FINANCIAL EXERCISE: THREE 1
Financial Exercise Three: Planning and Controlling
Nicole L. Gardner
Financial and Resource Management
Liberty University
Author Note
Nicole Gardner
I have no known conflict of interest to disclose. Correspondence concerning this article should
be addressed to Nicole Gardner. Email: nlgardner@liberty.edu
FINANCIAL EXERCISE: THREE 2
1. How does pay for performance (P4P) or value-based purchasing (VBP) affect
staffing?
Cost of healthcare is a growing concern of any and all facilities and organizations. One
must always be looking for ways to increase reimbursement. Both pay for performance (P4P)
and value-based purchasing (VBP) are methods to do just that. P4P is a growing initiative
among Medicare and Medicaid to improve quality, efficiency, and overall value in health care.
These initiatives provide an increase in financial reimbursement to both hospitals and providers
when they achieve the certain outcomes established (Jones, Kovner, Finkler, & Mose, 2019).
VBP is similar to P4P by rewarding hospitals to provide quality care. Facilities are scored on a
number of things including mortality, complications, hospital-associated infections, patient
safety, patient experience, and cost reduction (Jones et al., 2019). Both of these initiatives do not
affect staffing per say. If you wanted to increase your quality, one could justify adjusting staffing
to ease the workload to help the nurses provide better quality of care or even offer additional
support by implementing navigator roles for certain diagnoses of patients. According to Neves et
al., (2020) adequate staffing plays a part in both patient safety and quality of care. Having
appropriate staffing and not working short would in fact help with both P4P and VBP.
2. As the nurse manager of the new 15-bed observation unit you are responsible for
reporting to your nursing director and the finance department any variances
identified within your operating budget. Listed below is your monthly operating
report. Please review and discuss the specific variances and how you will determine
the causes of variances.
Actual Budget Variance
Volume/Census 360 420 -60
Supplies $8,550 $7,800 -750
Nursing Labor $58,450 $52,575 -5875
FINANCIAL EXERCISE: THREE 3
Census:
Variance = 360-420 = -60 (Unfavorable)
Supplies:
Variance = $8,550- $7,800 = - $750 (Unfavorable)
Labor:
Variance = $58,450- $52,575 = - $5,875 (Unfavorable)
All of these variances are considered unfavorable. Causes to that could be, changes in
census, specifically lower than anticipated. Cost of supplies might currently be higher than
budgeted. Currently the price of supplies due to COVID have skyrocketed. An example being
gloves; for our organization gloves have increased from $3.30/box to over $13/box. This causes
an increase in supply cost, thus creating a variance. Labor variance could be associated with
being short staff and filling those holes with staff who are working overtime.
3. As the nurse manager, you will now need to determine the staff mix based on
budgeted full-time equivalents (FTEs). Consider the formula below:
Actual Price per FTE x Actual Total Number of FTEs = Budgeted Cost
Using the figure in the table above for nursing labor, calculate the Actual Cost and how
you will divide the nursing labor expense based on skill mix. Consider safe staffing
requirements, quality of care and operational needs to meet the demands of the new
unit. Provide a detailed rationale of why and how you arrived at your decision.
15 x 30=450 100% capacity
Budget 420/30= 14 patients day 93.3 % filled capacity
Because this is an observation unit, each nurses could take a total of 5 patients, therefore each
shift would need 3 nurses or 6 nurses per day based on 12 hours shifts. Observation patients tend
FINANCIAL EXERCISE: THREE 4
to require less care because they are self-sufficient with their daily care needs. Taking 5 patients
each as a nurse seems reasonable with this type of patient. Staffing adjustments can be made
based on acuity of the patient. Below is the number of FTE’s needed for this 15 bed unit:
11- 0.9 FTE position = 9.9 FTE
3- 0.45 FTE position = 1.35 FTE
To cover an average daily census of 14, the floor would need a total of 11.25 FTEs for nurse and
1.8 FTEs for nurse assistants. For safe staffing you would need at least 2 nurses and 1 nurse
assistant there at all times. This will provide a person out at the station at all times while others
are in rooms providing care.
4. The productivity standards for your new observation unit are set. You must meet
the minimum target of 95% with a maximum target of 105%. Keep in mind that
volume drives productivity in a positive direction. Using the formulas provided in
your assigned textbook readings, determine the number of patients you need to
admit to meet budgeted volumes. Consider the type of unit you are managing. An
observation unit has a minimal stay of six (6) hours and a maximum stay of forty-
eight (48) hours. Most patients are admitted into an appropriate next level of care
(inpatient admission) or discharged home within 24 hours of admission into an
observation unit. This demonstrates a unit with rapid turnover. Also include in your
discussion how nursing labor/staffing will be managed when census/volume drops.
At budgeted level, productivity is maximum at 105%.
Productivity = total output/ Maximum staying hours
1.05 = x/48hrs
X= 0.0218 or 2.18 per hours
FINANCIAL EXERCISE: THREE 5
Number of patient needed to admit at budgeted volume = budgeted volume/total output
per hour.
= 420/2.18 per hour
= 192.66 or 193 patients
193 patients are needed to be admitted to remain at the budgeted level. If the volume or
census drops, in order to continue with productivity, labor and staffing will also need to decrease.
This is called flexing. As the nurse manager, you would need to use this flexing of staff to keep
the labor costs at bay. At my facility, when flexing, we allow nurses to voluntarily stay home on
call or if no one wants to do that they are mandated off. If additional patients were admitted
during that time frame, that staff member would then be called for and they would come in to
work.
FINANCIAL EXERCISE: THREE 6
References
Jones, C. B., Kovner, C. T., Finkler, S. A., & Mose, J. (2019). Financial management for nurse
managers and executives. (5th ed.). Elsevier.
Neves, T. M. A., Parreira, Pedro Miguel Santos Dinis, Graveto, João Manuel Garcia Nascimento,
Freitas, Maria João Baptista dos Santos de, & Rodrigues, V. J. L. (2020). Nurse managers'
perceptions of nurse staffing and nursing care quality: A cross‐sectional study. Journal of
Nursing Management, 28(3), 625- 633.
https://doi.org/10.1111/jonm.12966
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