Issue link: https://beckershealthcare.uberflip.com/i/759111
24 CFO / FINANCE Why These 4 Health Systems Abandoned Traditional Budgeting By Brooke Murphy A s markets become increasingly volatile, some hospital systems are ditching static annual budgets for more dynamic alternatives. Traditional budgets rely on meticulous line item details to plan busi- ness expenses and anticipated revenue during the coming 12-month period. Organizations in industries outside of healthcare started ditch- ing static annual budgets years ago in favor of a more proactive option — the rolling budget. A rolling budget is a fiscal management approach that uses rolling forecasts, relative performance targets and increased management ac- countability to create a culture of continuous improvement. Due to a focus on real-time comparison, organizations update rolling budgets throughout the fiscal year. To establish a rolling budget, financial leaders set performance targets that represent marginal improvements over last year's actual results. Staff then run a rate forecast, or an extrapolation of current financial trends based on last year's achieved results, and compare the results to their tar- get goals. is determines how much hospital operations must improve at any point to meet target performance goals by year's end. Switching from a structured budget to a loose financial plan can make any CFO uneasy. But representatives from four health systems spread across the U.S. explained how and why their organization abandoned traditional budgeting models during presentations at the Strata Decision Summit in Chicago Oct. 19, sponsored by Strata Decision Technolog y. Here are four thoughts on the advantages of fluid budgets from Mary Jo Brummel, director of finance at Nebraska Medicine in Omaha, Neb., Greg Wright, director of finance at Southern Illinois Healthcare in Carbondale, Larry Hill, vice president of finance at Mission Health in Asheville, N.C., and B.J. Miller, senior director of performance and planning at Park Nicollet Health Services in Saint Louis Park, Minn. 1. Allows for a more strategic investment of resources. De- spite the amount of effort, time and resources hospitals invest in tradi- tional budgeting processes, the end product oen produces less than desirable results. Mr. Hill said Mission Health used to dedicate four or five months — and millions of dollars in personnel and resources — to its budgeting process, only to find the budget sometimes lost its relevance aer just one quarter. Nebraska Medicine accountants and finance employees utilize the costs from patients discharged during the first six months of the fiscal year, when they begin the financial planning process for the following year, said Ms. Brummel. Since Mission Health implemented a rolling budget, the system has strategically reinvested its former budgeting resources to expand and develop its operational footprint. 2. Makes an enterprise financially nimble. Due to today's market volatility, the ability to review performance results in real-time and course correct throughout the year is attractive to many healthcare organizations, said Mr. Wright. By their nature, hospital systems are oen slow to execute change due to their administrative structure and cumbersome size. A rolling budget decentralizes financial manage- California Hospital Owner Files for Bankruptcy By Ayla Ellison W est Contra Costa Healthcare District, which owns shuttered Doctors Medical Center in San Pablo, Calif., filed for Chapter 9 bankruptcy protection Oct. 20. The healthcare district filed for bankruptcy after a hotel op- erator rescinded its offer to buy DMC's campus, according to the East Bay Times. DMC closed in April 2015 after years of financial struggles. The hospital primarily served low-income and uninsured populations in West Contra Costa County. In January, the West Contra Costa Healthcare District board accepted Royal Guest Hotels' offer to buy the ma- jority of DMC's campus. However, Eric Zell, hospital district board chairman, told the East Bay Times the hotel operator recently pulled its offer. "With no chance to bring in revenue in the short term to cover existing district expenses, such as worker compensa- tion claims and medical record storage, the district board voted unanimously to file for bankruptcy to allow for the or- derly disposition of remaining financial obligations, includ- ing those owed to past district employees and vendors," Mr. Zell said. According to the bankruptcy petition, the healthcare dis- trict has at least $50 million in liabilities. Royal Guest Hotels did not respond to the East Bay Times' request for comment. n A rolling budget decentralizes financial management and instead enhances regional management accountability across the enterprise.