LEADERSHIP ASSIGNMENT PART 2

Understanding FTEs and Nursing Hours Per Patient Day Teresa D. Welch, EdD, MSN, RN, NEA-BC, and Todd Smith, PhD, MBA, MSHA, RN, NEA-BC

The personnel budget is the largest line item on a hospital’s general budget and often consumes the majority of an organization’s financial resources. It is also the most challenging to develop and difficult to manage. This article provides a detailed, step-by-step guide to understanding how to develop a hospital’s unit- level personnel budget. The intent of the article is to provide new or aspiring nurse managers within the acute care setting with a basic understanding of financial concepts required to manage the personnel budget, and to serve as a training resource for supervisors placing new managers into positions with financial responsibilities.

udgeting processes are not unique to nursing or health care.1 Every business, every home, and

KEY POINTS

� As the largest line item on a hospital’s general budget, the personnel budget consumes most of an organization’s financial resources.

� The first-level manager is the most knowledgeable about departmental needs and uniquely positioned to negotiate financial requirements to meet and maintain efficient and high-quality patient care.

� Financial competency for the first-level manager is critical to organizational success.

Bevery individual has a budget, however formal or informal it may be, to plan income and cash flow against expenditures. A well-planned budget is time consuming and resource intensive. As the largest line item on a hospital’s general budget,2 the personnel budget consumes most of an organization’s financial resources. It is also the most challenging to develop and difficult to manage.2

Historically, first-level managers in nursing have been selected on the merit of their strong interpersonal skills and clinical expertise, oftentimes without the requisite business preparation necessary for the up- coming role.3,4 Although nursing schools are charged with preparing the next generation of nurses for pro- fessional nursing practice, one specific to the profession of nursing and health care, they are not generally taught the language of, and skills comprised in, busi- ness.5,6 When nurses initially enter the hierarchy of formal leadership as first-level managers, they are typically responsible for the daily operations of the unit. This generally includes the responsibility of under- standing and using financial concepts to maintain productivity standards, and to calculate nursing hours per patient day based on unit of service (UOS) and productive and nonproductive hours, all essential functions of the nurse manger’s role.3,4 The immediacy of these expectations place new managers in a position of learning an entirely new language unique to finance, in addition to acclimating themselves to their new role. Oftentimes, they are provided with very little to no formal training in regard to the financial aspects of

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their new position.5,6 Therefore, it is important for first-level managers, and superiors responsible for placing new managers, to understand the necessity of learning and acquiring skills related to finance so that they may adequately perform in their new roles and clearly articulate and defend patient care needs.3,4

In this article, we provide a detailed, step-by-step guide to understanding a hospital’s unit-level personnel budget. The intent of the article is to pro- vide new or aspiring nurse managers within the acute care setting with a basic understanding of the financial concepts required to manage the personnel budget and to serve as a training resource for supervisors placing new managers into a new position with financial responsibilities.

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Table 1. Unit of Service by Department

Unit of Service by Department

In-patient nursing Midnight census

Laboratory Number of tests run

OR OR time (minutes)

ED Patient visits per day

Radiology Number of diagnostic exams

Dietary Number of patient meals served

Maintenance Work list

ED, emergency department; OR, operating room.

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PERSONNEL (SALARY) BUDGET A unit’s personnel budget projects the applicable salary expenses that will be charged to the department over a given budget period.1,5,6 Prior to beginning work on a new personnel budget, you will need to establish several key facts: first, determine the UOS and expected volume for the department, and next, deter- mine the nursing workload (nurse–patient ratio) and skill mix. The personnel budget includes productive as well as nonproductive full-time equivalents (FTEs) and the annualized hours and salary dollars for each employee.1,5,6 Elements of the personnel budget will be discussed in detail below with examples provided to support the reader’s understanding of the concepts presented.

UNIT OF SERVICE The UOS, or patient days, is a linear measure of ac- tivity that defines the workload within each depart- ment. On most in-patient nursing units, the UOS is determined by the number of in-patients admitted to an in-patient bed at the midnight census.2,6 However, the UOS may differ depending on the type of service a department provides. See Table 1 for examples of the UOS for other departments.

AVERAGE DAILY CENSUS The average daily census (ADC) represents the volume in the department. It is the number of admitted in-patients (UOS) at midnight on any given day.5 To clearly document workload based on the ADC, one must review midnight census numbers (the ADC) across the previous 12-month period. Next, one must calculate the mode or most frequent midnight census number (again, from the ADC). Although referred to as the average daily census, the mode derived from the previous 12 months of data is typically the most reliable number on which to base core staffing numbers and the personnel budget. Using the most frequent midnight census will minimize wide fluctuations in volume and subsequently make flexible staffing de- cisions easier to manage.

NURSING WORKLOAD AND SKILL MIX Nursing workload is defined as “the time taken to carry out ‘direct’ and ‘indirect’ care, as well as other activities such as ward and organization management.”7 (p.247)

Workload for the adult in-patient acute-care settings is usually measured through patient classification systems and based on acuity metrics or workload management systems that use algorithms embedded within the electronic documentation systems. The purpose of nursing workload measurement or patient classification systems is to ensure that the most efficient number and skill mix of workers are appropriately matched to the amount of work that must be accomplished to efficiently meet clinical expectations.7 Skill mix

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breakdown is the percentage of staff within each job category and is determined by the patient care model, type of unit, patient acuity, and hospital policy.6-8

FULL TIME EQUIVALENT One FTE is defined as 2080 worked hours in 1 year or 80 worked hours in a 14-day pay period.2,6 It’s important to remember that 1 person who is working 40 hours per week, or 80 hours every 2 weeks (the typical pay period), is considered full-time. In other words, 1 FTE = 10 8-hour shifts, or, 80 hours every 2 weeks, or 2080 hours a year. With that said, we must also consider the individual who works within an or- ganization that defines full-time status 3 12-hour shifts, or 36 hours each week or 6 12-hour shifts, 72 hours every per pay period (Table 2). The definition of full time has not changed, but the organization has made the decision to adopt 12-hour shifts as their primary shift. Rather than 2080 hours as previously described, the full-time employee will work 1872 hours as a full- time employee. The principles of calculating FTEs remains the same. After all, FTEs are a reflection of hours, not people. Stay focused on the hours. It’s also important to note that employees are only paid for actual hours worked. Likewise, benefits are based upon actual hours worked; 2080 hours versus 1872. Addi- tionally, for budgetary purposes, make sure that you understand how the personnel budget was calculated and whether it was based on the 2080 rule of full-time equivalents.

Example #1: As the manager, you have been asked to provide a staffing plan for an in-patient unit that requires 1 RN each day for each shift. RNs only work 8-hour shifts. How many FTEs will be required to provide coverage across the 14-day pay period?

Calculations:

� One full-time nurse works 40 hours per week or 80 hours per pay period.

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T

7

Table 2. The Full-Time Equivalent by Hours and Shifts

FTE

Weekly Biweekly

Annualized CommentsShifts Hours Shifts Hours

1.0 5 40 10 80 2080 Full time

0.9 4.5 36 9 72 Also considered full time by most

0.8 4 32 8 64

0.7 3.5 28 7 56

0.6 3 24 6 48

0.5 2.5 20 5 40 1040 $0.5 FTE is typically eligible for benefits

0.4 2 16 4 32

0.3 1.5 12 3 24

0.2 1 8 2 16

0.1 0.5 4 1 8

Based on an 8-hour work day. Benefits are based on worked hours.

w

o One shift is 8 hours a day × 5 shifts (or 5 days) = 40 hours (1.0 FTE)

o One shift is 8 hours a day × 10 shifts (or 10 days) = 80 hours (1.0 FTE)

o 80 hours / 10 shifts per 2-week period = 8 hours or 0.1 FTE

o One full-time FTE (1.0) will only cover 10 of the 14 days within the pay period.

o Four days or shifts are left without coverage. o Shift = 8 hours; 8 hours × 4 = 32 hours without coverage.

o 32 hours / 80 hours (1 FTE) = 0.4 FTE

able 3. Sample 14-Day Schedule

Day 1 2 3 4 5

Employee FTE Su Mo Tu We Th

Sue 1.0 D D D D

Brad 0.7 N N

Cindy 0.7 N N N

Carol 0.5 E E E

Jan 0.5

David 0.4 E E

Joe 0.4 D

Employees 4.2 FTEs One RN per

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� Combine the calculated FTEs needed to provide coverage for each of the 14 days in the pay period: 1.4 FTEs will provide 1 RN for one 8-hour shift across 14 days. o One full-time FTE (1.0) = ten 8-hour shifts. o A part-time FTE (0.4) = four 8-hour shifts.

� You will need to provide coverage for 3 shifts. � You just calculated FTE requirements to provide 1 RN across the pay period for 1 shift.

� If it takes 1.4 FTEs to provide 1 RN for one 8-hour shift for 14 days, simply multiply 1.4 FTEs by the three 8-hour shifts: 1.4 × 3 = 4.2 FTEs.

6 7 8 9 10 11 12 13 14

Fr Sa Su Mo Tu We Th Fr Sa

D D D D D D

N N N N N

N N N N

E E

E E E E E

E E

D D D

day per shift across the pay period

D, day shift; E, evening shift; N, night shift.

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N

Table 4. NHPPD Based on Staffing Ratios

Nurse-to- Patient Ratio

24 Hours/Day

Nursing Hours Per Patient Day

1:1 24 ÷ 1 24

1:2 24 ÷ 2 12

1:3 24 ÷ 3 8

1:4 24 ÷ 4 6

1:5 24 ÷ 5 4.8

1:6 24 ÷ 6 4

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You may also consider calculating the required FTEs by hours. FTEs are, after all, a representation of hours.

� One FTE = 80 hours � The 14-day pay period = 336 hours � 336 hours / 80 (1.0 FTE) = 4.2 FTEs

See Table 2. Full-Time Equivalents by Hours and Shifts.

TWELVE-HOUR SHIFTS When working with schedules that require 12-hour shifts, remember to concentrate on the hours that the FTE represents to build the schedule. The required number of FTEs will remain the same, but the number of required shifts will differ based on 8- or 12-hour shifts.

� 14 days × 24 hours = 336 hours � 336 hours / 1.0 FTE (80 hour) = 4.2 FTEs o 336 hours / 8-hour shift = forty-two 8-hour shifts o 336 hours / 12-hour shift = twenty-eight 12-hour shifts

Table 3 provides an example of a 14-day pay period with 1 RN per shift, per day. Notice that the schedule requires 4.2 FTEs to cover all shifts, 24/7, for 2 weeks. In this example, a combination of full-time and part-time employees are working on the schedule for a total of 7 employees who collectively work the 4.2 FTEs or 336 hours (4.2 FTEs × 80 hours = 336 hours). Remember, 1.0 FTE does not necessarily mean 1 in- dividual. One FTE may mean 1 person scheduled to work ten 8-hour shifts or 10 people scheduled to work one 8-hour shift each pay period.

As the hiring and scheduling manager, consider that an individual hired part time as a 0.5 FTE, who is scheduled to work 40 hours per pay period, is typically not capitated at 5 shifts or 40 hours per pay period. This individual can often work more hours in a 2-week period to cover vacation and sick time for other

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employees, or for census fluctuations, without incurring the additional expense of overtime pay. However, if the individual is hired into a 0.5 FTE position, he/she cannot be scheduled for less than their assigned FTE.

Example #2: As the manager, you have been asked to provide a staffing plan for a 40-bed in-patient nursing unit with an ADC of 40. The proposed staffing ratio is 1:6 (1 nurse for each 6 patients per shift). How many FTE’s will be needed to staff the unit for the 14 day pay-period?

Calculations:

� 40-bed unit with 1:6 nurse-to-patient ratio o 40 patients / 6 nurses = 6.66 patients per nurse

� The FTEs required to cover 14 (8-hour) shifts across the pay period = 1.4 FTEs (see Example 1, Calcu- lating FTEs, for 1 shift for 8 hours for 2 weeks)

� You have 3 (8-hour) shifts per day across the 2-week pay period

� 3 shifts × 1.4 FTEs per shift = 4.2 FTEs for the 2-week pay period (24/7 coverage)

ote: The 4.2 FTEs provide the unit with 1 nurse for ch shift for the entire 2-week period.

ea

� Because we have a 1:6 nurse-to-patient ratio, we need 6 nurses per shift. o 4.2 × 6.66 = 27.9 FTEs to fully staff the unit.

When calculating FTEs, never round the decimal points. FTEs are tied to salaries, and small decimal points (e.g., 0.2) could mean thousands of additional dollars applied to the personnel budget on an annu- alized budget.

POSITION CONTROL The position control report is a master list of all approved and budgeted FTEs, organized by job cate- gory, for a unit. The report provides current FTEs and vacant FTEs for all job categories on the unit, giving the manager a quick summary of FTE status. The position control report is used daily by managers to determine how many total FTEs by position (i.e., job type) are needed to maintain adequate staffing on the unit. Changes to the report typically occur through additional hires, terminations, or transfers into the unit.

As a unit census fluctuates, nurse managers are required to make an educated guess as to how many FTEs will be needed to cover departmental needs. Typically, this decision is determined by the ADC. It is also wise to consider patient acuity levels when adjusting staffing numbers on the position control report.

NURSING HOURS PER PATIENT DAY Nursing hours per patient day (NHPPD) is a mea- surement of the average number of hours needed to care for each patient on a given unit. Unlike the ADC, which is a linear measurement of patient volume at the

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midnight census, NHPPD takes into consideration work flow processes, geography, patient acuity, patient population, service line type, and any other factors that may influence workflow processes having an impact on the workload of nurses providing direct patient care. All variables should be considered when negotiating the budgeted NHPPD for departmental personnel budgets (Table 4). Benchmarking, or comparing “like units” across facilities for best practices, is a valuable resource when negotiating NHPPD. The nurse man- ager should be involved with all personnel budget discussions involving his/her unit and have an oppor- tunity to question the manager of the comparison unit to determine differences and similarities between the 2 units.2

Example #3: As the manager, you have been asked to provide a staffing plan for a 40-bed in-patient nursing unit with an ADC of 40. The proposed staffing ratio is 1:6 (1 nurse for each 6 patients per shift). Using the NHPPD methodology, calculate the number of FTEs needed to staff the unit for the 14-day pay period.

� Staffing ratios may be converted to NHPPD by dividing the number of desired patients into the 24-hour day. o 24-hour day / 6 (1:6 nurse patient ratio) = 4 (target NHPPD)

� Annual volume (ADC of 40 × 365 days/year) = 14,600 patient days last year.

� 4 (NHPPD) × 14,600 (annual patient volume) = 58,400 total NHPPD previous year.

� 58,400 / 2080 (total annual hours for a 1.0 [full- time] FTE) = 28.0 FTEs

OTHER CONCEPTS TO CONSIDER REGARDING PERSONNEL BUDGETS AND BUDGETING STAFFING NEEDS

Productive Versus Nonproductive Time Productive hours are the actual worked time spent in the department doing the assigned work. Although full-time employees are scheduled to work 2080 hours annually, it is anticipated that at some point during the year, employees will require time off from the work schedule. Thus, based on actual worked hours, the FTE for a position, and years of service in the organization, nonproductive hours are budgeted for each employee. These benefited hours may be used for time involved with nonproductive activities. For example, a benefited employee is paid for sick time, vacation time, or bereavement time, during which time he/she is not providing direct patient care, but still receives compensation. Other examples of nonproductive time may include continuing educa- tion, orientation time, or Family Medical Leave Act leave time.2,6

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Fixed Versus Variable Costs Fixed costs may be referred to as direct costs. These costs remain the same regardless of patient acuity or patient census. They do not “flex up or down” with acuity or volume. Fixed costs in the departmental budget may include items such as rent, utilities, assigned costs (Information Technology [IT], over- head, etc.), insurance, etc.6 On the other hand, vari- able costs, or indirect costs, are dependent on the fluctuations of the patient census and/or acuity.6 For example, supply costs go up when acuity rises. Personnel budgets may be considered both fixed and variable, depending on the type of unit and/or specific position. For example, a nurse manager or a unit clerk may be a fixed cost—remaining the same despite pa- tient acuity or census. By contrast, direct patient care positions are often considered variable costs.

Productivity Standards Productivity standards are established within an orga- nization and are typically based on comparative benchmarks and/or national standards. Productivity is often measured by output (nursing hours) divided by input (patient volume) to determine whether produc- tivity standards are met, thus productivity rates mea- sure the input required for a given output. By comparing actual staffing hours with budgeted staffing hours, while taking patient acuity and the ADC into consideration, one can determine whether the pro- ductivity standard has been met.5

IMPLICATIONS FOR NURSING Financial competency for the first level nurse manager provides a measure of independence and critical thinking imperative for the successful nurse leader. Through the application of financial skills, nurse leaders can manage productivity more efficiently and assess and proactively manage variances from a given standard. With enhanced knowledge of departmental personnel budgets, a nurse leader can adapt and change effectively, understand budgetary deficiencies, and seek opportunities to improve efficiencies. Competence in finance, and specifically personnel budgets, provides the front-line nurse leader with the tools to properly manage the unit while both pro- moting and defending excellence in patient-centered care.

CONCLUSION Nurse managers are in a uniquely fortuitous position affording them an opportunity to bridge the communication gap between quality patient care and allocation of financial resources. The successful manager in today’s health care environment must demonstrate fluency in the language of finance and possess the skills and knowledge to clearly communi- cate with nonclinical leaders and financial

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managers.9,10 First-level managers are typically ex- perts in the provision of patient care and have first- hand intimate knowledge of the resources required to provide high-quality patient care in the most effi- cient manner possible. Clinical expertise, coupled with shrewd business skills, makes the nurse manager an effective patient advocate in this time of tremen- dous change and health care reform.

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Nurse Managers and Executives. 4th ed. St Louis, MO: Elsevier Saunders; 2013.

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3. Madigan CK, Harden JM. Crossing the nursing–finance divide: strategies for successful partnerships leading to improved financial outcomes. Nurse Leader. 2012;10(4): 24-25.

4. Waxman KT. Talking the talk: financial skills for nurse leaders. Nurse Leader. 2018;16(2):101-106.

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6. Brown P, Eubank G, Leger JM. Budgeting. In: Leger JM, Dunham-Taylor J. Financial Management for Nurse Managers: Merging the Heart With the Dollar. Burlington, MA: Jones and Bartlett Learning; 2018:109-130.

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7. Swiger PA, Vance DE, Patrician PA. Nursing workload in the acute-care setting: a concept analysis of nursing workload. Nurs Outlook. 2016;64(3):244-254.

8. Sullivan EJ. Effective Leadership and Management in Nursing. 9th ed. New York, NY: Pearson; 2018.

9. Waxman KT. Creating a culture of financially savvy nurse leaders. Nurse Leader. 2005;3(1):31-35.

10. Institute of Medicine. The Future of Nursing: Leading Change, Advancing Health. Washington, DC: National Academies Press; 2010.

Teresa D. Welch, EdD, MSN, RN, NEA-BC, is assistant professor at Capstone College of Nursing, the University of Alabama Tuscaloosa, Alabama. She can be reached at tdwelch@ua.edu. Todd Smith, PhD, MBA, MSHA, RN, NEA-BC, is assistant professor at Capstone College of Nursing, the University of Alabama, Tuscaloosa, Alabama. He can be reached at tbsmith3@ua.edu.

Note: This research did not receive any specific grant from funding agencies in the public, commercial, or not-for-profit sectors.

1541-4612/2020/$ See front matter Copyright 2019 by Elsevier Inc.

All rights reserved. https://doi.org/10.1016/j.mnl.2019.10.003

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