MHA5006_Banta_Lucresha_Assessment 4-1
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Capella University *
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Dec 6, 2023
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Operating Budget Proposal
Health Care Finance and Reimbursement
Capella University
Lucresha Banta
November 2023
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Introduction
Preparing a budget for a medical practice is an essential step in determining if the practice can afford enhancements, new software, new hardware, and even hiring adequate staff to
be able to operate these new enhancements. Some factors must be considered, such as the fixed costs associated with the budget, environmental factors such as reimbursement rates, political restraints, regulations related to healthcare, and market structure.
Environmental Forces affecting the budget
One of the largest environmental factors affecting a budget is the reimbursement and cash
payment rates for services provided. With insurance companies, there is a set reimbursement rate
for procedures, tests, and MD visits. Medicare and other insurance companies set fee schedules, and this rate will be a fixed number that the practice can expect to receive for each service.
Market structure is another critical factor impacting the practice. It will be important for the practice to determine the saturation of MRI machines in the area. Is it feasible to bring this service into the practice and remain competitive yet continue to make a profit? Price elasticity is another factor that is important to explore. The more of a demand for the service, the higher the price for the service can be, and vice versa. Along this line are barriers to entry. If there is a large saturation of a particular service, such as MRI services, bringing in another one may be difficult and could serve as a barrier to providing these services. The practice could benefit from increased patient numbers, reimbursement, and profit if few MRI centers are available. As Medicare and insurance companies move to a value-based payment model, doctors will be paid based on the quality of care the patient is receiving instead of what services are being provided. With this in mind, large practices must account for this payment system and find
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ways to maximize profits. They must find ways to provide high-quality healthcare at the most cost-effective means (Conrad et al., 2022).
Alignment of the budget with the target profit margin
According to the cost-benefit analysis, incorporating MRI into the practice will help increase profits overall. By purchasing the machine outright in the first year for $350,000, the clinic can see profits sooner than leasing over 5-10 years. Since the practice already has a building, remodeling a room sufficient for the machine is necessary. This would also be an upfront cost. Costs that will be budgeted for in the future include the service contract, hiring a radiologist to read the reports, and hiring a radiology technologist. Even with these upfront costs, the profits will be there. Decreased turnaround times for reports, copays, insurance, and cash reimbursements will all lead to increased profits. Nonmonetary benefits include increased patient satisfaction scores, an increase in patient numbers, and increased provider satisfaction. The table below shows the forecasted budget for the medical practice. Table 1
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Tracking financial performance
Tracking financial performance is crucial in determining the success of a new project or an added service, such as an MRI. Naturally, tracking the money spent versus the income will be essential but not the only factor in tracking performance. According to Mesabbah et al. (2016), healthcare systems can examine their financial and non-financial data, such as process efficiency,
service quality, and patient satisfaction. A method that will be effective for tracking all aspects will be the balanced scorecard. The balanced scorecard measures the following performances: financial, customer, internal business processes, and learning and growth (
Gawankar et al., 2015). The balanced scorecard effectively measures specific criteria within a healthcare organization and then analyzes the data obtained to determine the strengths and weaknesses (Amer et al., 2022). Using or implementing a balanced scorecard will allow the clinic to not only investigate the financial aspect of the use of the MRI but will also account for patient satisfaction and other non-monetary factors influencing the medical practice.
A practical analysis of the balanced scorecard will allow for measuring patient satisfaction, healthcare workers’ satisfaction, and financial performance. A second method of tracking performance is to use internal benchmarks. Hrnciar et al. define benchmarking as “a continuous and systematic process of evaluating products and services to a continuous process of identification, learning, and implementation of best practices to obtain competitive advantages whether internal, external, or generic” (2018). Another way to define a benchmark is by comparing your performance and another reference point. Since benchmarks are data-driven, knowing the national benchmark for MRI standards will help the clinic know where they need to focus attention to maximize the profits. These internal
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benchmarks can be set according to the national benchmarks based on the practice model—for example, a physician-owned medical practice, as this practice is (Katner, 2023). Since national benchmarks have already been established, the clinic can use them to set up internal benchmarks and already established best practices to maximize profits.
Utilizing balanced scorecards, internal and external benchmarks, and best practices will allow the medical practice to obtain the highest satisfaction with healthcare workers and patients and ensure a profit for the practice after a large purchase.
Conclusion
Examining the budget and performing a cost-benefit analysis when purchasing an MRI is essential. After examining the cost-benefit analysis, purchasing an MRI would be a good investment for the clinic. Budgeting for the purchase instead of leasing the machine will allow for a quicker turnaround for profits. Using national benchmarks that are already established, the clinic can set up best practices to ensure maximum profits. After best practices are set up, using the balanced scorecard
to track success will be crucial. These steps will ensure that financial tracking and non-monetary tracking (i.e., patient and healthcare worker satisfaction) are considered and factored into the cost-benefit analysis and the yearly budget.
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References
Amer, F., Hammoud, S., Khatatbeh, H., Lohner, S., Boncz, I., & Endrei, D. (2022). The deployment of balanced scorecard in health care organizations: is it beneficial? A systematic review.
BMC Health Services Research,
22
, 1-14. https://doi.org/10.1186/s12913-021-07452-7
Conrad, D. A., Ingraham, B., Fishman, P., Zhou, L., Grembowski, D., Coe, N. B., Izguttinov, A., Wood, S. J., Banks, J., & Andris, L. (2022). Impact on Health Services Utilization, Payment, and Quality in Federally Qualified Health Centers of Washington State's Value-
Based Payment Model.
Journal of Health Care for the Poor and Underserved,
33
(4), 1905-1924
. https://doi.org/10.1353/hpu.2022.0145
Gawankar, S., Kamble, S. S., & Raut, R. (2015). Performance Measurement using Balance Score
Card and its Applications: A Review.
Journal of Supply Chain Management Systems,
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(3), 6-21. http://library.capella.edu/login?qurl=https%3A%2F
%2Fwww.proquest.com%2Fscholarly-journals%2Fperformance-measurement-using-
balance-score-card%2Fdocview%2F1733230486%2Fse-2%3Faccountid%3D27965
Hrnciar, M., Madzik, P., & Uram, M. (2018). Unfamiliar relatives in the service sector.
Benchmarking,
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(1), 156-177. https://doi.org/10.1108/BIJ-12-2015-0119
Kantner, A. C. (2023). Understanding and Improving Your Work RVUs.
Family Practice Management,
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(2), 4. http://library.capella.edu/login?qurl=https%3A%2F
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