Finance Management in Health Services
Freshly graduated with your Master’s degree from La Trobe University (congratulations!), you have been appointed as a divisional director to the Upper Combuktor West Health Service in regional Victoria.
As part of the government strategy to address the COVID-19 crisis, the chief executive, Mrs McGillacuddy, (affectionately known by all as ‘Mrs Mac’) has asked you to put together a COVID-19 testing team for a 12-week period. She knows you have studied PHE5FMH at La Trobe — in fact, this was the reason she employed you.
Unfortunately, the chief financial officer and the entire accounting department are either in ICU on a ventilator with COVID-19 or in quarantine, so it’s up to you to help Mrs Mac advise the board. Luckily, they will be back to help manage the financials once the service is up and running.
The project
The aim of the project is to provide a walk-up COVID-19 testing service open from 8 am and closing at 9 pm every day for 12 weeks, including weekends.
The Victorian Government has provided a grant of $200 000 for this 12-week program. This will be paid in advance.
The Commonwealth Government has also agreed to fund $80 for each person tested, in recognition of medical officer costs and pathology testing conducted within the hospital. This will be payable on invoice in 30 days.
The health service will retain any surplus generated or fund any loss from their own reserves and must absorb the cash flow impost. Mrs Mac is understandably nervous and keen to understand what this means for the health service.
Resources
You will be assigned to manage the service for 38 hours a week at a cost to the hospital of employing you at $3000 per week.
The hospital proposes providing four salaried medical officers, two in the morning (commencing 8 am) and two in the ‘afternoon’ (finishing at 9 pm). The cost of medical service charged by medical administration is a flat fee $6000 per full-time equivalent (FTE) per week. Medical administration insist that they will manage medical officer rosters and will provide an EFT of six per week, chargeable to the project on a monthly basis.
The hospital pathology department will charge the project $25 per test, which includes the testing equipment. The hospital will charge the project on a monthly basis.
Personal protective equipment associated with each test is budgeted at $10 per test, plus general protective equipment supplies (masks, hand lotion wipes) at $500 per day.
The hospital proposes providing nursing staff as well: you are permitted to roster nursing staff to commence at 7:30 am to set up and until 9:30 pm to pack up. Mrs Mac suggests two shifts of four nurses per shift each day. To enable nursing staff to have meal breaks, you are permitted to roster nursing staff on 9.5 hour shifts, with the ‘day shift’ commencing at 7:30 am and finishing at 5:30 pm, and the ‘afternoon shift’ starting at 11:30 am and finishing at 9:30 pm. Nurses are paid 50% extra per hour worked on a weekend. They also are paid a flat $25 for every evening shift worked. For rostering purposes, you may assume that there is a perfect mix of full-time and part-time staff that will cover these hours without overlapping, and that meal breaks will be covered by the overlap of shifts. If necessary, you may return nurses back to the hospital staff. Assume that all nurses have a cost to the hospital of employing them at $150 per hour.
Two reception staff will be required on each morning and afternoon shift. They may only work eight hours maximum. Reception staff are paid a flat fee of $15 for every evening shift they work, and for every hour on a Saturday they are entitled to an extra 50% loading, and on Sundays a 100% hourly loading. Assume that reception staff have a cost to the hospital of employing them at $80 per hour. For rostering purposes you may assume that there is a perfect mix of full-time and part-time staff that will cover these hours without overlapping, and that they do not need to be replaced at meal times because they will stagger their breaks.
Accommodation will be provided at a fixed cost of $50 000, and is planned to be located in the church hall located next to the health service on the main road, fitted out with temporary partitions to channel patients seeking testing, as well as staff amenities, supplies, toilet facilities, heating and so on. The church requires this amount to be prepaid.
The health service will provide staff refreshments at a cost of $200 per day, cleaning and waste disposal at $400 per day and an external security firm will be engaged at a flat rate of $1000 per day. (You may assume that the security personnel have been fully trained!)
There are no public holidays in this 12-week period.
Efficiency/limiting factors
Each nurse has the theoretical technical capacity to collect specimens from 12 patients per hour; however, the testing is expected to be 75% or 9 tests per hour.
Demand
The actual demand is unknown; however, Lower Combuktor East Health Service reports their demand has been 4000 tests a week; 25% in the hours of 8 am–12 noon, 65% between 12 noon and 5 pm, and 10% after 5 pm.
Hint
We suggest you base your planning on an average of 4000 tests per week.
Required
Read the above information carefully.
Based on this information, identify the following impacts (10 marks):
The base number of nursing hours per week as planned to run the service.
Express this as an FTE (assume a 38-hour week and no ADOs).
Identify/calculate the nursing hours per weekend as planned to run the service.
Identify/calculate the number of nursing evening shifts payable each week.
The base number of reception staff hours per week as planned to run the service.
The reception staff hours per weekend as planned to run the service.
The number of reception evening shifts as planned payable each week.
The medical charge levied by medical administration each week.
The maximum possible number of tests that might be expected to be offered per week.
- Briefly explain why the briefing information speaks about the staffing cost to the organization rather than salary or wage. Why is the cost to the organization higher than the hourly salary or wage paid to staff? (3 marks)
- Identify and categorize the incomes and costs from the briefing document. (5 marks)
- Identify the contribution margin. (2 marks)
- Calculate staffing costs (medical officers, nurses, manager and reception staff) for the 12-week program. (10 marks)
- Identify the minimum number of nursing staff required. (5 marks)
- How many nurses would be required per week?
What might be the value of employing/engaging part-time or casual nurses? - If agency nurses were to be used instead, what effect would this have on costs? Why?
- What strategies could you use to manage surges in demand?
- What would be a reasonable sick leave rate?
- Identify which type of prospective budget you plan to prepare and list the reasons why. (5 marks)
- Construct a budget for the project. (5 marks)
- Construct a cash flow projection. (5 marks)
- Identify whether the program will operate at a surplus or a loss, and what financial issues the organization should be alert to. (5 marks)
- Identify how many tests overall must occur to break even. (2 marks)
- On average, how many tests per week and per day and per nurse would this involve? (3 marks)
- After one month, you discover that the demand after 5 pm is never more than 15 cases per hour. What efficiencies could you implement? (5 marks)
- Draw conclusions and create recommendations for the chief executive and the board. (5 marks)