit the institution and the community it serves.

Chief Executive Officer, Chief Operating Officer, and/or chief Financial Officer: All three

frequently serves as ex officio members of the budget committee. Their attendance at meeting

and active interest in the budget committee’s activities add credibility to the budget process

and help to keep top management aware of the budget process, its direction, and the

anticipated results.

Budget officer

He assists monitoring performance comparing actual results with the budget. The

responsibilities of a budget officer can be conveniently combined with those of Management


68

Accountant. He works under the guidance of a budget committee. He acts as a co-ordinator

when it is being prepared. He provides appropriate background information for the previous

2-3 years about income, expenses and statistical data about departmental performance by cost

control variables-number of procedures, department wise and grade wise manpower, etc.

capacity details and production norms are also indicated. He subsequently assists in

monitoring performance comparing actual results with budget. The responsibilities of budget

officer can be conveniently combined with those of Management Accountant.

Budget calendar

It indicates specific dates for preparing individual parts of the budget, discussing them

with departmental heads concerned, for review and revision and getting them approved. This

ensures each segment receives adequate attention and the whole exercise is completed by due

date. The work should not interfere with normal routine of those involved in the budget

exercise.

Budget period

The budget period indicates the time span covered by a budget. It is generally one

year, coinciding with the financial year. The process cycle time is relatively short and there

are no substantial seasonal variations, which could affect month- to- month activity level. The

annual budget should be integrated with long range plan. This could cover three to five years.

Capital Expenditure also covers a three to five years period since it takes considerable time to

conceive requirements of fixed assets and their acquisition. The first year of Capital

Expenditure Budget should run concurrently with the annual budget.

Budget revision

Since a budget serves as a datum against which the actual performance is compared,

ordinarily the budget is allowed to run its course for the entire period for which it is

conceived. A mid-year review is undertaken and if there are major changes in basic

parameters and suitable alterations are made in the budget projections for latter part of the

year. Unless warranted, exhaustive changes are not made in the original budget.

MECHANICS OF BUDGET PREPERATION:

INCOME

The sources incomes are charges for hospital services

Bed charges

The beds are generally classified under four categories; A, B, C and D. this

classification is done more to segregate patients according to their ability to pay. Number of

beds available under each category is predetermined. Facilities offered by each of these

categories- such as space per bed, number of beds in a room, separate bed for patient’s

companion within the room, quality of linen and furniture, provision of TV and air

conditioning, nurse or ward boy in attendance-are different. There may be little

differentiation as regards medical attention and food supply. One can compute category- wise

cost based rates considering these factors. These rates can be made subjected o cross subsidy

to match ability to pay. Category-wise occupancy records are maintained. The ultimate

objective is to ensure targets income from beds should be generated from expected capacity

utilization at revised rate.


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Other hospital services

Income from other hospital services such as OT, X-ray and pathology tests for the

budget year could be similarly computed. However, unlike in respect of beds, service offered

by a department is identical to all patients. The fees charged for a service of that department,

often, depends upon the class of bed occupied by them. Forecasting income using different

rates for identical services become difficult. One can, therefore, compute the income for the

budget year using average rate for the previous year. At the most, the departmental output

could be classified for four or five categories, for which statistics are readily available and

there is substantial cost difference between them. Persons in charge are encouraged to

forecast the activity of their respective departments and corresponding income during the

budget year.

Other receipts

The amount could be targeted at the previous year’s level. Some hospital authorities

leave their deficit from operations uncovered open ended hoping to offset the same through

donations. These are generally received from one or more business persons or collected by

the leaders of the community with which the hospital is associated. Businesses look upon

these donations as business transactions if they are able to secure tax concessions thereon.

Receipts of donations could be planned. They could be identified with certain individuals on

the management board who have been instrumental in getting such donations in the past.

There could be special collection drives, holding charity film shows, etc.

With limits to what one could charge to patients, income from non patient services is

receiving greater attentions

Donations: Nonprofit healthcare institutions depend to a considerable extent on donations

from persons and organizations. These donations could be in the form of physical assets (land

, building, equipment and instrument, labor and material). These must be brought into the

hospital books at their current market or disposable value. The same treatment will apply

when items donated consists of shares, bonds and other financial instruments. The donors

could lay down restriction regarding their usage. This must be spelt out in the balance sheet.

Grants: Grants are funds provided by a government body or department to an institution, for

example a hospital, to be used for a specific purpose, activity or facility. Grants or irrevocable

rights to grant are recognized as revenue in the period in which they are receiving. This may

be at the time the grant is authorized, but, in practice, most units wait until the cash is

received. Grants could be in the nature of reimbursement of expenses incurred on specific

activities or given without any preconditions. When the grants are made for specific

activities, care should be taken to provide matching expenses. The time lag between incurring

the expenditure and subsequent reimbursement should be considered when formulating cash

budget.

Interest / Dividend Income: Income from these sources is linked to investments provided in

the balance sheet such as fluctuations (a) in exchange rates on capital funds and (b) rate of

interest / dividend likely to prevail during the course of the year. If the investment is made

from reserves, income there from forms part of the general revenues of the period and could

be used for meeting any expenses that need be incurred for running the hospital. If the


70

investments are in the respect of earmarked funds, the budget should provide expenses that

need be incurred to meet the objectives of the investment or should be added to the funds

earmarked for the project. The finance Manager is expected to manage these funds.

Negative Income/Deductions from Income: To keep up with their images as a service

organization and also to secure tax concessions, hospitals offer concessions ranging from

absolutely free service to marginal reduction in rates charged. Often, these concessions are

offered on ad hoc basis. In one hospital, members of its Governing Body made visited the

hospital daily, and during their daily rounds, they entertained requests from patients for

reduction in bills amounts on pecuniary grounds. According to the hospital authorities, the

reduction in income due to concessions was not substantial. No one knew the exact quantum

since the bills were accounted at their net amounts. An observer felt that the quantum of

reduction in income could be very large if one were to go by the length of the queue in front

of their office. Besides, the founding donors were also entitled to sanction reduction in bill

amounts. A study revealed that the annual cost of concessions offered to some of the donors

was much more than their original donation.

Most of the hospitals offer free medical service to its employees. This concession tends to

result in an open-ended liability and leading to IR issue. Some hospitals cover their

employees under some health insurance scheme to avoid these pitfalls. Some tend to set a

ceiling for each employee and show the amount as a part of employee benefits rather than

reduction in revenues.

Deductions from Income: The budget should provide income at full rates. Deductions

should be shown separately grouped under indoor and outdoor patients and analyzed under:

(a) Charities, source of funding, community – if this is a relevant factor; (b) Staff,

(c) Special schemes, and (d) Bad debts. The objective of the exercise is to ensure the

concessions offered are need based and do not result in disproportionate reduction in income

not visualized by the management.

Hospitals agree to charge special rates to employees of some commercial and

industrial organizations or members of some health care schemes as a part of marketing

effort. The cost of this concession should be assessed and provided in the budget as a

marketing cost.

Payment to Doctors: A percentage of fees charged on some hospital services or a fixed

amount is paid to outside consultants and, sometimes, even to the medical staff on its own

payroll. Some show the total amount charged to the patients as income and the payment to

doctors as an expense. This presentation is better than showing the hospital income net of

such payments, whereby there is no reference to such transactions in the final Income and

Expenditure Statement of the Hospital.

EXPENSES

Formats of expenses could take the following forms: (1) Involving cash outflow, (2)

use up of resources such as inventory or, (3) creation of liabilities (or their combination). For

their inclusion in forthcoming annual budget, they should benefit the organizations current

operations and not extend to future periods. Major items of expenses and their incidence in


71

some hospitals are listed below. The figures indicate percentage of total cost. Expenses

should be accounted on mercantile basis.

Pattern of Expenses

The pattern of expenses could vary by hospitals: Types, sizes, location and other

distinctive factors.

Expenses In %

Materials 22.5

Employees expenses 27.3

Dietary services 3.0

Utilities – electricity and water 10.5

Engineering and property maintenance 11.0

Other hospital expenses 7.0

Administration including consultancy fees 11.0

Depreciation 4.0

Interest paid 3.7

Total 100

Materials budget

Expenses on medicines, injections, operation theatre material, X-ray plates, reagents

used in pathology laboratory, and such other material used while treating a patient in various

departments, directly or indirectly, could be termed as direct material. The value of this type

of materials varies with level of activity. Over a period, standards or norms are developed in

terms of specifications and quantities for each material for different lines of treatment,

operations or procedure. If such norms are available, requirements of various categories of

material could be computed by multiplying per unit requirements with activity level

expressed in terms of numbers thus:

Activity In turns of number

Medical supplies Cost per patient day

Radiology Cost per film

Obstetrics Cost per delivery

Operating theatre Cost per operation/type of operation

Catering Cost per patient/meal

Pharmacy Cost per patient/day

The Materials Budget could be used to:

1. Estimate expenditure on material purchases and provide information required for

income and expenditure, balance sheet and cash flow budgets. The information is

used for deciding insurance cover, determine space and manpower requirements.

2. Plan level of inventories.

3. Schedule purchases in required quantities, to be secured from appropriate sources

when required time.


72

4. Assess quantum of losses through deterioration, leakages and over aging.

Many hospitals make patients buy medicines and medical supplies for use during

patient’s stay in the hospital. These purchases are in standard packs, which may not be fully

used on such patients. The surplus stock is used on indigent patients. It is not a good practice.

The surplus material could get mixed with general stocks of the hospital. This practice should

be given due recognition when computing materials budget.

Purchase Budget

Purchase budget provides for two additional inputs over direct materials cost:

1. Items, other than those used on patients , such as general stores, linen, stationary,

engineering stores and sometimes, even equipment.

2. Variations in opening and closing inventory. If the current inventory were

disproportionately higher than immediate requirements, the purchases would be less

than actual consumption.

Each department estimates its material requirements, indicating the basis of how the

figures have been arrived. The Purchase Manager acts as a coordinator, and formulates the

Purchase Budget combing the requirements of all departments. Actual purchase activity could

be centralized.

Personnel Budget

Personal budget is prepared keeping in mind the requirements for manpower planning

and incidentally for estimating employees’ cost for the budget year. Employees’ expense is

the second most important item of cost in terms of incidence, next only to expenditure on

materials. Budgeting employees’ expenses can be a part of manpower planning exercise.

Major component of employees cost could be payment to honoraries, consultants and

expenditure on fringe benefits. The expenditure incurred on unionized staff, though

significant in terms of numbers, is not very large. One has to add cost of services, which are

outsourced, such as security, housekeeping and routine maintenance, to the employees cost to

arrive at the total labor cost. Most of the hospitals complain of high employees cost but the

rarely care to analyze the composition of this vital item of cost.

Hospital staff could be categorized under:

Management-medical and administrative

Medical

Nursing

Paramedical

Engineering and technical

Administrative and clerical

Unskilled

Fringe Benefits

Fringe benefits could be broadly categorized under:

1. Retirement benefits: These include Provident Fund, Gratuity, and Pension. These are

predetermined by the Company’s policy. These can be estimated as a percentage of

regular pay.


73

2. Cash benefits: Such as Bonus, leave Travel Concession, House Rent, etc. These are

related to the grade in which an employee is placed.

3. Others: Such as subsidized lunch, transportation, medical, training, uniforms, etc.

These can be estimated under the guidance of Personnel Department. There is no ideal

ratio between the numbers of employees in each category. The total number could be

anything from 2 to 5 per bed depending upon facilities provided hospital services that attract

the most of the patients, in-house facilities, and physical structure of the building and

management policies.

Since the objective of Personnel Budget include manpower planning, it is necessary to

draw an organization chart, establish an optimum level of employee strength in terms of

numbers, categories, and specialization, based

1. Number of working days and shifts per day each department works

2. Standard manpower considering available infrastructure.

3. Number of days an employee is present during the year.

4. Previous record of average absenteeism percentage.

5. Industry norms for employees productivity, e.g. number of beds per nurse or

attendant.

6. Existing strength.

7. Provision for wastage, training, and acquisition of new equipment.

Nursing staff requirement is generally estimated based on the Nurses; Bed ratio for

different area of the hospital- higher ratios for ICU’s and lowers for general category beds.

Another better method is to estimating is based on calculating nursing hours requirements for

24 hours for various types of patients- Intensive care, Surgical, Medical, and paediatrics,

patients chronic diseases ward (tuberculosis patients) patients etc. will require different

nursing hours per day. In hospital, areas working 24 hours 7 days week schedule are

identified and the staff requirements suitably provided. In OT nurses requirements will be

based on number of OT tables and categories of operations. In OPD nursing requirement will

be based on number of patients attending per day. There is variability for both the number of

patients with regards the day and season.

Overtime

Overtime payments are necessary for emergency work and unplanned absenteeism.

Some employees often create situations that need overtime payments artificially to generate

additional income for themselves on a regular basis each month and their colleagues. It

creates bad morale amongst other employees who are not similarly placed to take secure

overtime payments. The budget makes provision for over time departments-wise or in total.

The managements generally feel that under normal circumstances, there should be no

overtime. In some hospitals, overtime hours are offset by compensatory offs for equivalent

time period.

Other Operating Expenses

Energy Costs

Sources of energy used by hospitals are: electricity, gas, coal and steam. It is

necessary to estimate energy cost departmentally for control purpose as well as to arrive at


74

realistic departmental costs. Generally, there are separate meters for extendes space and

group of machines. One could estimate the power consumption on the basis of area,

horsepower rating or manufacturer’s specification.

Maintenance/ Plant engineering

Maintenance is undertaken to keep or restore assets of the organization in a condition

to render an acceptable level of performance. In a multispecialty hospital medical equipment

maintenance involves the following areas.

1. The classification of equipment

2. The maintenance expenditure

3. Routine preventive maintenance

4. Critical and Defect analysis

Marketing

Expenditure on marketing is determined by the management at its discretion. It could

be related to the expenditure during the previous years, a percentage planned income or based

on marketing effort likely to be made during the year. The top management decides on how

much to spend on marketing and the manner in which it is to be incurred. The amount

allocated depends upon the perceived need and availability of the funds. Marketing is mainly

used to create awareness amongst the community and to increase utilization of hospital

facilities which are underutilized.

Administration

Administration expenses cover expenditure on rent, rates and taxes, travel,

communication, professional fees, medical books and journals, and participation of seminars

and conferences. The hospital should be adequately insured against loss of property on

account of fire, accident, riots, and possible claims from patients against negligence.

BUDGET CONTROL

Budgets by themselves will achieve little unless they are supported by budgetary

control procedures. Budgetary control mechanisms ensures the actual results are in line with

what was planned and agreed up on, and if there are deviations, identify the reasons and to

the extent possible make individual accountable for them

It can be achieved through:

Keeping a constant watch on over the budget in action

Periodically reviewing of actuals with the budget

Analyzing deviations in actual performance

Taking remedial action where indicated

Revising the budget if conditions warrant

The ultimate financial statements that result from budgeting from and from the operations

of the hospital are the income and expenditure statement and balance sheet, which reflect

the financial performance of the hospital for the period and at the end of the period,

respectively.


75

Income and Expenditure Statement

Income and expenditure statement reflects the results of the hospital’s operations for a

stated period. Only broad classification of accounts is done. Details are furnished in separate

schedules. At times, functional indicators like income and expenditure statement per inpatient

day, income per outpatient etc. can also be given.

Usually, outpatient and inpatient income and expenditure are separately accounted.

The income and expenditure of various departments are worked out departmentwise. This is

essential for the purpose of evaluating financial performance of each department, and in

determination of costs of providing each service.

Balance Sheet

A balance sheet represents financial position as on a specific date. It is statement of

assets and liabilities. It reflects what the hospital owns and what it owes to others. Only total

figures are given against each classification of the main accounts. Detailed schedules can be

annexed if required.

A hospital’s assets and liability consist of

Assets

1. Fixed assets: These are physical assets for long term intended use

Building- Wards, departments, hostels, residential accommodation

Lands and grounds

Plant and equipment- Boilers, sterilizers, AC plant, lifts, central oxygen and

suction, mechanical laundry etc

Furniture-Hospital furniture and general purpose furniture

Diagnostic and therapeutic equipment and machines

Vehicles

2. Current assets: They consist of the following

Cash in hand and bank

Deposits and investments

Accounts receivable

Other receivables

Inventory of supplies and materials in stock

3. Other assets: These consist of certain specific purpose funds(like emergency fund,

endowment fund, training fund etc)

Liabilities

1. Current liabilities

Salaries and wages payable

Taxes, interest burden

Accounts payable

2. Long term liabilities

Mortgages

Long term loans


76

DEPARTMENTAL BUDGET

One needs to know how much expenditure on a department is incurred and what its

service units cost. This information helps the management to fix rates for service rendered by

the department and assess its financial viability and performance. An appropriately prepared

budget will enable the management to monitor the performance of each department in terms

of activity, income, costs, and anticipate needs for additional facilities and equipment,

infusion of capital funds and changes in management strategy. As a part of Cost Accounting

system, departmental costs are computed periodically. These can be matched with forecasts

contained in the budget to facilitate effective control over operations. Some department

budgets are described below:

Research

To be identified as a research centre, a hospital has to register with the Government.

The budget for Research is an appropriation budget. The budget sets limits on the overall

expenditure taking into consideration needs and availability of funds. External funding

agencies could also give assignments to their specialization. The budget covers expenses on

employees, rent, fees, books and periodicals, and seminar fees.

The budget could be reviewed in terms of:

1. Receipts of promised funds

2. Progress made on the project, and

3. Benefits derived

Dietary Services

The responsibilities of the Dietary Services Department include procurement, storage,

processing and delivery of food to patients in compliance with physician’s orders and public

health regulations. Additional responsibilities include teaching nutrition and right eating

habits, and determing patient’s preferences. If hospital cafeteria is part of the set up, one has

to attend to the requirements of the staff and the public. Previously most of the patients and

staff brought food from their residence. Now most of them depend upon food served by the

hospital. Some hospitals prohibit food from outside. The scale of operation has also

increased. Heavy investment is made in this section on storage and food preparation to avoid

deterioration and ensure consistent quality. In view of the importance attached to food

preparation and distribution, and handling of labor, preference is being given to persons with

hotel qualifications and experience to head the department. Whatever may be the

arrangement for the supply of diet to patients, a trained and experienced dietician should be

appointed to define and monitor the different therapeutic diets suggested to patients. The cost

of food served to patients could be Included in bed charges and not included in the bill as a

separate items.

Maximum number of complaints against hospital services is on account of food,

particularly, from patients who have been in the hospital for long. It is also an area from

where maximum leakages and wastages occur. Maintenance of quality standards and physical

and monetary controls are difficult to enforce. More and more hospitals are contracting this

service to outside parties.


77

Laundry services

Normally, hospitals do not charge the patients separately for the laundry services. It

forms part of bed charges or service charge recovered from patients. It is essential that

someone being held accountable for its quality of service and cost. A hospital could wash

patient’s uniforms and bed linen, staff uniforms and other clothes in house through its own

regular staff using its own equipment or get them washed from an outside laundry. In a

hospital, the clothes are separated between coloured and white and again sorted out under (a)

soiled, (b) infected, (c) fouled and (d) infected and fouled. If the dirty linen is separately

washed according to degree of soil, washing is simplified, time is saved, economy is affected,

and the results are better. The in-house laundry could provide hygienic, cleaner and prompter

service. It could be operated as a separate profit centre.

Nursing training school

Many larger hospitals conduct their own nursing training schools to provide them

with a constant supply of trained nurses. Assuming it is a two year course, the number of

trainee nurses any time would be 60-80, with 30-40students in each batch. They have to be

provided with residential accommodation close to the hospital. Capital cost would cover cost

of space, audiovisual equipment, furniture and fixtures for holding 2 classes simultaneously,

library, office and hall.

Nursing school runs as per the guidelines Of Nursing Council of India. It offers 3½

years General Nursing (Diploma) Course. There is elaborate requirement of physical

facilities, staff, various lab items, books hostel facilities as per Nursing Council guidelines.

Running cost of the training school would cover stipend paid to the students, cost of

uniforms, and linen in the hostel, washing charges, library books and free food. Teaching

faculty will consist of a Principal, with assistance from the budget officer, prepares the

budget.

BENEFITS

Orderliness in planning process: The main budget is supported by several

departmental and functional budgets, with quantitative details and financial values, activity

details and use of resources, income, and costs. There is a provision for continuous review of

performance. In the process a kind of orderliness is introduced. The managerial personal are

made to think in terms specific rather than in general terms. It guards against undue optimism

and unplanned expenditure.

Decentralization of responsibility: Buck-passing is avoided. Through departmental budgets,

authority is delegated downwards along with accountability for performance. The top

management is left free to concentrate more on important issues.

Performance appraisal: The budget provides norms for evaluation. For want of norms,

previous year’s results are used to forecast current year’s performance. The budget provides

the details of total capacity, likely actual activity level and what it means in terms of use of

resources, matching income and expenses. Whilst specifying these, relationship between

input and output is based on current performance. These could be termed as norms and used

as guides to measure performance. Since the departmental staff is involved in devising the

norms they unlikely to be opposed there being used for measuring performance.


78

Communication: Every hospital has some sort of communication system. Budgetary Control

system makes reporting purposeful, comprehensive, reliable and regular. In a manner, the

exercise serves as an important instrument of communication. The key personal are informed

about the organizational goals and policies, changes in the environment and the organization

within which the budget is framed and what is expected from the individual manager. The

sense of participation ensures their commitment to achievement of organizational goals.

Co-ordination: Inter departmental problems get discussed at various budget meetings.

Medical administrators and key staff members attend these meetings from finance,

engineering and personnel departments.

Creation of database: The exercise results accumulation of substantial data at one place. For

example, it could identify departments, which need investment or where there is a surplus

labor. Further, the data provided in the budget detail sheets could be utilized to establish

trends for projecting future growth.

PROBLEMS IN BUDGETING

Reasons why a budget may not deliver the desired benefits are:

Lack specific goals and objectives

Lack of training and motivation. It is often perceived by the key personnel as a

pressure technique imposed by the top management, and not as a planning device.

They may not deliberate stand aloof or non cooperate.

Departmental goals may be at variance with the co operate goals. At highest level the

management may like to deliver best possible health care. At the operating level one

has to take care of constraints imposed by budgets, number and quality of staff.

Allocation of funds – managers may find it hard to allocate funds fairly and in the

businesses best interests

Short term vs. Long term planning – budgets usually only look at an annual plan

therefore may fail to take a longer term view

NURSE ADMINISTRATOS ROLE IN BUDGETTING

1. Budget required for the nursing department should be co-operative activity of the

nursing superintendent and her associates including the supervisors

2. Participation in planning budget

3. It is prepared under the direction and supervision of the administrator or financial

officer designated by him

4. The administrator supplies special forms to guide the budget.

5. Consult and take assistance of her/his subordinates in determining the needs of the

unit for ensuring year on the basis of information received.

6. Request sufficient funds to suggest a sound programme such as to provide for


qualified staff to provide for expansion of physical facilities, supplies, equipment, for

improving instruction and also to carry out adequate functions of the institution.

7. Submit budget request with justification with proposed expenditure. The administrator

defines her/ his budget so that nursing unit will have enough money to conduct

programme effectively. Money must be available to allow experimentation also.


79

8. When the budget is allotted, the administrator should support the budget. He/ she

should interpret the subordinates, any changes that may affect instruction services for

the adopted budget. She/ he secures for the adapted budget. Once the budget is

adapted, it is the responsibility of the administrator to see that expenditure should not

exceed the appropriation made

9. Since the nurse administrator also is responsible for budget, she/ he should cover the

routine budget control.

10. The budget request may be broken down to the different unit’s e.g. Salaries, supplies,

equipments and other purchase requirements.

CONCLUSION

Budgeting is a tool of administration, which help to make the functioning of an

organization very effectively. Viewing budgeting as a two-part process--budget setting and

budget managing--and implementing best practice principles within each part can help

hospitals generate better year-end financial results that can be invested in teaching, research,

and patient care, and improve financial viability. Nurse Managers are responsible for a

significant portion of institutions financial recourses. These sources can be invested very

wisely for the provision of quality health care by the manager who is knowledgeable about

the budgeting can effectively articulate the need for recourses.

BIBLIOGRAPHY

1. G.R Kulkarni, Financial Management for Hospital Administration, Jaypee Brothers

Publication,New Delhi, Page No-:41-91

2. B.M Sakharkhar, Principles of Hospital Administration, 2nd

edition, Jaypee Brothers

Publication,New Delhi, Page No:171-176.

3. Linda Roussel, Management And Leadership for Nurse Administrators,4th Edition,

Jones And Bartlet Publishers, Boston, Page No:272-302

4. B.T.Basavantappa,Text Book Of Nursing Administration, Jaypee Brothers

Publication,New Delhi

5. Catherine.E.Loveridge, Nursing Management In New Paradigm,Aspen

Publication,Maryland

6. Bessie.L.Marquis, Leadership Roles And Management Functions In Nursing,

Lippincott Publication ,Philadelphia

7. http://www.ehow.com/how_4471831_make-hospital-budget.html#ixzz1E1ObwVQZ

8. http://allbusiness.com/accounting/budegt

9. www.budgetmap.com

http://www.ehow.com/how_4471831_make-hospital-budget.html#ixzz1E1ObwVQZ

http://allbusiness.com/accounting/budegt

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80

B. EDUACATION INSTITUTION

INTRODUCTION:

The word "Budget1' is derived from the old English word "budgettee" means sack or

pouch which the chancellors of the exchequer used to take out of His" papers for laying

before the parliament, for the financial scheme. Now the term refers to the financial papers.

MEANING OF BUDGET:

Budgeting, though primarily recognized as a device for controlling, becomes a major

part of the planning process in any organization.

"Budget" is a concrete precise picture of the total operation of an enterprise in monetary

terms.

DEFINITION

Budget is the heart of administration management. Budget served as a powerful tool

of co-ordination and an effective device of eliminating duplication and wastage.

According to T.N. Chhabra, a budget is an estimation of future needs arranged

according to orderly basis. Some or all activities of an enterprise for a definite period of

time".

BUDGET- A TOOL FOR EFFECTIVE ADMINISTRATION

When budget becomes really an effective tool of administrative management, the

executive must have adequate powers. Facilities and discretion in budgetary matters with

following principles.

Executive programme : Budget should go hand in hand with programming under the direct

supervision of Chief executive.

Executive responsibility: The Chief executive must see that the departmental programmes

fulfill the intent of the legislature and due economy is observed in the execution of the

programme.

Reporting : Budgetary process like preparation of estimates, legislature action and the

budget execution must be based on full financial and operating reports coming from all levels

of administration.

Adequate tool : Chief executive must have an adequately equipped budget office attached to

him and authority to earmark monthly or quarterly allotment of appropriation.

Multiple procedure : The methods of budgeting may vary according to the nature of

operation.

Executive direction: Appropriation should be made for broadly defined function of the

department.


81

Flexibility in timing: Budget should have provisions to accommodate necessary changes in

the light of changing economic situations.

Two-way budget organization: Traffic between central office and the agency offices respon-

sible for budgeting and programming should move in two-way rather than one-way street.

BUDGET- A TOOL FOR LEGISLATIVE CONTROL

The budget is the most important tool of legislature control over the public purse.

Control over public purse enables the legislature to control the executive, and the history of

this control may be broadly identified with the evolution of democracy itself. This control

was originally restricted to the raising of revenues only, but in course of time, it spreads out

and included control over expenditure as well.

BUDGET PROPOSAL / PLANNING

In India, usually annual budget estimates for coming financial year are prepared in the

month of September / October of the current year. It is to be submitted by the 'directorate of

medical, health and F.W on October 25th to the State Government so the budget preparation

is started at the district level.

Every head of the hospitals are required to prepare budget estimates in respect of

medicines, diet, equipment, surgical dressings, even etc are to he worked out.

Recurrent budget.

The Planning should include : -

Forecasting : Sound forecasting may be related to making decisions on purchases,

expansion, advertising servicing, working capital needs etc.

Accounting : Well conceived accounting system must be needed to compare the

budget information with actual accomplishment. The cost information tells us

howmuch it will cost to produce or give services.

Lines of authority: Budget preparations, operation and supervision need / require

clearly defined lines of authority.

Budget committee: Budget needs budget committee in an organization.

1. To receive and approve all forecast departmental budgets, provide reports showing

comparison of actual and budget income and expenditure

2. To request for special studies of deviations from the budget and consider revision of

budget to meet changed conditions.


82

BUDGET PROPOSAL FOR NURSING EDUCATION INSTITUTION:

The administration of school or college of nursing requires a budget and this budget

will probably allocated directed but as in most hospital schools of nursing and alleges, it will

be included in the total budget of the hospital with a certain amount remarked for the school

or college.

In general, the items which arc budgeted for the average government schools of nursing in

India are:

1. Salaries for professional, Clerical and Domestic staffs and drives

2. Stipends for the students.

3. New equipments and supplies.

4. Hires and oilier house hold supplies.

5. Office supplies include stationery and postage.

6. Maintenance of transport and cost of petrol.

7. Maintenance of library or setting up a new library.

8. Contingency fund for educational tours, professional activities, capping and

graduation ceremonies, prizes, entertainments etc.

PREPRATION OF BUDGET STATEMENT IN NURSING EDUCATION

The nurse Administrator or head of a budgetary unit is responsible for the preparation

of the annual budget of the school of nursing. In conference with the president and other

budgetary unit heads. The administration gets on over all view of the budget. So that is

requirements are reviewed and activates submitted in time for inclusions.

In the proposal for the next financial year, when the budget allotted the amount should

be made known the staff. So that they may establish priorities among items on which of is

proposed to be spent purchases should be made, accounts maintained in accordance with the

financial practices of the institution.

Item Income

or

expenditure

Actual

last

year

Current Year Budget

Next year

Budget Actual Proposal Approval

1.

2.

3.

4.


83

STEPS IN BUDGETING FOR COLLEGE OF NURSING:

1. Request the professors of various departments and librarian 10 present their needs for

the coining year by a specified dale, and confer with these who have presented such

need.

2. Review the budget appropriation and actual expenditure for the current year in

conjunction with statical data.

3. Ascertain whether any changes are contemplated.

4. Prepare the programme which the new budget is 10 cover.

5. Determine the percentage of salaries of personnel. eg. Principal. Vice Principal.

Professors, Lecturers, Librarian, Clerk, Peon, etc.

6. Estimate the requirement for the coming year from the information supplied as the

expenditure for supplies, equipments and repairs to date.

7. Prepare a summary of new needs, both personal and material with data to support the

request.

Implementation of Budget:

Where the budget or money has been given to college, utilize it as per planning. Eg.

Giving salary, purchasing equipment, library books, programmes, etc.

We evaluate that how much money has been spent and how much remaining So that

we can plan for the next budget.

Budgeting Expenditure:

- Salaries and wages

- Material

- Utilities

- Service and maintenance

- Expenditure an academic activities

- Research activities

- Miscellaneous Sports activities

Welfare of students

- Library

Budget Model:

Based on steps of budget preparation a new budget model prepared for school and

Colleges. Student’s strength – 50 members.

Subject Particulars Amount in

rupees

Sports Fees

For purchase of Sports goods 65% 2340.00

Tournament – 30% 1080.00

Others – 5% 180.00

Total - 100% 3600.00

Library Fees Regular subscription of newspaper, 1800.00


84

magazines 50%

For purchase of books 30% 1080

For binding old books/new 10% 360.00

For repair charts 5% 180.00

For repair furniture’s 5% 180.00

Total 100% 3600.00

Medical examination

fees

For honorium to doctors 50% 450.00

For first aid 20% 180.00

For assistance to doctors 10% ` 90.00

Total 720..00

Vocational education

books

For purchase of materials 60% 1080.00

For books purchase 10% 180.00

For registration with the commission fees

20%

1800.00

Total 3600.00

Audio visual aids Type of model 60% 2800.00

Repairing old A.V. aids 20% 800.00

Maintenance 20% 800.00

Total 4400.00

Laboratory fees

Solutions 40% 1000.00

Test tube / equipments 40% 1000.00

Maintenance 20% 800.00

Total 200.00

THE RESPONSIBILITIES OF PRINCIPAL / NURSING ADMINISTRATION IN

BUDGET INCLUDES THE FOLLOWING -

1. Participation in planning budget.

2. Consult and take assistance of his / her subordinates in determining the needs of the

unit for ensuing year on the basis of information received.

3. Request sufficient funds to suggest a sound Programme such as to provide for


qualified staff to provide for expansion of physical facilities, supplies, equipment, (or

improving instruction (School and College) and also to carry out adequate functions

of the institution.

4. Submit budget request with justification with proposed expenditure. The administrator

defines her / his budget so that nursing unit will have enough money to conduct

programme effectively. Money must be available to allow experimentation also

5. When the budget is allotted, the administrator should support the budget. He / she

should interpret the subordinates, any changes that may affect instruction services for

the adopted budget. She / he secures for the adopted budget. Once the budget is

adapted, If is the responsibility of the administrator to see that expenditure should not

exceed the appropriate made


85

6. Since the Nurse Administrator who is responsible for budget, she / he should cover

the routine budget control

CONCLUSION

Budget is quantitative statement usually in monetary terms, of the expectations of a

defined area of the organization over a specified period of a time in order to manage financial

performance. The organization may use sophisticated and complex forecasting methods,

including statistical techniques to assist in making projections related to the budgetary period.

Management normally uses the past as the common starting point for projecting the future.

BIBLIOGRAPHY

1. Eleanor J Sullivan, Philip J Decker. Effective leadership and management in nursing. 4th

edition published by Addison wesely. Page no.91-104.

2. B T Basavanthappa. Nursing administration. Jaypee publications. 1st edition. Page no.152-

161.

3. T Ramaswami. Principles of management. 1st edition. Himalaya publishing house. Page no.

361-394.

4. Google .com

5. Budget planning guidelines. Com

6. Pubmed.com

Unit-ix Fiscal Planning New 1

Documents

jaypee brothers publication

core module analysis

hold qualified staff

temporary disablement benefit

concrete precise picture

chief operating officer

chief executive officer

latest finish time