09 fiscal planning

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Mr. Channabasappa. K. M

UNIT – IX
FISCAL PLANNING
1. BUDGETING IN NURSING PRACTICE

INTRODUCTION
Budget, as a control device is an extension of planning. After the planning and
programming decision, the approved programme is translated into a totaled statement of
monetary requirements and financial consequence.
Budgeting, though primarily recognized as a device for controlling, becomes a major
part of the planning process in any organization budgeting is done for indicating the expected
results of the business and the possible future lines of action to be followed for the attainment
of such results. Expected results are projected either in financial terms or in other numerical
terms like units of products person-hours machine hours.etc

MEANING OF BUDGET
The word ―budget‖ derived from the old English word ―budget tee‖ means a tack or
pouch which the Chancellor of the Exchequer use to take out his papers for lying before the
parliament, the government, financial scheme for the ensuring year.

DEFINITION
―Budget is a concrete precise picture of the total operation of an enterprise in
monetary terms‖ (HM Donovan)
―Budget is a operation plan, for a definite period usually a year- Expressed in
financial terms and bused an expected income and expenditure‖

PURPOSES
The purposes of budgeting are:

1. Budget supplies the mechanism for translating fiscal 1-year objectives into
projected monthly spending pattern.
2. Budget enhances fiscal planning and decision marking.
3. Budget clearly recognizes controllable and uncontrollable cost areas.
4. Budget offers a useful format for communicating fiscal objectives.
5. Budget allows feedback of utilization of budget.
6. Budget helps to identify problem areas and facilities for effective solution.
7. Budget provides means for measuring and recording financial success with the
objectives of the institution.

FEATURES OF BUDGET

 It should be flexible
 It should synthesis at past, present and future.

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 It should be product joint venture, co- operation of executives / department heads at
different levels of management.
 It should be in the form of statistical standard laid down in the specific numerical
terms.
It should have a support at top management throughout the period of its planning and
implementation.

PRINCIPLE OF BUDGET
 Budget should provide sound financial management by focusing on requirement of
the organization.
 Budget should focus on objectives and policies of the organization. It must flow from
objectives and give realistic expression to the way of realistic such objective.
 Budget should ensure the most effective use of scarce financial and non financial
resources.
 Budget requires that programme activities planned in advance.
 Budgetary process requires consistent delegation for which fixed duties and
responsibilities are required to be allocated to managers at different level for framing
and executing budget.
 Budget should include co-ordinating efforts of various departments establishing a
frame of reference for managerial decision and providing certain criteria for
evaluating managerial performance.
 Selling budget target requires an adequate checks and balance against the adoption of
too high or too low estimate, almost care is a must for fixing targets.
 Budget period must be appropriate to the nature of business or service and to type of
budget.
 Budget is prepared under the direction on the supervision of the administration or
financial officer.
 Budget are to be prepared and interpreted consistently throughout the organization in
the communication in the planning process

IMPORTANCE OF BUDGET
 1. Budget is needed for planning for future course of action and to have a control
over all activities in the organization.
 2. Budget facilitates coordinating of various departmental and selection for
realizing organizational objectives
 3. Budget serves as a guide for action in the organization.
 4. Budget helps one to weigh the values and to make decision when necessary on
whether one is of greater values in the programmes than the other.

TYPES OF BUDGET

Since budget express plans and an organization may have different types of plans, there
may be different types of budgets. These may be classified on the basis of

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1. Coverage of functions master and functional budgets.
2. Nature of activities covered – capital and revenue budgets
3. Period of budgets – long term and short-term budgets
4. Flexibility adopted – fixed and flexible budgets.

1. Master and Functional budgets

A master budget is prepared for the entire organization incorporating the budget of
different functions. For example when we refer to the annual budget of government of India,
it incorporates the budget outlays of different ministries. In the business organizations, the
maser budget incorporates various functions and units and their outlays. It generally includes
sales, production, costs.
A functional budget is prepared incorporating a major function and its sub- functions.
Since an organization may have a number of functions, numerous functional budgets are
prepared. Eg. Production budget, cash budget in an organization.

2. Capital and Revenue budgets

An organization activity involves two processes- creating facilities for carrying out
activities and actual performance activities. Creating facilities for carrying out activities
include capital expenditure whose returns accrue over a number of years. For such activities,
capital budget is prepared which is essentially a list of what management believes to be
worthwhile projects for acquisition of new assets together with the estimated cost of each
project.
Revenue budget involves the formulation of target for a year or so in respect of various
organizational activities such as production, marketing, finance, etc. Thus, a revenue budget
includes expenditure and earning for a specific period like one year.

3. Long term and short-term budgets

Many organizations integrate their yearly budgets with long-term projections of
business activities and along with yearly budgets; they prepare budgets for a longer period of
2 – 3 years. When one budget period is over, budgets are prepared for the next year and
subsequent 2 -3 years.
The short term budget is for a year and is divided into a number of periods for
effective implementation. For eg. Cash budgets are on yearly basis as well as on monthly or
quarterly basis to facilitate better cash management.

4. Fixed-celling and flexible budgets:

Generally, organizations prepare which certain to only certain projected fixed volume
of operations for a year or so. Such budgets are known as fixed of static budgets. When an
organization’s volume of business can be predicted with fair amount of precision, the fixed
budget is satisfactory.

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A budget which is designed to change in accordance with the activities of the
organization is known as flexible budget. It considers several level of activity and assumes
that labour, material or facilities used in production and hence cost vary with a known
relationship to the actual of activity.

OTHER TYPES OF BUDGET

1. INCREMENTAL BUDGET
It is one based on estimated changes in present operation, plus a percentage increase
for inflation, all of which is added to previous year budget.

2. OPEN ENDED BUDGET
Is a financial plan in which each operating manager presents a single cost estimate for
each programme in the unit, without indicating how the budget should be scaled down if less
funding is available.

3. FIXED CEILING BUDGET
Is a financial plan in which the upper most spending limit is set by top executive
before the unit and divisional managers develop budget proposals for their areas of
responsibility

4. FLEXIBLE BUDGET
Consist of several financial plans, each for a different level of programmes activates.
It is based on the fact that operating conditions rarely conform to expectations.

5. ROLL OVER BUDGET
Is one that forecasts programmed revenues and expanses for a period greater than a
year. To accommodate programmed that greater target than annual budget cycle.

6. PERFORMANCE BUDGET
It is one based on functions, which allocate function, not division. Eg. Direct Nursing
care, in service education, quality improvement, nursing research.

7. PROGRAMMED BUDGET
Is one which costs are computed for a total programmed, i.e, grouping total coasts for
each services programmed eg. MCH, FP and UIP etc. These base budgets requires the nurse
manager to examine, justify each cost of every programmed both old and new in every annual
budget preparation.

8. SUNSET BUDGET
It is designed to ―Self Destruct‖ within a prescribed time period to ensure the
cessation of spend in by a predetermined date.

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9. SALES BUDGET
Is the starting point in a budgetary programmed, since sales are basic activates which
give shape to all other activities. Sales budget are compiled in terms of quality as well as of
values.

10. PRODUCTION BUDGET
It is the budget that aims at securing the economical manufacture of products and
maximizing the utilization of production facilities Revenue and expanse Budget.
It is expressed in financial terms and takes the nature of a perform income statement
for the future. It may use prepared in a detailed form or in an abstract statement showing the
items of profit and loss under classified headings.

APPROACHES TO DEVELOP AN ORGANIZATION WIDE BUDGET

Organizations adopt different approaches for preparing their budgets. One of the most
common approaches is in the form of traditional budget in which the current year’s budget is
taken as a base with the provisions of some additions and deductions in the next year’s
budget. The traditional approach of budgeting does not eliminate the draw back of the past.
Therefore, newer approaches of budgeting have emerged. These have resulted into three
types of budgeting.

1. Performance budgeting
2. Zero base budgeting
3. Strategic budgeting

1. Performance budgeting’s

A performance budget is an input / output budget or costs and results budget.
Performance budget emphasis on non-financial measures of performance, which can be
related to financial measures in explaining changes and deviations from planned
performance. Performance measurements are useful for evaluating past performance and for
planning future activities. Performance budgeting, results into the following.

 It correlates the financial and physical aspects of every programme or activity.
 It improves budget formulation, review and decision making at all levels of the
organization.
 It facilitates better appreciation and review of organizational activities by the top
management.
 It makes possible more effective performance audit.
 It measures progress towards long-term objectives.

2. Zero base budgeting
This was applied for the first time in preparing the divisional budgets of Texas
instruments of the USA in 1971.

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Zero base budgets is based on a system where each function, irrespective of the fact
whether it is old or new, must be justified in its entirety each time a new budget in detail from
scratch that is zero bases.

The process of zero bases involves four basic steps:
 Identification of decision units, that is cluster of activities or assignments within a
manager’s operations for which he is accountable.
 Analysis of each decision units in the context of total decision package.
 Evaluation and ranking of all decision units to develop the budget request.
 Allocation of resources to each unit based

Benefits of zero base budgeting:
1. effective allocation of resources
2. improvement in productively and cost effectiveness
3. effective means to control costs
4. elimination of unnecessary activities
5. Better focus on organizational objectives.
6. Saving time of top management.

3. Strategic budgeting
It is used as a tool of resource allocation to various strategic business units and
other units of an organization. Under strategic budgeting, in determining the resource
needs of various units

Formation of a budget committee:

Budgeting is a cooperative undertaking. In smaller organization, the task of budget
preparation may be entrusted to the accountant who works in close cooperation with the
general management and department heads.
But in bigger concerns, the budget should be prepared by each departmental/division
manager. The accounts department assists in providing necessary background information
and coordinates the budget of different departments.
There may be a budget committee in an organization comprising of the departmental
heads and finance manager or a budget officer.
The function of the budget committee is to
a) receive and approve all forecasts, departmental budgets, periodic reports showing
comparison of actual and budgeted income and expenditure.
b) the committee may also request for special studies of deviations from the budget and
consider revision of budget to meet changed conditions.

Essential requirements for budget preparation:
1) sound forcasting:
2) an adequate and well conceived accounting system
3) a well devised cost accounting system
4) a soundly constructed organization with fixed lines of responsibility.

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5) Statistical informations
6) Support of top management
7) Length of budget period.

PLANNING THE BUDGET

Planning yields forecasts for one year and several years. The budget is an annual
plan, intended to guide effective use of human and material resources, products or service and
managing the environment to improve productivity. Budgetary planning ensures that the best
methods are used to achieve financial objectives.
In nursing, budgetary planning helps to ensure that clients or patients receive the
nursing services they want and need from satisfied nursing workers. A nursing budgeting is a
systematic plan that is an informed best estimate by nurse administrators of revenue and
nursing expenses.
Managing the financial end of nursing through an operational budget obviously can
create a new dimension for nurse. The budget can be a strong support for developing written
objectives for the nursing division and for each of its units.

2. STEPS IN THE BUDGETARY PROCESS

The nursing process provides a model for the steps in the budget planning.

1. Assessment

The first step is to assess what needs to be covered in the budget. Historically, top-
level managers frequently developed the budget for institution without input from middle or
first level managers. Because unit managers who participate in fiscal planning are more up to
be cost conscious an better understand the institutions long and short term goals, budgeting
today generally reflects input from all level of the organizational hierarchy. Unit managers
develop goals, objectives and budgetary estimates with input from colleagues and
subordinates. Budgeting is most effective when all personnel using the resources are involved
in the process. Managers therefore must be taught how to prepare a budget and must be
supported by management throughout the budgeting process.

2. Develop a plan

The second step is to develop a plan. The budget plan may be developed in many
ways. A budgeting cycle that is set for 12 months is called a fiscal year budget. This fiscal
year which may or may not coincide with calendar year, is then usually broken down into
quarters or subdivided into monthly, quarterly or semiannual periods. Most budgets are
developed for a one-year period, but a perpetual budget may be done on a continual basis
each month. So that 12 months of future budget data are always available. Selecting the
optimal time frame for budgeting is also important; a budget that predicted too far in advance
has greater probability for error. If the budget is short sighted, compensating for unexpected
major expenses or purchasing capital equipment may be difficult.

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3. Implementation

The third step is implementation. In this step, ongoing monitoring and analysis occur
to avoid inadequate or excess funds at the end of fiscal year. In most health institutions,
monthly-computerized statements outline each department’s projected budget and any
deviations from the budget. Each unit manager is accountable for budget deviations in their
unit. Most units can expect some change causes and remedial actions must be taken if
necessary .some managers artificially inflate their department’s budgets as a cushion against
budget cuts from a higher level of administration. If a major change in the budget is
indicated, the entire budgeting process must be repeated. Top-level managers must watch for
and correct unrealistic budget projection before they are implemented

4. Evaluation:

This is last step. The budget must be reviewed periodically and modified as needed
throughout the fiscal year. With each, successive year of budgeting, managers can more
accurately predict their unit is budgetary requirements.

BUDGET STAGES:

The nursing budget follows three stages of development.

1. Formulation

2. Review and enactment

3. Execution

1. Formulation stage

It is usually a set of number of month before the beginning of the fiscal year for the
budget. One of the first steps in writing a budget is gathering data for accurate prediction of
expenses and revenues (income). Primary sources of data are the objectives for the division
of nursing and each cost center .other data include programmes from other departments that
will require use or expansion of nursing resources, expansion of nursing clinics and client
teaching programmes, incentive awards, library requirements, clinical and office supplies and
equipments etc.

2. Review and enactment stage

Review and enactment stage are budget development process that pull all the pieces
together for approved of a final budget. Once the cost center managers present their budgets
to the budget council, the chief nurse executive will consolidate the nursing budget. The chief
executive officer of the organization and the governing broad will then give their approval.
Throughout this process, conferences will be held at which budget adjustments are made.

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3. Execution stage

Execution of the budget involves directing, executing, and evaluating activities. The
nurse administrator and managers who planned the budget execute it. Revisions in execution
of the budgets are scheduled at stated intervals, frequently once or twice during fiscal year.
Certain procedures are followed for evaluating the budget at cost center levels.

Steps in the preparation of an operating budget:

1) Collection of past data (historical data) as a background material for the preparation
of budget in a cumulative form.
2) Examining the expressed objectives of the previous years and to note in each instance
the extent to which these objectives have been achieved or exceeded. Before setting
programs for future, it is necessary to assess the successes and failures of the past.
Budget time is ideal for such reviews.
3) Setting objectives for the forecast year. These objectives might include ways to
increase the utilization of existing facilities and personnel.
4) Stating the objectives in terms of units of production or services or activities. The
indicated units are increased or decreased by the effect of expected achievements.
5) Consideration of salary of wages adjustments. A complete schedule of cost of living
increase and merit increase must be prepared of all cost centres, detailing the persons
and months and the amount of adjustments. However these increases should not
exceed the ceiling salary/ wages established under the job evaluation study.
6) Preparation of report on the expenses related to insurance, taxes, supplies, services,
maintenance and repair costs etc to be included in the budget schedule.
7) Preparation of budget report: this report comprises of a) narrative section
summarizing the budget of explaining the budget plan for the year ahead, including
the anticipated operating result and principal factors entering into increases and
decreases in income and expenditure b) budget statements and supporting schedules
in a concrete manner c) a comprehensive presentation of budget informations by
activities and cost centres.
8) Review of the budget report by the administrator of the organization who ultimately
presents it to the board of trustees.
9) Evaluation of the budget as an operating plan, incorporating any changes and
presenting it to the finance committee.
10) The finance committee may further initiate any changes or modifications before
finally presenting to the board for its consideration and decision.
11) Final approval by the board.

THE BUDGET CALENDAR
Formulation stage:
1. Develop objectives and management plans
2. Gather all financial, historical and statistical data and distribute

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to cost center managers
3. Analyze data
Review and enactment stage:
4. Prepare unit budgets
5. Present unit budgets for approval
6. Revise and combine into organization budget.
7. Present to budget council
8. Revise and present to governing board
9. Revise and distribute to cost center managers
Execution stage
10. Direct and evaluate expenses and receipts
11. Review budgets if indicated

BUDGETING CYCLE:

The nurse administrator should use a system approach in designing and implementing a
planning program budgeting cycle as follows
1. Agency goals are reviewed to identify activities of highest priority, because these are
most likely to receive funding.
2. Objectives are reviewed for existing programs and written for proposal programs to
ensure that achievement of these objectives will support agency mission.
3. Existing programs are revised and proposed programs designed to maximize goal
achievement.
4. Labour, capital and operating expenses are computed for each program, old and new.
5. Alternative methods are identified for realizing designated objectives and price of
each alternative is determined.
6. Comparisons are made to determine which alternative is most cost –effective
7. A budget request is developed that details a fiscal plan for the preferred program,
indicates alternative methods for meeting the same objective and explain why the
recommended program is preferred.
Cost expenditure:

Cost can be defined as the value of economic resources used for producing a
commodity or for carrying out the activity for providing services, which consist of two
components, i.e quantity used and price fixed.
Cost is the expenditure required to achieve a desired object. The total cost of a budget,
service or program includes all significant elements-monetary property and personnel
resources that are consumed to acquire or achieve the object service or program. Total cost
can be direct or indirect labour cost.

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1. Direct labor costs are wages paid to employees who are directly engaged in
productive output, e.g. services to client.
2. Indirect labor cost includes all labor costs not included in direct costs, such as salaries
to supervisors on above categories,e.g. services to ANO.
3. Semi variable costs are expenses that change as volume of output changes but not in
direct proportion to the change in output, e.g. IJE.
4. Period costs are expenses that are associated with a period of time rather than with a
level of activity,e.g. insurance premium.
5. Committed costs are expenses that are required to maintain an agencies legal and
physical existence, e.g. license fee, application fees.
6. Programmed costs are expenses that are subjected to managerial control but relatively
unconnected to current activities, e.g. research costs.
7. Overhead costs are expenses that are essential to agency operations but cannot be
directly related to work volume or service delivery, e.g. cost of housekeeping or basic
amenities.

3. Audit:

Audit is an independent appraisal activity within an organization for review of
accounting, financial and other operation as a basis of services to the management. It is
monitoring the budget process. Here, the budget reports are needed to monitor expenditure
and keep the budget process focused on long- range objectives. The most common tools are

Capital inventory is an itemized list of current capital asset that enumerates each piece of
capital equipment, together with items serial number, current valuation, and physical
location, e.g.checking stock register and inventory.
Supply inventory is itemized list of available supplies. It is needed to implement the
operating budget for each unit.
Position control system is a status of each budgeted position. The serial number assigned to
each budgeted position should indicate both the job classification and the budget unit and cost
centre which the position is assigned it should be documented, dated and identified the nature
of transactions and facilitates later retrieval information.
Monthly account reports are reports of the amount spent and remaining per item, e.g salary,
T.A.etc
Cost accounting is process of linking each expenditure to its purposes.
Variance analysis a variance is a discrepancy between the amount of funds intended to be
spent for particular purpose and the amount of funds actually used for that purpose.

Variance analysis is a process that has the following four steps
1. Founds required for each budget item or expenditure are calculated for the expected
level of activity.
2. For each budget item, the difference between actual and planned expenditure is
calculated.

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3. These differences or variances are examined and the cause of each variance is
identified.
4. Each positive variance (amount expended that exceeds the amount budgeted) is
corrected either by increasing the funds allocated for the item or decreasing
expenditure for it.
The common causes of budget variance are:

1. Unanticipated increase in supply or equipment price.
2. Bills received in a different month from when purchases were made.
3. Higher-than- expected inflation rate.
4. Failure to calculate the cost of disposable supplies needed for new equipment.
5. Professional practice charges that entail additional purchase.
6. Unforeseen technological improvement demanded by patients and doctors.
7. Reimbursement changes that alter the type and volume of service delivered.
8. New medical staff members who implement new treatments requiring new equipment
and supplies.
9. Changes in safety or injection –control standard.
10. Excessive breakage of equipment by untrained staff.
11. Opening or closing of nursing unites.
12. Improperly budgeting unproductive time.

The responsibility of nursing administration in budget includes the following.

1. Participation in planning budget.
2. Consult and take assistance of his /her subordinate in determining the needs of the
unit for ensuing year on the basis of information received.
3. Request sufficient funds to suggest a sound programme such as provide for
developing programme provision, expansion of programme, to attract and hold
qualified staff to provide for expansion of physical facilities, supplies, equipment, for
improving instruction (school and college) and also to carry out adequate functions of
the institution.
4. Submit budget request with justification with proposed expenditure. The
administrators define his/her budget so that nursing unit will have enough money to
conduct programme effectively. Money must be available to allow experimentation
also.
5. He/she should support the budget and interpret the subordinates, any changes that
may affect instruction services for the adopted budget. He/she secures for the adapted
budge and responsibility of the administrator to see that expenditure should not
exceed the appropriation made.
6. Nurse administrator also is responsible for budget, and covers the routine budget
control.

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To sum up the general rules and functions administrator/manager in budgeting are as
given below:
Rules: He/she:
1. Is visionary in identifying or forecasting short and long term unit needs, thus inspiring
proactive rather than reactive fiscal planning.
2. Is knowledgeable about political, social and economic factors that shape fiscal
planning in health care today.
3. Demonstrates flexibility in fiscal goals setting in a rapidly changing system.
4. Anticipates, recognises and creativity problem-solves budgetary constraints.
5. Influences and inspires group members to become active in short and long range
fiscal planning.
6. Recognises when fiscal constraints have result in an inability to meet organisational or
unit goals and communicate this insight effectively, following the chain of command.
7. Ensures that client safely is not jeopardised by cost contents.

Functions:
1. Identifies the importance of, and develops short and long range fiscal plans that reflect
unit need.
2. Articulates and documents unit needs effectively to higher administrative levels.
3. Assess the internal and external environment of the organizations in forecasting to
identify diving forces and barriers of fiscal planning.
4. Demonstrates knowledge of budgeting and uses appropriate techniques.
5. Provides opportunities for subordinates to participate in relevant fiscal planning.
6. Co-ordinates unit level fiscal planning to be congruent with organisational goals and
objectives.
7. Accusatively assesses personal needs using predetermined standards or an established
patient classification system.
8. Co-ordinates the monitoring aspects of budget control.
9. Ensures that documentation of clients need for services rendered in clear and
complete to facilitate organisational reimbursement.
Advantages of clinical budgeting:

1. Head of the clinical units are involved in planning, allocation of resources and
achievement of objectives.
2. Head of the clinical units seeks specific resources, personnel and equipment to
perform optimally the services.
3. Each clinical unit is responsible for expenditure including referrals, investigations,
drugs and materials and services from other departments.
4. Clinical budgeting leads to cost containment and control over wastage.

Conclusion:
The budget is very important in management of patients in health care setting .proper
planning of budget will improve the quality of services provided in the organization. So the
nurse should know about types, steps, and cost containment.

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4. COST EFFECTIVENESS AND COST ANALYSIS
INTRODUCTION
Cost-effectiveness analysis (CEA) is a form of economic analysis that compares the relative
expenditure (costs) and outcomes (effects) of two or more courses of action. Cost-
effectiveness analysis is often used where a full cost-benefit analysis is inappropriate e.g. the
problem is to determine how best to comply with a legal requirement. Typically the CEA is
expressed in terms of a ratio where the denominator is a gain in health from a measure (years
of life, premature births averted, sight-years gained) and the numerator is the cost of the
health gain. The most commonly used outcome measure is quality-adjusted life years
(QALY). Cost-utility analysis is similar to cost-effectiveness analysis.Cost-effectiveness
analysis is generally not equivalent to cost-benefit analysis (CBA). Cost is money expended
for all the resources used, including personnel, supplies, and equipment.

COST

DEFINITION
The total amount of money that needs to be spent by an organization or a person or
government.

TYPES OF COST

1. Fixed cost: Fixed costs are those costs which stay the same regardless of the level of the
activity. They are not related to volume. They remain constant as the volume increases
and decreases over the period of time. Among fixed costs are deprivation of equipments
and buildings, salaries, benefits, utilizes, interest on loans or bonds, and taxes.
Example: Fixed costs are those which would exist even if the organization were ―shut down‖.

2. Variable cost: Variable costs are those cost that change depending on the level of
volume. They do relate to volume and census (patient days). They include items such as
meals and linen. The cost of supplies varies by patient census, physician orders and
diagnosis.
Example: the cost of surgical dressings increases when the patient’s wound has drainage and
dressings to be changed frequently.

3. Sunk costs: Sunk costs are fixed expenses that cannot be recovered even if program is
canceled.
Example: Advertising

4. Accounting cost:

―A measure of cost based on a number of simplifications such as an assumed useful
life for a price of equipment.‖

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5. Average cost:
―Full cost divided by the number of units of service or patients‖

6. Cost center:
―A unit of department in an organization for which a manager is assigned
responsibility for costs.

7. Direct costs – direct costs are those expenses that directly effects patient care
Ex: salaries for the nursing personnel who provide hands on patient care is considered as
direct cost.

8. Indirect costs – indirect costs are the expenditures that are necessary but don’t effect
patient care directly.
Ex: salaries for dietary or housekeeping personnels.

9. Economic cost:
―The amount of money required to obtain the use of a resource.‖

10. Joint cost:
Costs that is required for the treatment of several or more types of patients. The cost
would not incur unless the organization stopped treating all of those different types of
patients.

11. Opportunity costs:
A measure of cost based on the value of the alternatives that are given up in order to
use the resources as the organization has chosen.

STAGES OF COSTS:
Costs have two stages:
1) Acquisition cost: when some asset or service is purchased, the resource given in
exchange represents the acquisition cost.
2) Expired cost: once the asset is fully consumed, it becomes an expired cost or an
expense.

FACTORS AFFECTING COST
The volume of service provided is the greatest factor affecting costs. Other factors
include length of patient stays, salaries, price of the material, case mix, seasonal factors, and
efiiciencies (such as simplification of procedures and quality management to prevent errors
that increase patient complications and increase costs). Still other factors that have an impact
on cost are regulation and competition for market share; third party payers; the age and size
of the agency; type and amount of services provided; the agency’s mission; and relationships
among nurses, physician and other personnel.

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COST CONTAINMENT

The goal of the cost containment is to keep cost within acceptable limits for
volume inflation, and other acceptable personnels. It involves the following:
1. Cost awareness.
2. Cost monitoring.
3. Cost management.
4. Cost avoidance.
5. Cost reduction.
6. Cost control.

COST AWARENESS:
It focuses the employees attention on costs. It increases organizational awareness of
what costs are, the process available for containing them, how they can be managed, and by
whom.

COST MONITORING :
It focuses on how much will be spent where, when and why. It identifies, reports and
monitors costs. Staffing costs should be identified. Recruitment, turnover, absenteeism, and
sick time are analysed, and inventories are controlled.

COST MANAGEMENT:
It focuses on what can be done by whom to contain costs. Programs, plans,
objectives,a nd strategies are important. Responsibility and accountability for the control
should be established. A committee can identify long and short range plans and strategies.

COST AVOIDANCE:
It means not buying supplies, technology, or services. Supply and equipment cost should
be carefully analyzed. Costs and effectiveness of disposable versus reusable items are
compared. The receipts, storage and delivery of disposables and labour and processing cost of
reusable items are part of the analysis. The least expensive and most effective supplies,
equipment, and services should be identified and expensive and less effective items avoided.

COST REDUCTION:
It means spending less for goods and services. The amount of reduction depends on the
size of the agency, previous efficiency, skills of managers, and cooperation of employees.

COST CONTROL:
It is effective use of available resources through careful forecasting, plaaning, budget
preparation, reporting and monitoring.

COST ANALYSIS
It is the system of analyzing the relationship between the fixed and the variable cost.

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TYPES OF COST ANALYSIS

1. Cost benefit analysis [CBA]
2. Cost benefit ratio [CBR]
3. Cost effectiveness analysis [CEA]
4. Cost-of-illness analysis
5. Cost-minimization analysis
6. Cost utilization analysis
7. Cost consequences analysis

1. COST BENEFIT ANALYSIS [CBA]

Cost benefit analysis [CBA] is measurement of the relative costs and benefits
associated with a particular project or task.
The cost benefit analysis is a tool which is useful in setting priorities for various
sources of action to meet objectives, and provide an estimate of the net financial value
associated with each course of action (eg. Manpower and labour, material and equipment,
facilities). All the inputs and outputs have to be converted into momentary terms because all
inputs (ie costs) and all the outcomes (ie benefits) are valued in money terms.
OR
It is a procedure by which all the costs resulting from installing and operating a system
are determined and converted to a money amount and the ratio is calculated to reflect the
relationship of costs and benefits.
OR
Cost benefit analysis [CBA] is tool with great potential for the decision makers so long
as he or she recognizes the difficulty in determine the true costs and benefits of various
alternatives. This tool can especially useful when trying deciding between alternative
expenditure of money.‖

BASIC APPROACHES OF COST BENEFIT ANALYSIS
Two basic approaches for cost-benefit analysis (CBA) are-
 Ratio approach
 Net benefit approach.
Ratio approach: The ratio approach indicates the amount of benefits (or outcomes)
that can be realized per unit expenditure on a technology vs. a comparator. In the ratio
approach, a technology is cost beneficial vs. a comparator if the ratio of the change in costs to
the change in benefits is less than one.
Net benefit approach: The net benefits approach indicates the absolute amount of
money saved or lost due to a use of a technology vs. a comparator. In the net benefits
formulation, a technology is cost-beneficial vs. a comparator if the net change in benefits
exceeds the net change in costs.

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2. COST BENEFIT RATIO [CBR]

―It is the numerical relationship between the value of the financial cost of a program
and the value of benefits‖
―It is defined as the ratio of the Value of benefits of an alternative to the value of
alternative cost.‖
Z= present value of economic benefits
Present value of economic cost.
Cost benefit analysis is often used in the public sector where there is no net income to
serve as a guideline.
In order to determine the ratio, it is necessary to assign value to both the cost and the
benefits in monetary terms. In practice, it is difficult to assign monetary values to health care
outcomes. It is difficult to measure the value of life and even more difficulty in measuring the
difference in health outcomes that do not involve life or death.
Cost benefit analysis is designed to consider the social cost and benefits attributable to
the project. The benefits are expressed in monetary terms to determine whether a given
program is economically sound, and to select the best out of several programs.

3. COST-OF-ILLNESS ANALYSIS: A determination of the economic impact of an illness
or condition (typically on a given population, region, or country) e.g., of smoking, arthritis
or bedsores, including associated treatment costs

4. COST-MINIMIZATION ANALYSIS : A determination of the least costly among
alternative interventions that are assumed to produce equivalent outcomes

5. COST-UTILITY ANALYSIS (CUA): A form of cost-effectiveness analysis that compares
costs in monetary units with outcomes in terms of their utility, usually to the patient,
measured, e.g., in QALYs

6. COST-CONSEQUENCE ANALYSIS: A form of cost-effectiveness analysis that presents
costs and outcomes in discrete categories, without aggregating or weighting them

7. COST EFFECTIVENESS ANALYSIS [CEA]:

―A technique that measure the cost of alternatives that generate the same outcome‖
OR
Cost effectiveness analysis is the technique for choosing, from alternative courses
of action, a preferred choice when objectives are not clear in such areas as sales, costs or
profits.
OR
It is a desired effect of careful planning.
OR
It means getting the most for your money.
OR
The product is worth the price.

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Cost effective methods are those search for the last costly way of
achieving a defined result. Cost effective analysis are easier to make as that is clear. It helps
the administrator in managing his health resources. The problem is to find the way of
achieving the objective at lower cost‖
A more cost effectiveness analysis [CEA] oriented approach would consider
different approaches to save a life, and find out which one cost least, that would be the cost
effective that generate similar outcomes.
For ex: suppose a hospital has been treating a certain type of patient using a particular
approach is cost effective, we must first establish that the clinical money than the old
approach. If a new approach generates the exact outcome for less money then it is cost
effective.

STEPS IN COST EFFECTIVENESS ANALYSIS:
1. Identify the program goal or client outcome to be achieved.
2. Identify at least 2 alternatives means of achieving the desired outcomes.
3. Collect baseline data on clients.
4. Determine the cost associated with each program activity.
5. Determine the activities of each group of clients will receive.
6. Determine the client changes after the activities are completed. Combine the cost,
amount of activity and outcome information to express costs relatives to outcome of
program goals.
7. Compare cost outcome information for each goal to present cost effectiveness
analysis

COST EFFECTIVENESS ANALYSIS BASICS
A general misconception is that CEA is merely a means of finding the least
expensive alternative or getting the ―most bang for the buck.‖In reality, CEA is a comparison
tool; it will not always indicate a clear choice, but it will evaluate options quantitatively and
objectively based on a defined model. CEA was designed to evaluate health care
interventions, but the methodology can be used for non health economic applications as well.
It can compare any resource allocation with measurable outcomes to any other resource
allocation with measurable outcomes.

CONDUCTING, EVALUATING, AND USING ANALYSES
Increasing numbers of analyses are conducted in academia or research
organizations and published in peer-reviewed journals. Government organizations use
analyses to help shape public policy. Health insurers use CEAs to determine which kinds of
health interventions to cover.

COST-EFFECTIVENESS RATI O
The cost-effectiveness ratio is simply the sum of all benefits divided by the sum of all
costs. This is comparable to a return on investment calculation; however, the benefits are not
measured in terms of just dollars, but in a ratio that incorporates both health outcomes
and dollars.

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Cost-Effectiveness Ratio = ∑ (All benefits)
∑(All costs)

WHY EMPLOYERS USE CEA?

✓ Supports objective decision making: Decision makers can consider options in a
comparable and objective way that provides support for the final decision.

✓ Brings clarity to data sources and outcomes: CEA evaluates options in similar terms to
avoid ―comparing apples to oranges.‖
✓ Allows for strategic review of organizations: CEA might justify some operational
centers operating at a loss to increase overall return on investment, employee health,
or both.

✓ Can be used in a host of operational and benefits areas including:
o Screening coverage
o Pharmacy
o Strategic Planning
o Labor Relations
o Disease Management
o Disability Management
o Wellness and Prevention Programs

✓ Presents evidence that can help gain support for changes in benefits plans or
employer-sponsored health programs.

STRATEGIC TIPS FOR INTERPRETING A CEA
✓ Consider perspective. Which parties are incurring costs and which parties are
receiving benefits? Many studies take a broad societal perspective; they are usually
not
written for an employer audience.
✓ Identify the strategies under comparison. Does the study compare different
alternatives (treat using drug A vs. treat using drug B) or examine incremental
changes in the same health intervention (screen every two years vs. screen every four
years)?
✓ Be aware of the analytic horizon. When are costs incurred and when are benefits
received? Most studies use a 3-5% annual discount rate to adjust both costs and
benefits to a present value, but if a benefit is not received until 10 years after an
intervention begins, this is important information to note.
✓ Analyze all stated assumptions. Are the assumptions built into the economic model
clearly defined, and are they valid for employers?
✓ Examine the sensitivity analysis. How do differences in data inputs affect the
outcome? Think how this relates to the health characteristics of your employee
population.
✓ Understand all metrics. How did the author present the cost-effectiveness ratio?

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Most studies measure the costs of increased quality of life ($/quality adjusted life year
gained), disability prevented ($/disability adjusted life year prevented) or of life saved
($/life year gained). A study that measures quality adjusted life years is called a
cost-utility analysis, a specific type of CEA.

COST EFFECTIVENESS IN IMPROVING HEALTH CARE
Cost-effective care is that judged to provide good health value for expenditure. Health
value refers to the benefits of a particular medical intervention, which might include longer
life, better quality of life, or both. Expenditures should include not only the costs of a test or
treatment itself, but the subsequent costs it might cause, including additional medical
interventions, work disability, costs of longterm care, and so forth.
Cost-effectiveness analysis is a method for assessing the gains in health relative to the
costs of different health interventions. It is not the only criterion for deciding how to allocate
resources, but it is an important
one, because it directly relates the financial and scientific implications of different
interventions. The basic calculation involves dividing the cost of an intervention in monetary
units by the expected health gain measured in natural units such as number of lives saved.

PRINCIPLES WHICH ARE BASIC TO COST EFFECTIVENESS IN HEALTH
CARE:
 Government health care programs should be screened for cost effectiveness.
 Health education and physical fitness should be primary curricular items in our entire
educational system from elementary through secondary schools. Healthy life-styles for
adults should include continued health education, disease prevention and physical
exercise.
 Health promotion and disease prevention must receive primary emphasis on all health
care plans with payment for such medical care being equal to or greater than that
provided for acute medical care.
 Major efforts must be made throughout the profession to promote and emphasize
quality ambulatory care provided by those best trained to provide such care -- the
family physician.
 There should be incentives provided to both physicians and patients to maximize value
in health care: highest quality at lowest costs.
 Medical education should emphasize cost awareness and cost effectiveness at all levels
of education -- undergraduate, graduate and continuing medical education programs.
 Patients must be educated regarding the necessity of their involvement in cost-effective
medical care and in cost containment. This can be achieved through informational
programs emphasizing personal responsibility for healthy life-styles and cost-effective
medical care. The use of health insurance deductibles and co-payments are also useful
tools in emphasizing cost containment but these should not be prohibitive in achieving
access to quality health care.

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PURPOSE OF COST ANALYSIS
1. The administrator utilizes data provided by a cost study to interpret the needs
of the nursing units and to gain financial support for the unit.
2. It can be used to show the portion of the requested funds being used for
research programs.
3. It will show the relationship of the faculty salaries to the cost per student.
4. It assists the administrator in measuring change and provides the necessary
data which can serve as a guide in modifying the program.
5. It gives the supporting data when the board of trustees, central administrators,
legislators, foundations and other groups question the high cost of nursing
education.
6. It provides valuable information for institutions questions of higher learning
that wish to establish a new baccalaureate program.

STEPS OF ANALYSIS:
1. A clear statement of objectives.
2. Identifying all alternative actions that can achieve the objectives.
3. Identifying all the costs and all benefits with each alternative.
4. Converting all costs and all benefits for each alternative to momentary value,
and quantitive evaluation of costs and benefits of each.
5. Selection of the best cost- effective approach.

THE ROLE OF THE ADMINISTRATOR IN COST ANALYSIS
1. Understanding methods of cost analysis and participating with cost study of
nursing units and for the college. The administrator needs to know the cost of
operating the nursing education unit in order to make wise education
decisions. A school of nursing should operate economically and efficiently.
2. The administrator interprets the cost analysis to the faculty and others, and she
gains support for the study. She interprets findings to the personnel at the
college and at the health services agencies.
3. The administrator participates in the cost analysis committees: the cost
analysis committee is composed of the finance officer, dean of the college, a
nurse faculty member, the administrator of the school of nursing,
representatives from the central administrator of the health service agencies
and directors of nursing service for the various agencies involved.
4. The administrator encourages and leads to members of the overall study staff.

CONCLUSION:
Cost-Effectiveness in Health and Medicine is the product of over two years of
comprehensive research and deliberation by a multi-disciplinary panel of economists,
ethicists, psychometricians, and clinicians.
This study published in the Journal of the American Medical Association shows that nicotine
patch therapy, in conjunction with physician counseling, is a cost-effective approach to
smoking cessation. This is an example of information in published CEAs that can support
coverage decisions and justify health improvement programs.

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5. COST ACCOUNTING

Cost accounting is a process that supports the budget reporting system and agency
efforts for cost containment.
Cost accounting is a set of techniques for associating cost with the purpose for which
in curred.
In accounting the only facts recorded are those that can be pressed in monitory terms.

Advantages of Cost accounting:

1) The accumulated data enable a head nurse or divisional nursing director to assess
the cost of cost extra demand imposed on the nursing unit, such as abortion, oral
surgery.
2) It enables a manager to identify the interaction between different expenditures.
3) Through Cost accounting a manager can determine whether hiring additional
operating room or clinical care employees. Increase the unit expenditure for scrub
clothes, sterile supplies and bed linen.
4) It enables the manager to identify popular services program that receive hidden
founding in the form of voluntary time contributions by professionals from the
other units.
5) In some health care agencies, in house clinical nurse experts who are assigned to
various clinical specialty units, serve as volunteer teacher for in service programs.

Disadvantages of Cost accounting:
1. It is difficult to associate some cost with particular program
2. A cost incurred at one point in time may facilitate service programs over an
extended period.
3. It is the fact that it is difficult for a manager to justify the cost of a nursing care
program. When quantifiable measures of all patients outcomes of not variable.

Cost reduction:
Cost reduction means spending less for goods and service. The amount of reduction
depends on the size of the agency, previous efficiency, and skill of manager and cooperation
of employees. Safety programs that reduce the costs of workers, compensation and safety
programs that reduce the costs of workers compensation and absenteeism program that
reduce sick time, absenteeism and turn over reduce costs.

Factors influencing need for cost reduction
The capital funding availability for hospitals is not as attractive as industry. No doubt,
the financing institutions are ready to finance the hospitals today to the tune of several
croups, but the hospital project can never be as financially available as an industrial project.

Inability to generate finds through donation

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The tax benefits available to a donor for making contribution to the hospital are not at
par with the tax benefits for donations to religious, educational, and other programs or
institutions. Therefore, it is difficult to attract donations.

Demographic factors
Due to uncontrolled population there is an increased demand for services for longer
periods. This is more critical for public hospitals, public sector industrial hospitals, and
missionary hospitals. Of course, private sector would benefit.

Inflation
Due to higher inflation there is an erosion of purchasing power. Financial resources of the
country are tight. The budgets of the public hospitals are not going, increased appreciably for
few years. The administrators would have to manage with tight budget. As a result, there
would be limited materials and equipment.

Increased demand and expectations.
Due to health education and awareness, there is an increased demand and expectations
on the [part of the pubic and employees in industrial hospitals. Since there is greater
possibility of treatment of chronic and degenerative diseases, open- heart surgeries, organ
transplantations, dialysis treatment, there is great demand and expectations for treatment.

Capital cost of building and materials
The capital cost of construction of buildings and materials have increased
considerably even the maintenance of the buildings require higher budget.

Maintenance of equipment, materials and vehicles
Cost of spare- part, serving of the equipment, diagnostic and therapeutic materials,
maintenance of the vehicles are continually increasing. The above are some of the factors
influencing the increased cost necessitating cost reduction.

Area of cost reduction in hospitals
There are 4 input variables in health care
1. physicians – professionals – technical inputs
2. patients and relatives of the patients as consumers
3. therapy- drugs, super equipment, ect- raw materials
4. Para-medical and administrative staff-support services

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6. CRITICAL PATHWAYS

Clinical Pathways: multidisciplinary plans of best clinical practice. Many synonyms
exist for the term Clinical Pathways including: Integrated Care Pathways, Multidisciplinary
pathways of care, Pathways of Care, Care Maps, and Collaborative Care Pathways.
Clinical Pathways were introduced in the early 1990s in the UK and the USA, and are being
increasingly used throughout the developed world. Clinical Pathways are structured,
multidisplinary plans of care designed to support the implementation of clinical guidelines
and protocols. They are designed to support clinical management, clinical and non-clinical
resource management, clinical audit and also financial management. They provide detailed
guidance for each stage in the management of a patient (treatments, interventions etc )
with a specific condition over a given time period, and include progress and outcomes details.
Clinical Pathways aim to improve, in particular, the continuity and co-ordination of care
across different disciplines and sectors. Care Pathways can be viewed as algorithms in as
much as they offer a flow chart format of the decisions to be made and the care to be
provided for a given patient or patient group for a given condition in a step-wise sequence.

Clinical Pathways have four main components (Hill, 1994, Hill 1998):

1. A timeline
2. The categories of care or activities and their interventions
3. Intermediate and long term outcome criteria
4. The variance record (to allow deviations to be documented and analysed).

Clinical Pathways differ from practice guidelines, protocols and algorithms as they are
utilised by a multidisciplinary team and have a focus on the quality and co-ordination of care.
Critical pathways, also known as critical paths, clinical pathways, or care paths, are
management plans that display goals for patients and provide the sequence and timing of
actions necessary to achieve these goals with optimal efficiency. As competition in the
healthcare industry has increased, managers have embraced critical pathways as a method to
reduce variation in care, decrease resource utilization, and potentially improve healthcare
quality. Cardiovascular medicine in particular is an area in which critical pathways have been
embraced. This is due in part to the high volume and high cost associated with cardiovascular
diseases and procedures. In addition, the relatively mature guideline process has also
contributed to the growth in use of critical pathways in cardiology.

Clinical guidelines :Although anchored in clinical guidelines, the critical pathway is a
distinct tool that details processes of care and highlights inefficiencies regardless of whether
there is evidence to warrant changes in those processes. Clinical guidelines, on the other
hand, are consensus statements that are systematically developed to assist practitioners in
making patient management decisions related to specific clinical circumstances. Although
clinical guidelines can and should be used in pathway development, the majority of processes
included in a pathway have not been rigorously tested and are generally not addressed in
guidelines.

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Clinical protocols: Another term that should also be distinguished from critical pathways is
clinical protocols. Protocols are treatment recommendations that are often based on
guidelines. Like the critical pathway, the goal of the clinical protocol may be to decrease
treatment variation. However, protocols are most often focused on guideline compliance
rather than the identification of rate-limiting steps in the patient care process. In further
contrast to critical pathways, protocols may or may not include a continuous monitoring and
data-evaluation component.

Critical pathway techniques were first developed for use in industry as a tool to
identify and manage the rate-limiting steps in production processes. In industry, any variation
in production process is suboptimal. Thus, by defining the processes and timing of these
processes, managers could target areas that were critical, measure variation, and try to make
improvements. Once steps were taken to improve the process, there would be a
remeasurement. In time, variation would decrease, the time it took to complete the pathway
would decrease, costs would decrease, and quality of production would improve.

When applied to health care, the technique of critical pathways has obvious concerns.
First, unlike in manufacturing, not all variation in patient care is negative. Individual patient
factors may contribute to variation that cannot and should not be controlled by the system. For
example, if postoperative extubation occurred within a prespecified time period based on a
pathway, there would be early extubations with potential for harm. Also unlike in
manufacturing, in which the products are standardized, patients are different and may not fit
within a pathway. Second, there exists concern that streamlining care may have a negative
impact on patient outcomes. For example, if a care pathway suggests a 2-day stay in the
cardiac care unit, a provider may alter care against his or her best judgment to stay within the
plan. Finally, physicians have objected to "cookbook medicine" and have felt an erosion of
professional autonomy with the critical pathways. Without physician support of the pathway,
it is unlikely to achieve any of the stated cost-saving or quality goals.

Despite these obvious limitations, the use of critical pathways is being embraced in
many systems. Although designed as a tool for both cost savings and improved quality of
care, it is the former that has been emphasized by managers. Interest in critical pathways has
increased because anecdotal reports of cost savings have been disseminated. These reports are
best described as case studies and in general have not followed careful study designs.
Implementation of the care pathways has not been tested in a scientific or controlled fashion
No controlled study has shown a critical pathway to reduce length of stay, decrease resource
use, or improve patient satisfaction. Most importantly, no controlled study has shown
improvements in patient outcome.

Lack of careful evaluation has not limited the development and implementation of
critical pathways in multiple healthcare settings. It is important for cardiovascular
practitioners to understand the goals, development, and implementation of critical pathways.
In addition, physicians must take an active role in the development of critical pathways. By
understanding the strengths and limitations of the critical pathway process, physicians and
other practitioners can ensure appropriate use of these methods. In a review of critical

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pathways, Pearson et al examined the goals of critical pathways, optimal pathway
development, and implementation strategies

Critical Pathway Development

Select a Topic .
Topic selection in general should concentrate on high-volume, high-cost diagnoses and
procedures. Critical pathway development has focused on several cardiovascular diseases and
procedures because of volume and costs. These include bypass surgery, diagnostic
catheterization, coronary angioplasty, acute myocardial infarction, and unstable angina. These
diagnoses and procedures tend to be more suitable for critical pathway development because
of the predictable course of events that occur during the hospitalization. In addition, marked
variation in care has been observed in these conditions, which makes the goal of decreased
variation and reduction in resource utilization possible. Furthermore, there has been evidence
of noncompliance with guideline recommendations. In this case, the pathways might improve
guideline compliance and potentially improve quality of care.

Select a Team .
It is important to develop a multidisciplinary team for critical pathway development.
Historically, critical pathway development has been a nursing initiative. Although this has
been a successful model in some institutions, one fault of this process is lack of physician
commitment to the pathway. Active physician participation and leadership is crucial to the
development and implementation of the pathway. In addition, it is important to include
representatives from all groups that would be affected by the pathway, for example, house
staff, physical therapy personnel, and dietary personnel. The lack of involvement of
physicians has been cited as a reason for failure of a pathway.

Evaluate the Current Process of Care .
In this step, data, rather than anecdotal reports, are key to understanding current
variation. For systems with electronic medical records, this process may be more automated.
For other systems, a careful review of medical records is necessary to identify the critical
intermediate outcomes, rate-limiting steps, and high-cost areas on which to focus.

Evaluate Medical Evidence and External Practices .
After key rate-limiting steps have been identified, the critical pathway team must evaluate the
literature to identify evidence of best practices. For most rate-limiting steps, there are few
data available to define optimal processes of care. The critical pathway development team
will often lack answers to specific questions such as appropriate observation period or
length of stay. In the absence of evidence, comparison with other institutions, or
"benchmarking," is the most reasonable method to use.

Determine the Critical Pathway Format .
The format of the pathway may vary widely. Important features include a task-time
matrix in which specific tasks are specified along a timeline. There is a spectrum of pathways
that range from a form that takes the place of the medical record to a simple checklist. A
reduction in charting that may occur with more complicated pathways is a benefit. However,

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if the pathway format is too difficult to follow, it will not be used. Critical pathways have
become widely available in electronic format, where electronic charting and pathway
compliance are obtained simultaneously. One disadvantage to this method is the absence of a
standard medical record. This may result in duplication of efforts and possible noncompliance
with the pathway. This is particularly true among physicians who are likely to be resistant to
novel charting methods. For some systems, a simple checklist at the front of the paper chart
may be an optimal method for implementing the pathway. These checklists would have areas
to be filled in by different staff members active in patient care.

Document and Analyze Variance .
Variances are patient outcomes or staff actions that do not meet the expectation of the
pathway. In general, variance in clinical pathways is a result of the omission of an action or
the performance of an action at an inappropriate (often, a late) time period. Because the
critical pathway is a series of time-associated actions, this analysis of variance can be
overwhelmed by multiple data points. Computer-assisted pathway analysis can help with this
issue. Another approach is for the pathway team to concentrate on a few critical items in the
pathway that have been identified in advance, such as extubation time after cardiac surgery or
length of stay in the intensive care unit. These are critical intermediate outcomes that may
have a substantial number of important contributory factors. Arguably, the selection of areas
to analyze and the analysis of variance are among the most important processes in the critical
pathway. Identification of factors that contribute to variance and interventions to improve
those factors are the key features in process improvement.

Critical Path Analysis and PERT Charts

Critical Path Analysis and PERT are powerful tools that help you to schedule and
manage complex projects. They were developed in the 1950s to control large defense
projects, and have been used routinely since then.

As with Gantt Charts, Critical Path Analysis (CPA) or the Critical Path Method (CPM) helps
you to plan all tasks that must be completed as part of a project. They act as the basis both for
preparation of a schedule, and of resource planning. During management of a project, they
allow you to monitor achievement of project goals. They help you to see where remedial
action needs to be taken to get a project back on course.

Within a project it is likely that you will display your final project plan as a Gantt Chart
(using Microsoft Project or other software for projects of medium complexity or an excel
spreadsheet for projects of low complexity).The benefit of using CPA within the planning
process is to help you develop and test your plan to ensure that it is robust. Critical Path
Analysis formally identifies tasks which must be completed on time for the whole project to
be completed on time. It also identifies which tasks can be delayed if resource needs to be
reallocated to catch up on missed or overrunning tasks. The disadvantage of CPA, if you use
it as the technique by which your project plans are communicated and managed against, is
that the relation of tasks to time is not as immediately obvious as with Gantt Charts. This can
make them more difficult to understand.

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A further benefit of Critical Path Analysis is that it helps you to identify the minimum length
of time needed to complete a project. Where you need to run an accelerated project, it helps
you to identify which project steps you should accelerate to complete the project within the
available time.

How to Use the Tool:

As with Gantt Charts, the essential concept behind Critical Path Analysis is that you
cannot start some activities until others are finished. These activities need to be completed in
a sequence, with each stage being more-or-less completed before the next stage can begin.
These are 'sequential' activities.

Other activities are not dependent on completion of any other tasks. You can do these at any
time before or after a particular stage is reached. These are non-dependent or 'parallel' tasks.

Drawing a Critical Path Analysis Chart

Use the following steps to draw a CPA Chart:

Step 1. List all activities in the plan

For each activity, show the earliest start date, estimated length of time it will take, and
whether it is parallel or sequential. If tasks are sequential, show which stage they depend on.

For the project example used here, you will end up with the same task list as explained in the
article on Gantt Charts (we will use the same example as with Gantt Charts to compare the
two techniques). The chart is repeated in Figure 1 below:

Figure 1. Task List: Planning a custom-written computer project

Task Earliest
start
Length Type Dependent
on...
A. High level analysis Week 0 1 week Sequential

B. Selection of hardware platform Week 1 1 day Sequential A
C. Installation and commissioning of
hardware
Week 1.2 2 weeks Parallel B
D. Detailed analysis of core modules Week 1 2 weeks Sequential A
E. Detailed analysis of supporting
modules
Week 3 2 weeks Sequential D
F. Programming of core modules Week 3 2 weeks Sequential D
G. Programming of supporting
modules
Week 5 3 weeks Sequential E

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H. Quality assurance of core modules Week 5 1 week Sequential F
I. Quality assurance of supporting
modules
Week 8 1 week Sequential G
J.Core module training Week 6 1 day Parallel C,H
K. Development and QA of
accounting reporting
Week 5 1 week Parallel E
L. Development and QA of
management reporting
Week 5 1 week Parallel E
M. Development of Management
Information System
Week 6 1 week Sequential L
N. Detailed training Week 9 1 week Sequential I, J, K, M

Step 2. Plot the activities as a circle and arrow diagram

Critical Path Analyses are presented using circle and arrow diagrams.

In these, circles show events within the project, such as the start and finish of tasks. The
number shown in the left hand half of the circle allows you to identify each one easily.
Circles are sometimes known as nodes.

An arrow running between two event circles shows the activity needed to complete that task.
A description of the task is written underneath the arrow. The length of the task is shown
above it. By convention, all arrows run left to right. Arrows are also sometimes called arcs.

An example of a very simple diagram is shown below:

This shows the start event (circle 1), and the completion of the 'High Level Analysis' task
(circle 2). The arrow between them shows the activity of carrying out the High Level
Analysis. This activity should take 1 week.

Where one activity cannot start until another has been completed, we start the arrow for the
dependent activity at the completion event circle of the previous activity. An example of this
is shown below:

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Here the activities of 'Select Hardware' and 'Core Module Analysis' cannot be started until
'High Level Analysis' has been completed. This diagram also brings out a number of other
important points:

 Within Critical Path Analysis, we refer to activities by the numbers in the circles at
each end. For example, the task 'Core Module Analysis' would be called activity 2 to
3. 'Select Hardware' would be activity 2 to 9.
 Activities are not drawn to scale. In the diagram above, activities are 1 week long, 2
weeks long, and 1 day long. Arrows in this case are all the same length.
 In the example above, you can see a second number in the top, right hand quadrant of
each circle. This shows the earliest start time for the following activity. It is
conventional to start at 0. Here units are whole weeks.

A different case is shown below:

Here activity 6 to 7 cannot start until the other four activities (11 to 6, 5 to 6, 4 to 6, and 8 to
6) have been completed.

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Click the link below for the full circle and arrow diagram for the computer project we are
using as an example.

Figure 5: Full Critical Path Diagram

This shows all the activities that will take place as part of the project. Notice that each
event circle also has a figure in the bottom, right hand quadrant. This shows the latest finish
time that's permissible for the preceeding activity if the project is to be completed in the
minimum time possible. You can calculate this by starting at the last event and working
backwards.The latest finish time of the preceeding event and the earliest start time of the
following even will be the same for ciircles on the critical path.

You can see that event M can start any time between weeks 6 and 8. The timing of
this event is not critical. Events 1 to 2, 2 to 3, 3 to 4, 4 to 5, 5 to 6 and 6 to 7 must be started
and completed on time if the project is to be completed in 10 weeks. This is the 'critical path'
– these activities must be very closely managed to ensure that activities are completed on
time. If jobs on the critical path slip, immediate action should be taken to get the project back
on schedule. Otherwise completion of the whole project will slip.

'Crash Action'

It is the need to complete a project earlier than the plan Critical Path Analysis says is
possible. In this case one need to re-plan the project.

Here, one has a number of options and would need to assess the impact of each on the
project’s cost, quality and time required to complete it. For example, one could increase
resource available for each project activity to bring down time spent on each but the impact
of some of this would be insignificant and a more efficient way of doing this would be to
look only at activities on the critical path.

As an example, it may be necessary to complete the computer project in Figure 5 in 8
weeks rather than 10 weeks. In this case one could look at using two analysts in activities 2 to
3 and 3 to 4. This would shorten the project by two weeks, but may raise the project cost –
doubling resources at any stage may only improve productivity by, say, 50% as additional
time may need to be spent getting the team members up to speed on what is required,
coordinating tasks split between them, integrating their contributions etc.

In some situations, shortening the original critical path of a project can lead to a
different series of activities becoming the critical path. For example, if activity 4 to 5 were
reduced to 1 week, activities 4 to 8 and 8 to 6 would come onto the critical path.

As with Gantt Charts, in practice project managers use software tools like Microsoft
Project to create CPA Charts. Not only do these make them easier to draw, they also make
modification of plans easier and provide facilities for monitoring progress against plans.

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PERT (Program Evaluation and Review Technique)

PERT is a variation on Critical Path Analysis that takes a slightly more skeptical view
of time estimates made for each project stage. To use it, estimate the shortest possible time
each activity will take, the most likely length of time, and the longest time that might be
taken if the activity takes longer than expected.

Use the formula below to calculate the time to use for each project stage:
shortest time + 4 x likely time + longest time - 6
This helps to bias time estimates away from the unrealistically short time-scales normally
assumed.

Importance

Critical Path Analysis is an effective and powerful method of assessing:

 What tasks must be carried out.
 Where parallel activity can be performed.
 The shortest time in which you can complete a project.
 Resources needed to execute a project.
 The sequence of activities, scheduling and timings involved.
 Task priorities.
 The most efficient way of shortening time on urgent projects.

An effective Critical Path Analysis can make the difference between success and failure on
complex projects. It can be very useful for assessing the importance of problems faced during
the implementation of the plan.

PERT is a variant of Critical Path Analysis that takes a more skeptical view of the time
needed to complete each project stage.

CPM - Critical Path Method

In 1957, DuPont developed a project management method designed to address the
challenge of shutting down chemical plants for maintenance and then restarting the plants
once the maintenance had been completed. Given the complexity of the process, they
developed the Critical Path Method (CPM) for managing such projects.

CPM provides the following benefits:

 Provides a graphical view of the project.
 Predicts the time required to complete the project.
 Shows which activities are critical to maintaining the schedule and which are not.

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CPM models the activities and events of a project as a network. Activities are depicted as
nodes on the network and events that signify the beginning or ending of activities are
depicted as arcs or lines between the nodes. The following is an example of a CPM network
diagram:

CPM Diagram

Steps in CPM Project Planning

1. Specify the individual activities.
2. Determine the sequence of those activities.
3. Draw a network diagram.
4. Estimate the completion time for each activity.
5. Identify the critical path (longest path through the network)
6. Update the CPM diagram as the project progresses.

1. Specify the Individual Activities

From the work breakdown structure, a listing can be made of all the activities in the project.
This listing can be used as the basis for adding sequence and duration information in later
steps.

2. Determine the Sequence of the Activities

Some activities are dependent on the completion of others. A listing of the immediate
predecessors of each activity is useful for constructing the CPM network diagram.

3. Draw the Network Diagram

Once the activities and their sequencing have been defined, the CPM diagram can be drawn.
CPM originally was developed as an activity on node (AON) network, but some project
planners prefer to specify the activities on the arcs.

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4. Estimate Activity Completion Time

The time required to complete each activity can be estimated using past experience or the
estimates of knowledgeable persons. CPM is a deterministic model that does not take into
account variation in the completion time, so only one number is used for an activity's time
estimate.

5. Identify the Critical Path

The critical path is the longest-duration path through the network. The significance of the
critical path is that the activities that lie on it cannot be delayed without delaying the project.
Because of its impact on the entire project, critical path analysis is an important aspect of
project planning.

The critical path can be identified by determining the following four parameters for each
activity:

 ES - earliest start time: the earliest time at which the activity can start given that its
precedent activities must be completed first.
 EF - earliest finish time, equal to the earliest start time for the activity plus the time
required to complete the activity.
 LF - latest finish time: the latest time at which the activity can be completed without
delaying the project.
 LS - latest start time, equal to the latest finish time minus the time required to
complete the activity.

The slack time for an activity is the time between its earliest and latest start time, or between
its earliest and latest finish time. Slack is the amount of time that an activity can be delayed
past its earliest start or earliest finish without delaying the project.

The critical path is the path through the project network in which none of the activities have
slack, that is, the path for which ES=LS and EF=LF for all activities in the path. A delay in
the critical path delays the project. Similarly, to accelerate the project it is necessary to reduce
the total time required for the activities in the critical path.

6. Update CPM Diagram

As the project progresses, the actual task completion times will be known and the network
diagram can be updated to include this information. A new critical path may emerge, and
structural changes may be made in the network if project requirements change.

CPM Limitations

CPM was developed for complex but fairly routine projects with minimal uncertainty in the
project completion times. For less routine projects there is more uncertainty in the completion
times, and this uncertainty limits the usefulness of the deterministic CPM model. An

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alternative to CPM is the PERT project planning model, which allows a range of durations to
be specified for each activity.

Benefits

 Support the introduction of evidence-based medicine and use of clinical guidelines
 Support clinical effectiveness, risk management and clinical audit
 Improve multidisciplinary communication, teamwork and care planning
 Can support continuity and co-ordination of care across different clinical disciplines
and sectors;
 Provide explicit and well-defined standards for care;
 Help reduce variations in patient care (by promoting standardisation);
 Help improve clinical outcomes;
 Help improve and even reduce patient documentation
 Support training;
 Optimise the management of resources;
 Can help ensure quality of care and provide a means of continuous quality
improvement;
 Support the implementation of continuous clinical audit in clinical practice
 Support the use of guidelines in clinical practice;
 Help empower patients;
 Help manage clinical risk;
 Help improve communications between different care sectors;
 Disseminate accepted standards of care;
 Provide a baseline for future initiatives;
 Not prescriptive: don't override clinical judgement;
 Expected to help reduce risk;
 Expected to help reduce costs by shortening hospital stays

Issues with Critical Pathways

There are many issues in critical pathway development and implementation that are of
concern to practitioners who care for patients with cardiovascular disease. The first issue is
that critical pathways address processes in the "ideal" patient and in some cases do not
address issues in the majority of patients who enter the path. Identification of appropriate
patients to enter the pathway is an important issue in implementation. In general, critical
pathways are more applicable to patients with uncomplicated illnesses who are undergoing
procedures or surgery. For patients treated with medical conditions such as acute coronary
syndromes, it is difficult to define "appropriate" treatment for the majority of patients.
Therefore, critical pathways will tend to identify a great deal of variance in the care of these
patients that may or may not be wasteful or potentially harmful. The goal of placing most
patients within pathways may not benefit the individual patient.

A second issue is how to evaluate critical pathways as an effective tool in improving patient
care. As we have mentioned, little controlled research has been performed on the
effectiveness of pathways. One reason for this is that at any one medical center, "pathway"

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care cannot be easily differentiated from "usual" care because of contamination from the
pathway intervention. Randomized trials with the unit of randomization at the medical center
would be the optimal evaluation method.

Finally, it is important that physicians and practitioners be key players in any pathway
development and implementation. There is a real danger when critical pathways are brought
in from external sources and implemented on the basis of administrative attempts to reduce
costs.

Issues - potential problems and barriers to the introduction of ICPs

 May appear to discourage personalized care
 Risk increasing litigation
 Don't respond well to unexpected changes in a patient's condition
 Suit standard conditions better than unusual or unpredictable ones
 Require commitment from staff and establishment of an adequate organizational
structure
 Problems of introduction of new technology
 May take time to be accepted in the workplace
 Need to ensure variance and outcomes are properly recorded, audited and acted upon

Conclusions

Critical pathways are being implemented in a broad range of patients with cardiovascular
disease.

Although cost savings can and should be evaluated with the critical pathway, the goal of
improving guideline compliance and overall quality of care should be the primary focus.

Additional rigorous research into the cost of pathway development and implementation, as
well as the outcomes of critical pathway use, is essential before further dissemination of this
tool.
Clinical protocols can and should be used to decrease variation in care, improve guideline
compliance, and potentially improve overall quality of care in patients with cardiovascular
disease.
Practitioners and administrators should work together to incorporate similar and compatible
features of clinical protocols and critical pathways. This may result in improved quality and
reduced costs.

Issues for discussion

 The differences between clinical practice guidelines and care pathways
Paper-based ICPs versus electronic ICPs

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7. HEALTH CARE REFORMS

Health care reform is a general rubric used for discussing major health policy creation
or changes—for the most part, governmental policy that affects health care delivery in a
given place. Health care reform typically attempts to:
Broaden the population that receives health care coverage through either public sector
insurance programs or private sector insurance companies. Expand the array of health care
providers consumers may choose among
 Improve the access to health care specialists
 Improve the quality of health care
 Decrease the cost of health care
Health care reforms in India
The Ministry of Health and Family Welfare is the Indian government ministry charged with
health policy in India. It is also responsible for all government programs relating to family
planning in India.
The Minister of Health and Family Welfare holds cabinet rank as a member of the Council of
Ministers. The current minister is Shri. Ghulam Nabi Azad, who is assisted by a Minister of
States for Health and Family Welfare, Shri. Dinesh Trivedi & Shri. S. Gandhiselvan.
The ministry is composed of three departments:

1 Department of Health
2 Department of Family Welfare
3 Department of AYUSH

1. Department of Health

The Department of Health deals with health care, including awareness campaigns,
immunization campaigns, preventive medicine, and public health. Bodies under the
administrative control of this department are:
1) National AIDS Control Programme (AIDS)
2) National Cancer Control Programme (cancer)
3) National Filaria Control Programme (filariasis)
4) National Iodine Deficiency Disorders Control Programme (iodine deficiency)
5) National Leprosy Eradication Programme (leprosy)
6) National Mental Health Programme (mental health)
7) National Programme for Control of Blindness (blindness)
8) National Programme for Prevention and Control of Deafness (deafness)
9) National Tobacco Control Programme (tobacco control)
10) National Vector Borne Disease Control Programme (NVBDCP) (vector-born
disease)
11) Pilot Programme on Prevention and Control of Diabetes, CVD and Stroke
(diabetes, cardiovascular disease, stroke)
12) Revised National TB Control Programme (tuberculosis)
13) Universal Immunization Programme
14) Medical Council of India

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15) Dental Council of India
16) Pharmacy Council of India
17) Indian Nursing Council
18) All India Institute of Speech and Hearing (AIISH), Mysore
19) All India Institute of Physical Medicine and Rehabilitation (AIIPMR),
Mumbai
20) Hospital Services Consultancy Corporation Limited (HSCC)

2. Department of Family Welfare

The Department of Family Welfare (FW) is responsible for aspects relating to family welfare,
especially in reproductive health, maternal health, pediatrics, information, education and
communications; cooperation with NGOs and international aid groups; and rural health
services. The Department of Family Welfare is responsible for:
 18 Population Research Centres (PRCs) at six universities and six other institutions
across 17 states
 National Institute of Health and Family Welfare (NIHFW), South Delhi
 International Institute for Population Sciences (IIPS), Mumbai
 Central Drug Research Institute (CDRI), Lucknow
 Indian Council of Medical Research (ICMR), New Delhi - founded in 1991, it is one
of the oldest medical research bodies in the world

3. Department of AYUSH

The Department of Ayurveda, Yoga and Naturopathy, Unani, Siddha and Homoeopathy
(AYUSH) deals with ayurveda (Indian traditional medicine), and other yoga, naturopathy,
unani, siddha, and homoeopathy, and other alternative medicine systems.
The department was established in March 1995 as the Department of Indian Systems of
Medicines and Homoeopathy (ISM&H).The department is charged with upholding
educational standards in the Indian Systems of Medicines and Homoeopathy colleges,
strengthening research, promoting the cultivation of medicinal plants used, and working on
Pharmacopoeia standards. Bodies under the control of the Department of AYUSH are:
Various research councils
1) Central Council for Research in Ayurveda and Siddha (CCRAS)
2) Central Council for Research in Unani Medicine (CCRUM)
3) Central Council for Research in Homoeopathy (CCRH)
4) Central Council for Research in Yoga and Naturopathy (CCRYN)
5) Several educational institutions:
6) National Institute of Ayurveda, Jaipur (NIA)
7) National Institute of Siddha, Chennai (NIS)
8) National Institute of Homoeopathy, Kolkata (NIH)
9) National Institute of Naturopathy, Pune (NIN)
10) National Institute of Unani Medicine, Bangalore (NIUM)
11) Institute of Post Graduate Teaching and Research in Ayurveda, Jamnagar,Gujarat
(IPGTR)
12) Rashtriya Ayurveda Vidyapeeth, New Delhi (RAV)

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13) Morarji Desai National Institute of Yoga, New Delhi (MDNIY)
14) Indian Medicine Pharmaceutical Corporation Limited (IMPCL), Mohan, Uttaranchal
(a public sector undertaking)
15) Professional councils
16) Central Council of Homoeopathy (CCH)
17) Central Council of Indian Medicine (CCIM)

Healthcare in India
India has a universal health care system run by the local (state or territorial)
governments. Government hospitals, some of which are among the best hospitals in India,
provide treatment at taxpayer expense. Most essential drugs are offered free of charge in
these hospitals. However, the fact that the government sector is understaffed, underfinanced
and that these hospitals maintain very poor standards of hygiene forces many people to visit
private medical practitioners.
The charges for basic in-hospital treatment and investigations are much less compared
to the private sector. The cost for these subsidies comes from annual allocations from the
central and state governments. For example, an outpatient card at AIIMS (one of the best
hospitals in India) costs a one-time fee of 10 rupees (around 20 cents U.S.) and thereafter
outpatient medical advice is free. In-hospital treatment costs depend on financial condition of
the patient and facilities utilized, but are usually much less than the private sector. For
instance, a patient is waived treatment costs if their income is below the poverty line. Another
patient may seek an air-conditioned room for an additional fee.
Primary health care is provided by city and district hospitals and rural primary health
centres (PHCs). These hospitals provide treatment free of cost. Primary care is focused on
immunization, prevention of malnutrition, pregnancy, child birth, postnatal care, and
treatment of common illnesses.[citation needed] Patients who receive specialized care or have
complicated illnesses are referred to secondary (often located in district and taluk
headquarters) and tertiary care hospitals (located in district and state headquarters or those
that are teaching hospitals).
Now organizations like Hindustan Latex Family Planning Promotional Trust and
other private organizations have started creating hospitals and clinics in India, which also
provide free or subsidized health care and subsidized insurance plans.

Health care economics
 Funding models

Universal health care in most countries has been achieved by a mixed model of funding.
General taxation revenue is the primary source of funding, but in many countries it is
supplemented by specific levies (which may be charged to the individual and/or an employer)
or with the option of private payments (either direct or via optional insurance) for services
beyond that covered by the public system.
Almost all European systems are financed through a mix of public and private
contributions. The majority of universal health care systems are funded primarily by tax
revenue (e.g. Portugal, Spain, Denmark and Sweden). Some nations, such as Germany,
France and Japan employ a multi-payer system in which health care is funded by private and
public contributions. However, much of the non-government funding is by defined

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contributions by employers and employees to regulated non-profit sickness funds. These
contributions are compulsory and vary according to a person's salary, and are effectively a
form of hypothecated taxation.
A distinction is also made between municipal and national healthcare funding. For
example, one model is that the bulk of the healthcare is funded by the municipality, speciality
healthcare is provided and possibly funded by a larger entity, such as a municipal co-
operation board or the state, and the medications are paid by a state agency.
Universal health care systems are modestly redistributive. Progressivity of health care
financing has limited implications for overall income inequality.
 Single payer
The term single-payer health care is used in the United States to describe a funding
mechanism meeting the costs of medical care from a single fund. Although the fund holder is
usually the government, some forms of single-payer employ a public-private system.
 Public
Some countries (notably the United Kingdom, Italy, Spain and the Nordic countries) choose
to fund health care directly from taxation alone. Other countries with insurance-based
systems effectively meet the cost of insuring those unable to insure themselves via social
security arrangements funded from taxation, either by directly paying their medical bills or by
paying for insurance premiums for those affected.
 Compulsory insurance
This is usually enforced via legislation requiring residents to purchase insurance, though
sometimes, in effect, the government provides the insurance. Sometimes there may be a
choice of multiple public and private funds providing a standard service (e.g. as in Germany)
or sometimes just a single public fund (as in Canada). The U.S. Patient Protection and
Affordable Care Act is a law based on compulsory insurance.
In some European countries where there is private insurance and universal health care,
such as Germany, Belgium, and The Netherlands, the problem of adverse selection
,vercome using a risk compensation pool to equalize, as far as possible, the risks between
funds. Thus a fund with a predominantly healthy, younger population has to pay into a
compensation pool and a fund with an older and predominantly less healthy population would
receive funds from the pool. In this way, sickness funds compete on price and there is no
advantage to eliminate people with higher risks because they are compensated for by means
of risk-adjusted capitation payments. Funds are not allowed to pick and choose their
policyholders or deny coverage, but then mainly compete on price and service. In some
countries the basic coverage level is set by the government and cannot be modified.
Ireland at one time had a "community rating" system through VHI, effectively a single-
payer or common risk pool. The government later opened VHI to competition but without a
compensation pool. This resulted in foreign insurance companies entering the Irish market
and offering cheap health insurance to relatively healthy segments of the market which then
made higher profits at VHI's expense. The government later re-introduced community rating
through a pooling arrangement and at least one main major insurance company, BUPA, then
withdrew from the Irish market.

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 Private insurance
In some countries with universal coverage, private insurance often excludes many health
conditions which are expensive and which the state health care system can provide. For
example in the UK, one of the largest private health care providers is BUPA which has a long
list of general exclusions even in its highest coverage policy. In the USA (which tried to
transition towards universal health care, but is being challenged through the court systems as
unconstitutional, because of the mandatory purchasing requirement) dialysis treatment for
end stage renal failure is generally paid for by government and not by the insurance industry.
Persons with privatized Medicare (Medicare Advantage) are the exception and must get their
dialysis paid through their insurance company, but persons with end stage renal failure
generally cannot buy Medicare Advantage plans.
Among the potential solutions posited by economists are single payer systems as well
as other methods of ensuring that health insurance is universal, such as by requiring all
citizens to purchase insurance and limiting the ability of insurance companies to deny
insurance to individuals or vary price between individuals.

Indian healthcare reforms

In India, reforms can develop on sound principles on the basis of the learning of all available
systems, our strengths and needs. To make the common man healthy in the Indian scenario,
we need a different approach.

 37% of Indian population is undernourished. They have difficulty in meeting even
basic needs. 55 percent of the population have a diet which is calorie sufficient but
nutrient deficient whereas eight percent of the population is over-nourished. Hence,
there is a total imbalance of nutrition which leads to anaemia, TB and many other
diseases which increases the disease burden of India.
 Statistics tells us that arthritis, hypertension, diabetes, CVD, cancer patients and
elderly patients are major part of our disease burden. Besides acute diseases, almost
all of them trace their origin to (a lack of) nutrition.
 As Indian population is getting increasingly health conscious, almost 64 percent of
out-of-pocket expenditure in India constitutes healthcare expenditure as compared to
18 percent globally. This population can be called as 'Healthy Boomers'. They need
to be properly directed towards maintaining their health, in the same way as they
have career and financial plans.
 All nations have a significant role of Health Insurance in healthcare. In India, both
the patient and the payer is almost same. Here, a sharing model between Health
Insurance and patient can be adopted. 70 to 75 percent of the burden can be still
borne by patient or medical consumer, depending on the nature of disease. Therefore,
I am of the opinion that this sharing ratio should even be reversed as the severity of
the disease increases, for example in the case of cancer, where the institution should
bear 70 percent of the expenses otherwise the patient will die of the cost before the
disease kills him.

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 65 percent of Indian population lives in rural areas while only two percent qualified
medical doctors are available in these areas. Indian healthcare today is urban centric.
It needs to be reformed through medical infrastructure inclusive of doctors, nurses,
paramedicos, etc.
 Indian healthcare system should start from preventive care through nutrition.
Reforms must provide impetus to lift the population which is at the bottom of the
pyramid.
 'Health is Wealth' is an old paradigm of India, as people were in 'scarcity thinking'
mode, as they were completely dependent on their livelihood to provide for their
family's health and well being. Resources were earlier scarce and people were driven
to planning. This mentality has given way to the 'abundant mentality' as today's
generation has not seen these scaricity of resources. Demographics are changing as
well, and today 60 percent of population does not have the responsibilities of a
family to look after. For them this paradigm needs to be inculcated through
education. This new paradigm should originate from nutrition to exercises to
preventive healthcare to healthcare. It should be proactive rather than reactive in
terms of its reforms.
 As quickly as possible, health must become a priority issue for the Government of
India. Though the Department of Pharmaceuticals today comes under the Ministry of
Chemicals and Fertilizers Food, it deals with issues concerning our health like Food
Safety & Standards (FSS), Ayush and related bodies. Therefore, it should be
appropriately part of Ministry of Health and Family Welfare or in any other suitable
ministry. Government has taken up health issues like HIV, TB and tobacco through
massive government programs.
 Overall, India needs to reform its healthcare system through policies, medical
infrastructure, education and realization of right nutrition to lifestyle management.
Acute diseases over time will be at reactive end of the reforms.

Reference

1. http://en.wikipedia.org/wiki/Health_care_reform
2. http://en.wikipedia.org/wiki/Ministry_of_Health_and_Family_Welfare_(India)
3. http://en.wikipedia.org/wiki/Universal_health_care
4. http://www.expresspharmaonline.com/20100131/2010businessagenda06.shtml
5. http://en.wikipedia.org/wiki/Critical_path_method
6. http://circ.ahajournals.org/cgi/content/full/101/4/461
7. http://www.openclinical.org/clinicalpathways.html
8. http://www.mindtools.com/critpath.html

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8. HEALTH ECONOMICS
INTRODUCTION:
Health economics lies at the interface of economics and medicine and applies to the
discipline of economics to the topic of health. A seminal 1963 article by Kenneth Arrow,
often credited with giving rise to the health economics as a discipline, drew conceptual
distinctions between health and other goals. Factors that distinguish health economics from
other areas include extensive government intervention, intractable uncertainty in several
dimensions, asymmetric information, and externalities

DEFINITION:

Health economics is a branch of economics concerned with issues related to scarcity in the
allocation of health and health care.
In broad terms, health economists study the functioning of the health care system
and the private and social causes of health-affecting behaviors such as smoking.
1) A social system that studies the supply and demand of health care resources and the
effect of health services on a population.

2) The study of how scarce resources are allocated among alternative uses for the care of
sickness and the promotion, maintenance and improvement of health, including the
study of how healthcare and health-related services, their costs and benefits, and
health itself are distributed among individuals and groups in society.

AIM OF ECONOMICS:
The aim of economics is to ensure that the chosen activities have benefits that
outweigh their opportunity costs or the most beneficial activities are chosen within
the resources available.

SCOPE:

The scope of health economics is neatly encapsulated by Alan Williams' "plumbing diagram"
dividing the discipline into eight distinct topics:

 What influences health? (other than health care)
 What is health and what is its value
 The demand for health care
 The supply of health care
 Micro-economic evaluation at treatment level
 Market equilibrium
 Evaluation at whole system level; and,
 Planning, budgeting and monitoring mechanisms.

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FIELDS INCORPORATED WITH HEALTH ECONOMICS:

Beyond health: Within the health arena:
Pure economics.
Finance and insurance.
Industrial organization.
Labor economics.
Public policy.
Sociology
Health services research
Medicine
Medical ethics
Psychology
Public health/ epidemiology

IMPORTANCE TO LOOK AT ECONOMICS AT HEALTH:

 Health resources are finite. A choice must be made which resource to use for which
activity.
 Economics is concerned with efficiency.
 Equity or fair distribution of resources.
 It provides a framework which aims at maximizing benefits within available
resources.

FOCUS OF HEALTH ECONOMICS:

The health economics mainly concentrates on how to extract maximum benefits from
health industry with the least cost combination.
Health economics explains the infrastructure as a means of health care industry. It
applies theories, techniques, models and other relevant tools to health services. It means
health economics focuses on the use of application of material things like medicines, surgical
instruments, lab equipments, drugs, vaccinations, family planning tools.

KEY SOURCES AND TOOLS FOR ACCESSING INFORMATION FOR HEALTH
ECONOMICS:
The sources of information will be considered under the following categories:
a) Journals.
b) Bibliographic databases
c) Value added information
d) Literature
e) Research works
f) Statistical data
g) Internet sources.

AREAS OF HEALTH ECONOMICS:

The study of health economics include the following areas:
1) Costs of health care:

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Mr. Channabasappa. K. M

Cost refers to expenses incurred to produce or create anything which satisfies human
wants.
2) Health problems:
The study of health economics also concentrates on health as an important economic
indicator of economic development.
3) Demand for health care:
Demand refers to desire accompanied by ability to pay and willingness to pay for a
product or service in the market.
4) Supply analysis in health care:
Supply refers to anything material or non material which is offered for sale at a
particular level of price and at a given period of time.
5) Health care services market:
Market is an economic environment where buyers and sellers of goods and services
interact for purchase and sale for mutual benefits.
6) Financing for health care industry:
Finance here refers to money invested in health care services.
7) Health plans and outlays:
One of the primary motives of every country is to give primary importance to health
services to make citizens healthy both physically and mentally.
8) Optimum of utilization of resources:
The optimum allocation of resources is an important element of health economics.

Economic Evaluation:

A large focus of health economics is the microeconomic evaluation of individual
treatments. In the UK, the National Institute for Health and Clinical Excellence (NICE)
appraises certain new and existing pharmaceuticals and devices using economic evaluation.

Definition:

―Economic evaluation is the comparison of two or more alternative courses of action in terms
of both their costs and consequences (Drummond et al.).‖

Types of Economic Evaluation:

Economists usually distinguish several types of economic evaluation, differing in how
consequences are measured:

 Cost-minimization analysis: In cost minimization analysis (CMA), the effectiveness
of the comparators in question must be proven to be equivalent. The 'cost-effective'
comparator is simply the one which costs less (as it achieves the same outcome).

 Cost benefit analysis: In cost-benefit analysis (CBA), costs and benefits are both
valued in cash terms.

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 Cost-effectiveness analysis: Cost effectiveness analysis (CEA) measures outcomes
in 'natural units', such as mmHg, symptom free days, life years gained.

 Cost-utility analysis: Cost-utility analysis (CUA) measures outcomes in a composite
metric of both length and quality of life, the Quality-adjusted life year (QALY).

 Cost of illness study: This is not a true economic evaluation as it does not compare
the costs and outcomes of alternative courses of action. Instead, it attempts to
measure all the costs associated with a particular disease or condition. These will
include direct costs (where money actually changes hands, e.g. health service use,
patient co-payments and out of pocket expenses), indirect costs (the value of lost
productivity from time off work due to illness), and intangible costs (the 'disvalue' to
an individual of pain and suffering).

SOURCES OF HEALTH FINANCE IN INDIA:
1) Commercial banks.
a) Public sector banks.
State bank of India.
b) Private Banks.
2) Private foreign banks.
3) Cooperative sector.
4) Reserve bank of India.

MACHINERY FOR ECONOMIC PLANNING IN INDIA:

The Planning Commission of India, as National Planning Authority has been
constituted in the year 1950 under the chairmanship of the former Prime Minister of India,
Jawaharlal Nehru. It consists of Prime Minister as chairman, deputy chairman and members
include finance minister, Railway Minister and Minister For Human Resource
Development, and others.

Function:-
To estimate the National Resources and to prepare plans for wise allocation of those
to achieve targeted growth in the economy within a specific period of time.

SUMMARY:

Topics related to various aspects of health economics include the meaning and
measurement of health status, the production of health and health care, the demand for health
and health services, health economic evaluation, health insurance, the analysis of health care
markets, health care financing, and hospital economics.

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9. HEALTH INSURANCE
INTRODUCTION:
Starting in the 1930s, insurance companies gradually began to pay a greater share of
medical fees. The basic framework of insurance coverage is that of shared risk of having high
cost health care needs. Individuals pay for coverage whether or not they incur health care
costs; when an insured individual requires health care, the insurance pays for that care. Thus
the individual has a stable health care cost without the risk of incurring high costs that are
difficult to meet from ordinary income and the insurance company stays financially solvent
because more money is coming in than is going out. Historically, health insurance was for
hospital care and related services only. Outpatient visits, immunizations, costs of drugs, and
other such benefits were not covered by insurance policies.

DEFINITION:

1) Promise of reimbursement in the case of illness; paid to people or companies so
concerned about hazards that they have made prepayments to an insurance company.

2) “Health insurance, like other forms of insurance, is a form of collectivism by means of
which people collectively pool their risk, in this case the risk of incurring medical
expenses.‖

By estimating the overall risk of healthcare expenses, a routine finance structure
(such as a monthly premium or annual tax) can be developed, ensuring that money is
available to pay for the healthcare benefits specified in the insurance agreement. The benefit
is administered by a central organization such as a government agency, private business, or
not-for-profit entity.

HISTORY AND EVOLUTION:

The concept of health insurance was proposed in 1694 by Hugh the Elder
Chamberlen. In the late 19th century, "accident insurance" began to be available, which
operated much like modern disability insurance. Accident insurance was first offered in the
United States by the Franklin Health Assurance Company of Massachusetts. This firm,
founded in 1850, offered insurance against injuries arising from railroad and steamboat
accidents. The first employer-sponsored group disability policy was issued in 1911.

Before the development of medical expense insurance, patients were expected to pay
all other health care costs out of their own pockets, under what is known as the fee-for-
service business model. During the middle to late 20th century, traditional disability
insurance evolved into modern health insurance programs. Today, most comprehensive
private health insurance programs cover the cost of routine, preventive, and emergency
health care procedures, and most prescription drugs, but this is not always the case.

Hospital and medical expense policies were introduced during the first half of the 20th
century. During the 1920s, individual hospitals began offering services to individuals on a
pre-paid basis, eventually leading to the development of Blue Cross organizations. The

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predecessors of today's Health Maintenance Organizations (HMOs) originated beginning in
1929, through the 1930s and on during World War II.

How health insurance works:

A health insurance policy is a contract between an insurance company and an
individual or his sponsor (e.g. an employer). The contract can be renewable annually or
monthly. The type and amount of health care costs that will be covered by the health
insurance company are specified in advance, in the member contract or "Evidence of
Coverage" booklet. The individual insured person's obligations may take several forms:

 Premium: The amount the policy-holder or his sponsor (e.g. an employer) pays to
the health plan each month to purchase health coverage.
 Deductible: The amount that the insured must pay out-of-pocket before the health
insurer pays its share.
 Coinsurance: Instead of, or in addition to, paying a fixed amount up front (a co-
payment), the co-insurance is a percentage of the total cost that insured person may
also pay. For example, the member might have to pay 20% of the cost of a surgery
over and above a co-payment, while the insurance company pays the other 80.
 Exclusions: Not all services are covered. The insured person is generally expected to
pay the full cost of non-covered services out of their own pocket.
 Coverage limits: Some health insurance policies only pay for health care up to a
certain amount. The insured person may be expected to pay any charges in excess of
the health plan's maximum payment for a specific service. Capitation: An amount
paid by an insurer to a health care provider, for which the provider agrees to treat all
members of the insurer.
 In-Network Provider: (U.S. term) A health care provider on a list of providers
preselected by the insurer.
 Explanation of Benefits: A document sent by an insurer to a patient explaining what
was covered for a medical service, and how they arrived at the payment amount and
patient responsibility amount.

Types of health insurance:

Accidental death and dismemberment insurance
Dental insurance
Disability insurance
Total permanent disability insurance
Long term care insurance
Vision insurance

Disadvantage of this system:

1) Consumers had no incentive to reduce their use of services; they paid the same
regardless of their needs or use of the system. People sought to have care delivered on
an inpatient basis to obtain reimbursement.
2) Individuals often neglected preventive health care that had to be paid for out-of-
pocket.

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3) As the cost of health care has increased, insurance premiums also have increased
greatly.
4) An additional public concern is that health insurance is unobtainable for
individuals with existing health problems and often economically beyond the means
of those who are not insured as part of an employee group
The Health Insurance Portability and Accountability Act (HIPAA) of 1996 [HIPAA] :
It was enacted by the U.S. Congress in 1996. It was originally sponsored by Sen.
Edward Kennedy and Sen. Nancy Kassebaum .

Title I of HIPAA protects health insurance coverage for workers and their families when
they change or lose their jobs. Title II of HIPAA, known as the Administrative
Simplification (AS) provisions, requires the establishment of national standards for electronic
health care transactions and national identifiers for providers, health insurance plans, and
employers. It also addresses the security and privacy of health data.

HEALTH INSURANCE IN INDIA:

There is no universal health insurance in India. Health insurance is at present limited
to industrial workers and their families. The Central Government employees are also covered
by the health insurance under, under the banner ―Central Govt. Health Scheme‖.
1) Employees State Insurance Scheme. (ESI)
The ESI scheme, introduced by an Act of Parliament in 1948(amended in 1975, 1984
and 1989), is a unique piece of social legislation in India. It has introduced for the first time
in India the principle of contribution by the employer and employee. The Act covers
employees drawing wages not exceeding Rs.10, 000 per month.
 Mission Statement:
To provide for certain benefits to Employees in case of sickness, maternity and employment
injury and to make provisions for related matters.
Scope :
The Act extends to the whole of India. The ESI Act of 1948 covered all power- using
factories other than seasonal factories wherein 20 or more persons were employed
(excluding mines, railways and defence establishment).the provisions of the ESI
(Amendment) Act of 1975 were extended to the following new classes of establishments:
1. Small power-using factories employing 10 to19 persons, and non-power-using
factories employing 20 or more persons.
2. Shops;
3. Hotels and restaurants;
4. Cinemas and theatres;
5. Road-motor transport establishments;
6. Newspaper establishments.

With effect from 1.10.2006.the Act covers all employees manual, clerical, supervisory
and technical are getting unto Rs.10, 000 per month. The provisions of the Act can be
extended to any other agricultural or commercial establishment.

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Administration

The administration of the ESI Scheme under the Act is entrusted to an autonomous
body called the ESI Corporation. It is comprised of the following members:

1. Minister of labour - chairperson.
2. The secretary - Minister of labour - vice chairperson.
3. Representatives of central Govt - 5 members.
4. Representatives from the states - one from each state.
5. Representatives from union territories - one member from each UT.
6. Representatives of Employees - 5 members.
7. Representatives of Employers - 5 members.
8. Representatives of medical profession - 2 members.
9. Representatives of parliament - 3 members.
10. Director General of the ESI - member.

The ESI Corporation is an autonomous body. It formulates policies and coordinates their
proper implementation. The corporation meets at least twice in the year.
The ESI Corporation has a Medical Benefit council which is headed by Director General
of Health Services. The other members are:

1. Deputy Director General of Health Services.
2. Medical Commissioner – ESI Corporation.
3. One member from each state.
4. Employees Representatives -3.
5. Employees Representatives -3.
6. Medical profession – A few members (at least one woman).

The Corporation has appointed Regional Boards in the States, local committees and
Reginal and local Medical Benefits councils with the power to administer the scheme in the
States.

The head office in New Delhi, the corporation has 23 regional offices and 12 sub-
regional offices at Vijaywada,Vadodara,Surat,Hubli,Pune,Nagpur, Coimbatore, Madurai
Tirunelveli,Noida,Varanasi and Barrackpore, and 844 local offices and cash offices all over
the country for administration of the scheme. It also has appointed inspector to According
to1984 amendments it is extended to worker of all categories i.e.Manual clerical, technical
or supervisory earning unto Rs.3000/-.the act covers the following benefits:

FINANCE :

The ESI scheme is financially supported jointly by the contributions of employer,
employees, ESI Corporation, state governments and the central government. The pattern of
financial support is as under:
1. The employer pays 4.75 percent of total wages.
2. The employer contributes 1.75 percent of his/her wage.
3. The state Governments shares 1/8
th
of the total expenditure on the medical care.
4. The ESI Corporation shares 7/8
th
of the total expenditure on medical care.
As far the central Government is concerned it supports 2/3 of the administrative expenditure.

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Benefits

The section 46 of the Act envisages following six social security benefits :-

(a) Medical Benefit:

Medical benefits consist of‖ full medical care‖ including hospilitation, free of cost, to the
injured persons in case of sickness, employment injury and maternity. The services comprise

1. Out –patient care
2. Supply of drugs and dressings
3. Specialist services in all branches of medicine
4. Pathological and radiological investigations
5. Domiciliary services
6. Antenatal, natal and postnatal
7. Immunization services
8. Family planning services
9. Emergency services
10. Ambulance services
11. Health education
12. In-patient treatment.

If specialized treatment is necessary, patient are sent for institutional treatment even
outside their state at the expense of the ESI Corporation.

Medical care is provided either directly through the agency of ESI hospitals and
dispensaries, or indirectly through a panel of private medical practioners (panel system)
appointed as‖ insurance medical practioners‖.

Direct pattern:
i. In areas having a concentration of 1,000 or more employees’ family unites, service
dispensaries are established with full-time medical and Para –medical personnel. On
an average, a doctor will attend to about 80 cases in the out-patient department per
day, and makes one home visit a day.
ii. In area where the employees are less than 750, part time ESI dispensaries are
established.
iii. If the residential concentration of employees is scattered over a long distance, mobile
dispensaries are established.
INDIRECT PATTERN:

This is known as‖ panel system‖. Registered medical practitioners designated as
insurance medical practitioners are appointed to provide medical care.
Medical care is also extended to families of workers where requisite arrangements could be
made. A start has been made by providing ―restricted medical care,‖i.e., only out-patient
cares. Where facilities are available ―expanded medical care‖i.e, full medical care short of
hospitalization is given.

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Other medical facilities:

i. Dentures, spectacles and hearing aids are provided free to patients who are
incapacitated due to employment injury.
ii. Artificial limbs are provided free to insured persons who lose their limbs in
employment injury or otherwise.
iii. Special appliances such as hernia belts, walking callipers, surgical boots, spinals
braces and jackets are provided as prescribed by specialists.
b. Sickness benefit:
It consists of periodical cash payment to an insured person in case of sickness, if his
sickness is duly certified by an insurance medical practitiner.The benefit is payable for a
maximum period of 91days,in any continuous period of 365 days, the daily rate being about
50% of the average daily wages. A person receiving the sickness benefit is required to remain
under medical treatment provided under the act.

 Extended sickness benefit:
In addition to 91 days of sickness benefit insured persons suffering from certain
long-term disease are entitled to extended sickness benefit as show below, for a maximum
period of two years.
34 diseases for which extended sickness benefit with effect from 1.1.2000 is payable, in case
where the insured person has been in continuous employment for 2 years:
The insured person is protected from dismissal or discharge from service by the employer
during the period of sickness.

 Enhanced sickness benefit is payable to insured women for 14 days for tubectomy
and for 7 days in case of vasectomy in respect of male IPs.
 The amount payable is double the standard sickness benefit rate, that is, equal to full
wages.

(b) Maternity Benefit(MB):

The benefit is payable in cash to an insured women for confinement/miscarriage or
sickness arising out of pregnancy/confinement or premature birth of child or miscarriage.
The duration of benefit is 12 weeks, for miscarriage 6weeks and for sickness arising out of
confinement etc.30 days. The benefit is allowed at about full wages

(c) Disablement Benefit:

Disablement benefit is payable to insured employees suffering from physical
disablement due to employment injury or occupation disease.

1. Temporary disablement benefit(TDB):

Temporary disablement benefit at 70% of the wages is payable till temporary disablement
lasts and is duly certified by authorized insurance medical officer.

2. Permanent disablement benefit(PDB) :

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Mr. Channabasappa. K. M

Temporary disablement benefit at 70% of the wages is payable till temporary disablement
lasts and is duly certified by authorized insurance medical officer.

(d) Dependants’ Benefit(DB):

In case of death, as a result of employment injury, the dependants of an insured
person are eligible for periodical payments. Pension at the rate of 70 percent of wages is
payable, shared by dependants in a fixed ratio, on monthly basis in accordance with the
prescribed share. An eligible son or daughter is entitled to dependant’s benefit up to the age
of 18; the benefit is withdrawn if the daughter marries earlier.

f) Other benefits

i. Funeral expenses - An amount of Rs. 5000/- is payable to the dependents or to the
person who performs last rites.

ii. Vocational rehabilitation - In case of disabled insured persons less than 45 years
of age with 40% or more disablement.

iii. Free supply of physical aids and appliances such as crutches, wheelchairs,
spectacles and other
such physical aids.
iv. Preventive health care services such as immunization, family welfare services,
HIV/AIDS
detection, treatment etc.
v. Medical bonus Rs250 is paid to an insured woman or in respect of the wife of an
insured person in
case she does not avail hospital facilities of the scheme for child delivery.

Benefits to employers:

a. Exemption from the applicability of Workmen’s compensation Act1923.
b. Exemption from maternity benefit Act 1961.
c. Exemption from payment of medical allowance to employees and their
dependants or arranging for their medical care.
d. Rebate under the income tax Act on contribution deposited in the ESI account.

(g) Rajiv Gandhi Shramik Kalyan Yojana - This scheme of Unemployment allowance
was introduced w.e.f. 01-04-2005. An Insured Person who become unemployed after being
insured three or more years, due to closure of factory/establishment, retrenchment or
permanent invalidity are entitled to :-

 Unemployment Allowance equal to 50% of wage for a maximum period of upto one
year.
 Medical care for self and family from ESI Hospitals/Dispensaries during the period IP
receives unemployment allowance.
 Vocational Training provided for upgrading skills - Expenditure on fee/travelling
allowance borne by ESIC.

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Mr. Channabasappa. K. M

3) CENTRAL GOVERNMENT HEALTH SCHEME (CGHS)

Established in 1954, the CGHS covers employees and retirees of the Central
Government, and certain autonomous, semi autonomous and semi-government organizations.
It also covers Members of Parliament, retired central government servants, widows receiving
family pensions, accredited journalists and members of the general public in some specified
areas. The families of the employees are also covered under the scheme. Benefits under the
scheme include medical care at all levels and home visits/care as well as free medicines and
diagnostic services. These services are provided through public facilities (including CGHS-
exclusive allopathic, ayurvedic, Homeopathic and unani dispensaries) with some specialized
treatment (with reimbursement ceilings) being permissible at private facilities. Of the total
expenditure, about a third is spent on wages and salaries of the CGHS staff.
The scheme is on the cooperative efforts and contribution basis from the employees
and employer for their mutual benefits. The services are given through a network of
dispensaries, government hospitals, and identified private specialised hospitals in various
systems of medicine.

The CGHS provides services are:
Emergency treatment,
Outdoor services,
Indoor services,
Domiciliary visits,
Specialist’s consultation,
Antenatal, natal and postnatal services
Family welfare services.
Supplies optical and dental aids at reasonable rates.
Laboratory and x-ray investigation
Paediatric services including immunization

The ESI and CGHS cover two large groups’ wage earners in the country. They are well-
organized health insurance schemes, and are providing reasonable medical care plus some
essential preventive and promotive health services. Experience in other countries has shown
that health insurance is logical step towards nationalization of health services.

OTHER AGENCIES:

Defence medical services:

It is own organization for medical care defence personnel under the banner ―Armed
Forces Medical Services‖. The services provided are integrated and comprehensive
embracing preventive, promotive and curative services.

Health care of Railway Employees:

The Railway provides comprehensive health care services through the agency of
Railway Hospital, Health Unite and clinics. Environmental sanitation is taken care of by
Health Inspectors in big stations .A chief Health Inspector supervises the division’s work.
Health check up of employees is provided at the time of entry into service, and thereafter at
yearly intervals. There is lady medical officer, health visitors and midwives who look after
the MCH and school health program services. Specialist’s services are also available at the
divisional hospitals.

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Mr. Channabasappa. K. M

Private agencies:

In a mixed economy such as India’s private practice of medicine provides a large
share of the health services available. It is rapid expansion in the number of qualified
allopathic physicians from about 50,000 at the time of independence to about 7.67 lakhs in
2005 and the doctor population ratio for the country as a whole is 1:1428.the private sector of
the health care services is not organized. Some statutory bodies like the medical council of
India and the Indian medical Association regulate some of the functions and activities of the
large body of private registered medical practitioners.

4) Community health insurance in India: (CHI)

CHI is seen as an innovative mechanism meant for financing health care expenditure of
the people.

Types of CHI:

3. Provider model: NGOs act both as insurer and provider of health care services.
4. Insurance model: NGOs is the insurer and care is purchased from a private provider.
5. Intermediary model: NGOs is neither the insurer nor care provider. It acts as an
intermediary between the target population and the insurance provider.

Rashtriya Swasthya Bima Yojana: (RSBY)

It is the 3
rd
health insurance scheme from the Govt of India. The earlier ones are –
Universal health Insurance Scheme and the NRHM. The RSBY is supposed to become
operational from 2008-2009 and all 600 districts of the country to be covered by 2012.

Objective: To provide health security for the Below Poverty Line (BPL) workers in the
unorganized sector and their families through an insurance that cover for hospital expenses.

Provider: public and private sector.

Claims and Reimbursement: through smart cards
Maximum Benefits: Rs. 30,000 per family
Transportation cost: Rs. 100/trip/hospitalization.
Post hospital transportation expenses (5 days): Rs. 1000 minimum

Implementing agency: An insurance company.

Community: All BPL families both rural and urban.

Premium: 75% of the premium for the basic package will be paid by the Government of
India and 25% by the State government.

Implementation of the scheme: By the state government.

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CONCLUSION:

Although insurance companies originally focused on paying for health care, they now
are involved in establishing standards for care, evaluating care, and negotiating charges.
They are active participants in all areas of health care and, because of the economic power
they wield,have great influence. Insurance companies determine whom they will pay and
what procedures they will reimburse. Thus, insurance companies can and do limit health care
choices.

BIBLIOGRAPHY:

1) Harish Basavaih ―Nursing Health Economics‖, 1
st
edition 2009, Jaypee Publications.
Pp. 20-28, 64-72.
2) Park.K, ―Preventive And Social Medicine‖, 19
th
edition, Banarsidas Bhanot Publishers,
Jabalpur. Pp: 758
3) Definition of health economics. Peter’s business and economic issues.

4) BNS Rao, ―Sociology for Nurses‖, 6
th
edition, 2004, Gajana Publishers, pp.171-176.
5) Mosby's Medical Dictionary, 8th edition. © 2009, Elsevier.

6) http. // Wikipedia. Health economics.

7) Kightlinger, R. (1999). Sloppy records: The kiss of death for a malpractice defense.
Medical Economics 76(8): 109–113.
8) Porter-O’Grady, T. (1987). Shared governance and new organizational models. Nursing
Economics 5(6):281–286.

9) Department of Health and Human Services (DHHS), Health Insurance and Portability
Act, Available at http://cms.hhs.gov/hipaa/. Accessed August 4, 2002.

10) Janice Rider Ellis, Celia Love Hartley, ―Nursing in Today’s World‖, 8
th
edition, pp. 48-
53, 111-120, 140-143.

11) Nahomi Clement, Community Based Health Insurance, ―Nightingale Nursing Times‖;
5(5):28-29:2009.

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Mr. Channabasappa. K. M

11. BUDGETTING FOR VARIOUS UNNITS AND LEVELS

A. FOR HOSPITAL
INTRODUCTION
The term budget is derived from a French word baguette means purse. Budget is
generally a list of all planned expenses and revenues. It is a plan for saving and spending. A
budget is an important concept in microeconomics, which uses a budget line to illustrate the
trade-offs between two or more goods. The budget is an annual plan intended to guide
effective use of human and material recourses, products or services and to manage the
environment to improve productivity. The budget is a powerful tool because it serves as a
guide for nursing care activities and allocation of recourses, supplies, support services and
facilities.

DEFINITION
According to TN Chhabra ―a budget is an estimation of future needs
arranged according to orderly basis covering some or all activities of an enterprise for a
definite period of time‖
According to Dimock ―Budget is a balance estimated expenditure and receipts for a
given period of time. In the hands of the administrator the budget is the record of the past
performance, a method of current control and projection of future pans‖.

NURSING BUDGET
Nursing budget is defined as a systematic plan that is an informed best estimate by
nurse administrators of revenues and nursing expenses.

HOSPITAL BUDGET
Hospital budgeting is the process of estimating proposed expenditures and the means
of financing these expenditure.

IMPORTANCE OF BUDGET
Budget is a numerical description of expected income and planned expenditure for an
organization for a specified period of time. It is a concrete, picture of the total operation of an
enterprise/ organization/ institution in monetary term, i.e., finance

The following point serves the importance of budget:
- Budget is needed for planning for future course of action and to have a control over
all activities in the organization
- Budget facilities co coordinating operation of various departments and sections for
realizing organizational objectives.
- Budget serves as a guide for action in the organization
- Budget helps one to weigh the values and to make decision when necessary on
whether one is of a greater value in the programme than the other.

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BUDGET-HOSPITAL

Different types of approaches are used in preparing the budget for a hospital. The
basic reason for preparing a budget is to enable the hospital to effectively meet its financial
requirements. An effective budget is a summary of the carefully conceived financial plans of
all departments. Therefore, it should be clear to the administration as to what the hospital’s
financial requirements are going to be.

FINANCIAL REQUIREMENTS OF HOSPITALS

For any hospital, funds are required for the following:
1. Capital funding
 For preservation, upgrading, and replacement of physical facilities and equipment
 For new technology
 For expansion

2. Operating needs
 For working capital and operating expenses –salaries, materials and supplies,
maintenance, utilities etc.
3. Reserves
 For emergency needs

THE BASIC INPUTS
An effective budget presupposes the following-
1. Clear understanding of the hospitals financial and service goals.

2. A hospital organization with clearly defined responsibility for each dept.

3. A system of accounting designed to provide a measure of performance

4. Active participation of staff members in the preparation of the budgets.

TYPES OF BUDGET IN HOSPITAL

The budgetary plan results from the accounting plan, and includes:
 The capital budget

 The cash budget

 The operating budget

The capital budget
Capital budget is the estimated fund requirement for capital items needed for growth,
for providing new facilities, and for replacement of worn out equipment, machinery, and
furniture.

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The decision on capital budgeting is primarily based on:
i. Needs of patients and existing alternatives available
ii. Upgradation of technology
iii. Effects of additional equipment on income and expenditure
iv. Availability of funds

There will always be competing demands from various departments vis-à-vis the common
requirements for the hospital as a whole, and funds are not generally available for meeting all
the demands. The request of funds for capital assets are generally met from general funds if
there is a surplus, by raising funds from outside, or obtaining capital funds from agencies.
Therefore, it is desirable to identify the sources of funds in each item in the capital budget.

The cash budget
Because enough cash must be available to meet financial obligation on day-to-day
basis or they arise, there is a need to maintain the right flow of cash. Cash budget is the
budget that records the forecasted cash inflows from various sources and also records the
forecasted demands for cash. It translates the expense and revenue budget into statement of
cash inflow and outflow. Steady inflow of cash comes from settling the patient’s accounts at
the time of discharge. However, If hospital is unable to collect cash for service rendered at
the time of discharge, accounts receivable are to be created.
Cash budget takes in to consideration projections for cash receipts, disbursement and
balances for a given future period of time. It enables management to predict the timing and
cash surpluses. The cash budget is usually broken down by monthly or quarterly periods.
While forecasting cash inflow, seasonal fluctuation based on past experience should
be taken note of. Keeping a safety margin, it would be worth investing surplus funds if any,
in term deposits- the period of investment depending upon requirement of liquid cash.

The operating budget
A satisfactory budget is based on knowledge of past performance and experience,
extended to future needs and requirements. Accurate statistical information is a guide to
future needs and requirements. Internal as well as external factors influencing the operation
of the hospital have to be studied. Any change in workload due to activities of other
neighboring hospitals or population trends will affect revenues. Internal constraints, policy
decisions, paucity of funds to maintain modernization and similar factors must be identified.
Even with good quality data, the prediction of revenues is somewhat unpredictable although
expenditure forecasts may be more realistic.

Forecast of operating expenditure
Operating expenditure is incurred on salaries, supplies, general utilities, maintenance
and some overheads.

Salaries and wages: Manpower requirement are determined by workload. Staff to workload
ratios must be reviewed yearly. Salaries and wages account for 50 to 70 percent of the total
expenditure. Additional staff requirements, if any, have to be grouped separately and

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justification for the same must be indicated. In additional to salaries, provision will have to be
made for provident fund, gratuity or other personnel benefits schemes.

Materials and supplies: Food, drugs, dressings, and other consumables are directly related
to workload or volume of service.

Utilities: These cover expenditure items in such as electrical, power, petrol, diesel, and other
fuels, water, telephones, and other services. AC plant, laundry, kitchen, CSSD, and
incinerators accounts for a high expenditure on utilities.

Maintenance: Expenditure on routine maintenance of plant and equipments are generally
well-predicted. Expenditure on breakdown maintenance should be curtailed as much as
possible by preventive maintenance of planned and machinery, and by maintenance contacts
for costly medical equipments.

Forecasting of operating revenues
Forecasts of operating revenues is somewhat speculative even with good historical
and recent data. Operating revenue income is directly related to the volume of services
provided. The largest part of the revenue is non-government hospitals is from patient
services.
Operating revenue generates from:
1. Direct patient care
 Inpatient services- medical, surgical, OBG, Pediatrics, cardiology etc.
 Outpatient consultations
2. Special professional services
 OT, labor room, ICU
 Physiotherapy etc
3. Supportive professional services
 X-ray and imaging, pathology laboratory,
 EEG EMG
4. Hotel service
 Room
 Food

Income from other sources comprises of interest income from investments and
income from donations and grants, rent and recoveries.

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BUDGET PROCESS OR STEPS IN BUDGETTING

ASSESSMENT

Assessment is the first step involved in the budgeting process. It consists of need
identification, a composite of unit needs in terms of manpower, equipment and operating
expenses should be identified during this phase.

Requisites for Budget Preparation
 Sound forecasting

 Adequate conceived accounting system

 Adequate cost accounting system

 Fixed line of authority

 Formation of budget committee

 Statistical information

 Support of top management

 Length of budget period

How to Make a Hospital Budget

Making a hospital budget is only second to medical delivery systems in for a hospital.
In fact, if a budget is not properly written, the hospital may be unable to deliver medical
services at all. So many expenses and sources of revenue must be taken into consideration, so
the budget process takes an expert to get through it successfully. Let's find out how to start.
ASSESSMENT
EVALUATION PLANNING
IMPLEMENTATION

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Instructions

 Determine hospital revenue. Revenue can come from patient payments, tax
dollars, donations, insurance credits. Be sure to deduct a percentage of the
patient bills that will remain uncollected, the charity work expected by the
hospital and the pro bono work it does.
 Figure out expenses. Start with the physical facility. How much does it cost to
keep up the building or buildings. What is the maintenance cost of each
department, engineering, air-conditioning, heat, water, other utilities. Know
what equipment costs, how much must be replaced per patient day, and if any
can be recycled. Include the non-medical cost of each bed in the hospital.
Include advertising.
 Know the cost of personnel, all employees and ancillary staff, including
consultants, outsourced contracts, perhaps laundry or nurse staffing services. For
all employees of the hospital, from janitorial to hospitalists, figure the fringe
benefits the hospital must pay for each.
 Add all medical equipment costs, ongoing and expected expansion or
replacement of new diagnostic equipment.
 Know the medical costs of each bed. How many staff hours are spent on each
bed, occupied or not. Use this figure as an average to get a cost per patient year.
Add to that the non medical costs per bed. Include every possible cost that keeps
that bed in the hospital. Don't forget replacement costs per annum for any and
all patient needs.
 Don't forget parking garages, lots, landscaping, groundskeeping or window
washing.
 Include all insurance for the facility and personnel.
 Write in an emergency expense fund. Disasters occur and the hospital must be
prepared for them when they arrive.

PLANNING

A budget plan may be developed in many ways. A budgeting cycle that is set for 12
months is called a fiscal year budget. Most budgets are developed for one year period. But a
perpetual budget may be done on a continual basis each month so that 12 months of future
budget are always available.

Tips on Hospital Budget Planning

Budget planning is a dirty word in most hospitals, but it must be done each year. The
process is usually an iterative one that requires full consensus between administration and
hospital operations. The following provides tips on ways to reduce the frustrations and
improve the effectiveness of the hospital budget planning process.

1. Paradigm of Shift: Plan the entire budget at once. One reason budget planning can
be difficult is a splintered approach. Developing a budget in silos will undoubtedly
create problems as each department is pitted against the other in the fight for funds. If

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planners look at overall volumes and net revenues in conjunction with labor and non
labor costs, the entire hospital can be assessed as a whole. Each department is given
due consideration and decisions are made on the basis of objective rather than
subjective arguments.
2. Be Flexible: Traditional budgeting can be obtuse and inflexible. Using volume
forecasts to drive the budget provides a basis for both material and labor forecasts.
Planners should look at the budget from a holistic perspective. Forecasting revenues
and expenses per unit of service. This also gives each department more control over
the budget process and empowers each to create arguments for funds based on future
patient levels and services.
3. Benchmarking: Use volume benchmarks to help determine optimal revenue and
expense levels. Benchmarks can come from competing hospitals, prior years' budgets
or best-practice departments. See "Resources" for a listing. Predicting volumes is one
of the biggest challenges hospital budget planners face; however, in a variable budget,
volumes are the primary drivers of revenues and expenses. Only fixed expenses such
as rents or lease payments are unaffected by volume.
4. Accountability: Hold staff accountable for the budget. Develop a system of
reinforcement that includes both positive and negative feedback. One way to reinforce
the budget while making the process easier is to budget more than once a year. Ideally
budgeting should be an all-year process, with multiyear checkpoints for
accountability. The monthly and quarterly closes make perfect checkpoints. From an
operations and marketing viewpoint, this allows planners to budget more effectively
over a longer period of time. Instead of just looking at the next year, planners can look
at budgeting over a five-year period, which is better for capital-intensive units.

The steps of planning budget for nursing unit are as follows;
Assistance of her/ his subordinates
Nursing administrator requires the assistance of nursing superintendents and nursing
supervisors to present the needs of the coming year within the specified data and confer with
those who presented such need.
Review of the budget
Nursing administrator should review the budget appropriation and actual expenditure
of the current year.
Preparing requirements
He/ she should prepare requirements with the assistance of their subordinate officials
for the coming year from the supplied information by them.
Summary of new needs
He/ she should prepare a summary of new needs and requirements both personnel and
material with the proper data supports of the requirements.
Submitting to institutional administrator
Budget should be submitted to the administrator of the institute/ hospital for review,
decision and to incorporate into the master budget required for the hospital. In any change
made by either the administrator or the committee on budget, report should be furnished to
her to be used in the control of expenditure.

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A copy of the nursing department appropriation is sent to the director after
adaptation of the budget these statements generally proved the budget for the period and
difference between the budget appropriation and actual expenditure. These reports should be
kept reviewed by the director and her associates and if expenditure exceeds the appropriation,
the cause should be determined.

IMPLEMENTATION
In implementation ongoing monitoring and analysis occur to avoid inadequate or
excess funds at the end of a fiscal year. In most health care institutions monthly computerized
statements outline each department projected budgets and any deviations from that budget.
Each unit manager is accountable for the budget deviations in their unit. If a major change is
indicated, the entire budgeting process must be repeated.

EVALUATION
The budget must be reviewed periodically and modified as needed throughout the
fiscal year.

STEPS IN PREPARATION OF NURSING BUDGET

Review the goals of the hospital

Review the objectives of the existing programmes
Prepare a budget proposal
Revise the existing programme with the revised proposal
Compute the expense for each programme
Adopt the alternative approach for realizing the proposed plan
Compare the proposal to identify the effective one
Prepare a budget request which details a fiscal plan for the preferred programme
Present the need of required staffs
Review the budget appropriation and actual expenditure for the current year
conjunction with current hospital statistics

Prepare a new budget is to cover in terms of nursing service required

Determine the percentage of salaries in various department of nursing based on the
time allocated

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Estimate the requirement for the coming year
Prepare the summary of new needs to support the request
Submit the report to the head of the department
BUDGET MANUAL

Since the budget is formulated at the instance of the top management, and its
compliance ensured by the subordinates, there has to be a formal communication channel
between the two. This could be in the form of oral or written instruction or directives. The
Budget Officer initiates the work relating to preparation of Budget Manual. Heads of
departments provide the details. The top management approves the first draft and subsequent
changes. The policies and procedures are continuously updated and revalidated. If this is not
done, the manual will have several obsolete procedures. It will lose focus.
A Budget Manual is tailored to fit the needs of each hospital or group of hospitals, where
it is to be used. The content of a typical budget manual is outlined below:
 General statement of hospital objectives and budget procedure
 Identification of persons involved in the exercise and definition of their authority,
duties and responsibilities.
 Routine of departmental budget preparation, their review and approval.
 Time schedule
 Budget revision- formation and implementation
 Budget report
 Review of performance
BUDGET ADMINISTRATION
The method that an organization uses to create the budget will depend upon the type
and quality of information sources, the availability motivated and knowledgeable staff, and
the importance that the organization places on budgeting function. The budget exercise starts
with appointment of budget officer and constitution of a budget committee. Hospitals may
not aim at profit but they should be clear as to what portion of the total cost that will not be
paid by the hospital patients and which hospital management will have to meet out of grants,
donations and from other sources. On receipt of these, manager of each responsibility centre
initiates action within his functional area to develop a long term strategic plan. The
presentation of his plan is followed by discussions with the members of the hospital executive
committee. It provides an opportunity to the executive committee members to discuss
departmental plans with respective managers and amongst themselves. A best possible plan
combining the talents of entire group thus emerges. This approach enhances communication,
co-ordination, and harmony of various operational plans and efforts. The exercise is not
complete unless actual performance is compared with the target set in the budget, the reasons
for variations between the two are analyzed and corrective action where taken.

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Budget committee

The budget committee generally consists of a representative cross section of the major
functional areas or divisions within the institution, with the designated budget director
usually serving as the chairperson. Budget committees frequently include, among others
those who hold the following positions:
 Director of Nursing
 Director of Human Resources
 Director of Material Management
 Director of Engineering and Plant Operations
 Chief of Medical Staff
 Chief Executive Officer, Chief Operating Officer, and/or chief Financial Officer
Director of Nursing: This position is responsible for the major function of the most health
care institution and also accounts for one of the largest, proportion of the institution’s and
revenues.
Director of Human Resources: This position is responsible for administering the institutions
salary and wage program, including its hiring and firing policies. Since in most health care
institutions salaries and wages constitute well over 50% of the organization’s total operating
expenses, the director of human resources is a valuable member of the budget committee.
Director of Material Management: This position represents the other half of the operating
expense equation, the non-salary-and-wage expenses. The director of material management
provides knowledge of inflation trends; new market products; purchase and trade discounts;
fixed asset requirements; and the requirements for receiving, storing, processing, pricing and
distributing the institution’s operating supplies.
Director of Engineering and Plant Operations: This position is responsible for the
institution’s buildings and equipment, including repair and maintenance. The director of
engineering and plant operations can provide a wealth of information about such things, as
well as experience in new construction, remodeling, utilities efficiency, and other areas of
concern.
Chief of Medical Staff: This positions represents the other half of the patient care equation,
the medical staff. It is imperative that the physicians be represented in the budgetary planning
and control process. They are not only the institution’s major consumers, but they can be its
best marketers and salespersons . the medical staff, who are on or near the cutting edge of the
medical technology and therapy, can assist in identifying new procedures, treatments, and
other related services that can benefit the institution and the community it serves.
Chief Executive Officer, Chief Operating Officer, and/or chief Financial Officer: All three
frequently serves as ex officio members of the budget committee. Their attendance at meeting
and active interest in the budget committee’s activities add credibility to the budget process
and help to keep top management aware of the budget process, its direction, and the
anticipated results.

Budget officer
He assists monitoring performance comparing actual results with the budget. The
responsibilities of a budget officer can be conveniently combined with those of Management

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Accountant. He works under the guidance of a budget committee. He acts as a co-ordinator
when it is being prepared. He provides appropriate background information for the previous
2-3 years about income, expenses and statistical data about departmental performance by cost
control variables-number of procedures, department wise and grade wise manpower, etc.
capacity details and production norms are also indicated. He subsequently assists in
monitoring performance comparing actual results with budget. The responsibilities of budget
officer can be conveniently combined with those of Management Accountant.
Budget calendar
It indicates specific dates for preparing individual parts of the budget, discussing them
with departmental heads concerned, for review and revision and getting them approved. This
ensures each segment receives adequate attention and the whole exercise is completed by due
date. The work should not interfere with normal routine of those involved in the budget
exercise.
Budget period
The budget period indicates the time span covered by a budget. It is generally one
year, coinciding with the financial year. The process cycle time is relatively short and there
are no substantial seasonal variations, which could affect month- to- month activity level. The
annual budget should be integrated with long range plan. This could cover three to five years.
Capital Expenditure also covers a three to five years period since it takes considerable time to
conceive requirements of fixed assets and their acquisition. The first year of Capital
Expenditure Budget should run concurrently with the annual budget.
Budget revision
Since a budget serves as a datum against which the actual performance is compared,
ordinarily the budget is allowed to run its course for the entire period for which it is
conceived. A mid-year review is undertaken and if there are major changes in basic
parameters and suitable alterations are made in the budget projections for latter part of the
year. Unless warranted, exhaustive changes are not made in the original budget.

MECHANICS OF BUDGET PREPERATION:
INCOME
The sources incomes are charges for hospital services

Bed charges
The beds are generally classified under four categories; A, B, C and D. this
classification is done more to segregate patients according to their ability to pay. Number of
beds available under each category is predetermined. Facilities offered by each of these
categories- such as space per bed, number of beds in a room, separate bed for patient’s
companion within the room, quality of linen and furniture, provision of TV and air
conditioning, nurse or ward boy in attendance-are different. There may be little
differentiation as regards medical attention and food supply. One can compute category- wise
cost based rates considering these factors. These rates can be made subjected o cross subsidy
to match ability to pay. Category-wise occupancy records are maintained. The ultimate
objective is to ensure targets income from beds should be generated from expected capacity
utilization at revised rate.

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Other hospital services

Income from other hospital services such as OT, X-ray and pathology tests for the
budget year could be similarly computed. However, unlike in respect of beds, service offered
by a department is identical to all patients. The fees charged for a service of that department,
often, depends upon the class of bed occupied by them. Forecasting income using different
rates for identical services become difficult. One can, therefore, compute the income for the
budget year using average rate for the previous year. At the most, the departmental output
could be classified for four or five categories, for which statistics are readily available and
there is substantial cost difference between them. Persons in charge are encouraged to
forecast the activity of their respective departments and corresponding income during the
budget year.

Other receipts
The amount could be targeted at the previous year’s level. Some hospital authorities
leave their deficit from operations uncovered open ended hoping to offset the same through
donations. These are generally received from one or more business persons or collected by
the leaders of the community with which the hospital is associated. Businesses look upon
these donations as business transactions if they are able to secure tax concessions thereon.
Receipts of donations could be planned. They could be identified with certain individuals on
the management board who have been instrumental in getting such donations in the past.
There could be special collection drives, holding charity film shows, etc.
With limits to what one could charge to patients, income from non patient services is
receiving greater attentions

Donations: Nonprofit healthcare institutions depend to a considerable extent on donations
from persons and organizations. These donations could be in the form of physical assets (land
, building, equipment and instrument, labor and material). These must be brought into the
hospital books at their current market or disposable value. The same treatment will apply
when items donated consists of shares, bonds and other financial instruments. The donors
could lay down restriction regarding their usage. This must be spelt out in the balance sheet.
Grants: Grants are funds provided by a government body or department to an institution, for
example a hospital, to be used for a specific purpose, activity or facility. Grants or irrevocable
rights to grant are recognized as revenue in the period in which they are receiving. This may
be at the time the grant is authorized, but, in practice, most units wait until the cash is
received. Grants could be in the nature of reimbursement of expenses incurred on specific
activities or given without any preconditions. When the grants are made for specific
activities, care should be taken to provide matching expenses. The time lag between incurring
the expenditure and subsequent reimbursement should be considered when formulating cash
budget.
Interest / Dividend Income: Income from these sources is linked to investments provided in
the balance sheet such as fluctuations (a) in exchange rates on capital funds and (b) rate of
interest / dividend likely to prevail during the course of the year. If the investment is made
from reserves, income there from forms part of the general revenues of the period and could
be used for meeting any expenses that need be incurred for running the hospital. If the

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investments are in the respect of earmarked funds, the budget should provide expenses that
need be incurred to meet the objectives of the investment or should be added to the funds
earmarked for the project. The finance Manager is expected to manage these funds.

Negative Income/Deductions from Income: To keep up with their images as a service
organization and also to secure tax concessions, hospitals offer concessions ranging from
absolutely free service to marginal reduction in rates charged. Often, these concessions are
offered on ad hoc basis. In one hospital, members of its Governing Body made visited the
hospital daily, and during their daily rounds, they entertained requests from patients for
reduction in bills amounts on pecuniary grounds. According to the hospital authorities, the
reduction in income due to concessions was not substantial. No one knew the exact quantum
since the bills were accounted at their net amounts. An observer felt that the quantum of
reduction in income could be very large if one were to go by the length of the queue in front
of their office. Besides, the founding donors were also entitled to sanction reduction in bill
amounts. A study revealed that the annual cost of concessions offered to some of the donors
was much more than their original donation.
Most of the hospitals offer free medical service to its employees. This concession tends to
result in an open-ended liability and leading to IR issue. Some hospitals cover their
employees under some health insurance scheme to avoid these pitfalls. Some tend to set a
ceiling for each employee and show the amount as a part of employee benefits rather than
reduction in revenues.

Deductions from Income: The budget should provide income at full rates. Deductions
should be shown separately grouped under indoor and outdoor patients and analyzed under:
(a) Charities, source of funding, community – if this is a relevant factor; (b) Staff,
(c) Special schemes, and (d) Bad debts. The objective of the exercise is to ensure the
concessions offered are need based and do not result in disproportionate reduction in income
not visualized by the management.
Hospitals agree to charge special rates to employees of some commercial and
industrial organizations or members of some health care schemes as a part of marketing
effort. The cost of this concession should be assessed and provided in the budget as a
marketing cost.

Payment to Doctors: A percentage of fees charged on some hospital services or a fixed
amount is paid to outside consultants and, sometimes, even to the medical staff on its own
payroll. Some show the total amount charged to the patients as income and the payment to
doctors as an expense. This presentation is better than showing the hospital income net of
such payments, whereby there is no reference to such transactions in the final Income and
Expenditure Statement of the Hospital.

EXPENSES
Formats of expenses could take the following forms: (1) Involving cash outflow, (2)
use up of resources such as inventory or, (3) creation of liabilities (or their combination). For
their inclusion in forthcoming annual budget, they should benefit the organizations current
operations and not extend to future periods. Major items of expenses and their incidence in

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some hospitals are listed below. The figures indicate percentage of total cost. Expenses
should be accounted on mercantile basis.

Pattern of Expenses
The pattern of expenses could vary by hospitals: Types, sizes, location and other
distinctive factors.
Expenses In %
Materials 22.5
Employees expenses 27.3
Dietary services 3.0
Utilities – electricity and water 10.5
Engineering and property maintenance 11.0
Other hospital expenses 7.0
Administration including consultancy fees 11.0
Depreciation 4.0
Interest paid 3.7
Total 100

Materials budget
Expenses on medicines, injections, operation theatre material, X-ray plates, reagents
used in pathology laboratory, and such other material used while treating a patient in various
departments, directly or indirectly, could be termed as direct material. The value of this type
of materials varies with level of activity. Over a period, standards or norms are developed in
terms of specifications and quantities for each material for different lines of treatment,
operations or procedure. If such norms are available, requirements of various categories of
material could be computed by multiplying per unit requirements with activity level
expressed in terms of numbers thus:

Activity In turns of number
Medical supplies Cost per patient day
Radiology Cost per film
Obstetrics Cost per delivery
Operating theatre Cost per operation/type of operation
Catering Cost per patient/meal
Pharmacy Cost per patient/day

The Materials Budget could be used to:
1. Estimate expenditure on material purchases and provide information required for
income and expenditure, balance sheet and cash flow budgets. The information is
used for deciding insurance cover, determine space and manpower requirements.
2. Plan level of inventories.
3. Schedule purchases in required quantities, to be secured from appropriate sources
when required time.

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4. Assess quantum of losses through deterioration, leakages and over aging.

Many hospitals make patients buy medicines and medical supplies for use during
patient’s stay in the hospital. These purchases are in standard packs, which may not be fully
used on such patients. The surplus stock is used on indigent patients. It is not a good practice.
The surplus material could get mixed with general stocks of the hospital. This practice should
be given due recognition when computing materials budget.

Purchase Budget
Purchase budget provides for two additional inputs over direct materials cost:
1. Items, other than those used on patients , such as general stores, linen, stationary,
engineering stores and sometimes, even equipment.
2. Variations in opening and closing inventory. If the current inventory were
disproportionately higher than immediate requirements, the purchases would be less
than actual consumption.
Each department estimates its material requirements, indicating the basis of how the
figures have been arrived. The Purchase Manager acts as a coordinator, and formulates the
Purchase Budget combing the requirements of all departments. Actual purchase activity could
be centralized.

Personnel Budget
Personal budget is prepared keeping in mind the requirements for manpower planning
and incidentally for estimating employees’ cost for the budget year. Employees’ expense is
the second most important item of cost in terms of incidence, next only to expenditure on
materials. Budgeting employees’ expenses can be a part of manpower planning exercise.
Major component of employees cost could be payment to honoraries, consultants and
expenditure on fringe benefits. The expenditure incurred on unionized staff, though
significant in terms of numbers, is not very large. One has to add cost of services, which are
outsourced, such as security, housekeeping and routine maintenance, to the employees cost to
arrive at the total labor cost. Most of the hospitals complain of high employees cost but the
rarely care to analyze the composition of this vital item of cost.
Hospital staff could be categorized under:
 Management-medical and administrative
 Medical
 Nursing
 Paramedical
 Engineering and technical
 Administrative and clerical
 Unskilled

Fringe Benefits
Fringe benefits could be broadly categorized under:
1. Retirement benefits: These include Provident Fund, Gratuity, and Pension. These are
predetermined by the Company’s policy. These can be estimated as a percentage of
regular pay.

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2. Cash benefits: Such as Bonus, leave Travel Concession, House Rent, etc. These are
related to the grade in which an employee is placed.
3. Others: Such as subsidized lunch, transportation, medical, training, uniforms, etc.

These can be estimated under the guidance of Personnel Department. There is no ideal
ratio between the numbers of employees in each category. The total number could be
anything from 2 to 5 per bed depending upon facilities provided hospital services that attract
the most of the patients, in-house facilities, and physical structure of the building and
management policies.
Since the objective of Personnel Budget include manpower planning, it is necessary to
draw an organization chart, establish an optimum level of employee strength in terms of
numbers, categories, and specialization, based
1. Number of working days and shifts per day each department works
2. Standard manpower considering available infrastructure.
3. Number of days an employee is present during the year.
4. Previous record of average absenteeism percentage.
5. Industry norms for employees productivity, e.g. number of beds per nurse or
attendant.
6. Existing strength.
7. Provision for wastage, training, and acquisition of new equipment.

Nursing staff requirement is generally estimated based on the Nurses; Bed ratio for
different area of the hospital- higher ratios for ICU’s and lowers for general category beds.
Another better method is to estimating is based on calculating nursing hours requirements for
24 hours for various types of patients- Intensive care, Surgical, Medical, and paediatrics,
patients chronic diseases ward (tuberculosis patients) patients etc. will require different
nursing hours per day. In hospital, areas working 24 hours 7 days week schedule are
identified and the staff requirements suitably provided. In OT nurses requirements will be
based on number of OT tables and categories of operations. In OPD nursing requirement will
be based on number of patients attending per day. There is variability for both the number of
patients with regards the day and season.

Overtime
Overtime payments are necessary for emergency work and unplanned absenteeism.
Some employees often create situations that need overtime payments artificially to generate
additional income for themselves on a regular basis each month and their colleagues. It
creates bad morale amongst other employees who are not similarly placed to take secure
overtime payments. The budget makes provision for over time departments-wise or in total.
The managements generally feel that under normal circumstances, there should be no
overtime. In some hospitals, overtime hours are offset by compensatory offs for equivalent
time period.

Other Operating Expenses
Energy Costs
Sources of energy used by hospitals are: electricity, gas, coal and steam. It is
necessary to estimate energy cost departmentally for control purpose as well as to arrive at

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Mr. Channabasappa. K. M

realistic departmental costs. Generally, there are separate meters for extendes space and
group of machines. One could estimate the power consumption on the basis of area,
horsepower rating or manufacturer’s specification.

Maintenance/ Plant engineering
Maintenance is undertaken to keep or restore assets of the organization in a condition
to render an acceptable level of performance. In a multispecialty hospital medical equipment
maintenance involves the following areas.
1. The classification of equipment
2. The maintenance expenditure
3. Routine preventive maintenance
4. Critical and Defect analysis

Marketing
Expenditure on marketing is determined by the management at its discretion. It could
be related to the expenditure during the previous years, a percentage planned income or based
on marketing effort likely to be made during the year. The top management decides on how
much to spend on marketing and the manner in which it is to be incurred. The amount
allocated depends upon the perceived need and availability of the funds. Marketing is mainly
used to create awareness amongst the community and to increase utilization of hospital
facilities which are underutilized.
Administration
Administration expenses cover expenditure on rent, rates and taxes, travel,
communication, professional fees, medical books and journals, and participation of seminars
and conferences. The hospital should be adequately insured against loss of property on
account of fire, accident, riots, and possible claims from patients against negligence.

BUDGET CONTROL
Budgets by themselves will achieve little unless they are supported by budgetary
control procedures. Budgetary control mechanisms ensures the actual results are in line with
what was planned and agreed up on, and if there are deviations, identify the reasons and to
the extent possible make individual accountable for them
It can be achieved through:
 Keeping a constant watch on over the budget in action
 Periodically reviewing of actuals with the budget
 Analyzing deviations in actual performance
 Taking remedial action where indicated
 Revising the budget if conditions warrant

The ultimate financial statements that result from budgeting from and from the operations
of the hospital are the income and expenditure statement and balance sheet, which reflect
the financial performance of the hospital for the period and at the end of the period,
respectively.

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Mr. Channabasappa. K. M

Income and Expenditure Statement
Income and expenditure statement reflects the results of the hospital’s operations for a
stated period. Only broad classification of accounts is done. Details are furnished in separate
schedules. At times, functional indicators like income and expenditure statement per inpatient
day, income per outpatient etc. can also be given.
Usually, outpatient and inpatient income and expenditure are separately accounted.
The income and expenditure of various departments are worked out departmentwise. This is
essential for the purpose of evaluating financial performance of each department, and in
determination of costs of providing each service.

Balance Sheet
A balance sheet represents financial position as on a specific date. It is statement of
assets and liabilities. It reflects what the hospital owns and what it owes to others. Only total
figures are given against each classification of the main accounts. Detailed schedules can be
annexed if required.
A hospital’s assets and liability consist of
Assets
1. Fixed assets: These are physical assets for long term intended use
 Building- Wards, departments, hostels, residential accommodation
 Lands and grounds
 Plant and equipment- Boilers, sterilizers, AC plant, lifts, central oxygen and
suction, mechanical laundry etc
 Furniture-Hospital furniture and general purpose furniture
 Diagnostic and therapeutic equipment and machines
 Vehicles
2. Current assets: They consist of the following
 Cash in hand and bank
 Deposits and investments
 Accounts receivable
 Other receivables
 Inventory of supplies and materials in stock
3. Other assets: These consist of certain specific purpose funds(like emergency fund,
endowment fund, training fund etc)
Liabilities
1. Current liabilities
 Salaries and wages payable
 Taxes, interest burden
 Accounts payable
2. Long term liabilities
 Mortgages
 Long term loans

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Mr. Channabasappa. K. M

DEPARTMENTAL BUDGET

One needs to know how much expenditure on a department is incurred and what its
service units cost. This information helps the management to fix rates for service rendered by
the department and assess its financial viability and performance. An appropriately prepared
budget will enable the management to monitor the performance of each department in terms
of activity, income, costs, and anticipate needs for additional facilities and equipment,
infusion of capital funds and changes in management strategy. As a part of Cost Accounting
system, departmental costs are computed periodically. These can be matched with forecasts
contained in the budget to facilitate effective control over operations. Some department
budgets are described below:

Research
To be identified as a research centre, a hospital has to register with the Government.
The budget for Research is an appropriation budget. The budget sets limits on the overall
expenditure taking into consideration needs and availability of funds. External funding
agencies could also give assignments to their specialization. The budget covers expenses on
employees, rent, fees, books and periodicals, and seminar fees.
The budget could be reviewed in terms of:
1. Receipts of promised funds
2. Progress made on the project, and
3. Benefits derived

Dietary Services
The responsibilities of the Dietary Services Department include procurement, storage,
processing and delivery of food to patients in compliance with physician’s orders and public
health regulations. Additional responsibilities include teaching nutrition and right eating
habits, and determing patient’s preferences. If hospital cafeteria is part of the set up, one has
to attend to the requirements of the staff and the public. Previously most of the patients and
staff brought food from their residence. Now most of them depend upon food served by the
hospital. Some hospitals prohibit food from outside. The scale of operation has also
increased. Heavy investment is made in this section on storage and food preparation to avoid
deterioration and ensure consistent quality. In view of the importance attached to food
preparation and distribution, and handling of labor, preference is being given to persons with
hotel qualifications and experience to head the department. Whatever may be the
arrangement for the supply of diet to patients, a trained and experienced dietician should be
appointed to define and monitor the different therapeutic diets suggested to patients. The cost
of food served to patients could be Included in bed charges and not included in the bill as a
separate items.
Maximum number of complaints against hospital services is on account of food,
particularly, from patients who have been in the hospital for long. It is also an area from
where maximum leakages and wastages occur. Maintenance of quality standards and physical
and monetary controls are difficult to enforce. More and more hospitals are contracting this
service to outside parties.

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Mr. Channabasappa. K. M

Laundry services
Normally, hospitals do not charge the patients separately for the laundry services. It
forms part of bed charges or service charge recovered from patients. It is essential that
someone being held accountable for its quality of service and cost. A hospital could wash
patient’s uniforms and bed linen, staff uniforms and other clothes in house through its own
regular staff using its own equipment or get them washed from an outside laundry. In a
hospital, the clothes are separated between coloured and white and again sorted out under (a)
soiled, (b) infected, (c) fouled and (d) infected and fouled. If the dirty linen is separately
washed according to degree of soil, washing is simplified, time is saved, economy is affected,
and the results are better. The in-house laundry could provide hygienic, cleaner and prompter
service. It could be operated as a separate profit centre.

Nursing training school
Many larger hospitals conduct their own nursing training schools to provide them
with a constant supply of trained nurses. Assuming it is a two year course, the number of
trainee nurses any time would be 60-80, with 30-40students in each batch. They have to be
provided with residential accommodation close to the hospital. Capital cost would cover cost
of space, audiovisual equipment, furniture and fixtures for holding 2 classes simultaneously,
library, office and hall.
Nursing school runs as per the guidelines Of Nursing Council of India. It offers 3½
years General Nursing (Diploma) Course. There is elaborate requirement of physical
facilities, staff, various lab items, books hostel facilities as per Nursing Council guidelines.
Running cost of the training school would cover stipend paid to the students, cost of
uniforms, and linen in the hostel, washing charges, library books and free food. Teaching
faculty will consist of a Principal, with assistance from the budget officer, prepares the
budget.

BENEFITS
Orderliness in planning process: The main budget is supported by several
departmental and functional budgets, with quantitative details and financial values, activity
details and use of resources, income, and costs. There is a provision for continuous review of
performance. In the process a kind of orderliness is introduced. The managerial personal are
made to think in terms specific rather than in general terms. It guards against undue optimism
and unplanned expenditure.
Decentralization of responsibility: Buck-passing is avoided. Through departmental budgets,
authority is delegated downwards along with accountability for performance. The top
management is left free to concentrate more on important issues.
Performance appraisal: The budget provides norms for evaluation. For want of norms,
previous year’s results are used to forecast current year’s performance. The budget provides
the details of total capacity, likely actual activity level and what it means in terms of use of
resources, matching income and expenses. Whilst specifying these, relationship between
input and output is based on current performance. These could be termed as norms and used
as guides to measure performance. Since the departmental staff is involved in devising the
norms they unlikely to be opposed there being used for measuring performance.

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Mr. Channabasappa. K. M

Communication: Every hospital has some sort of communication system. Budgetary Control
system makes reporting purposeful, comprehensive, reliable and regular. In a manner, the
exercise serves as an important instrument of communication. The key personal are informed
about the organizational goals and policies, changes in the environment and the organization
within which the budget is framed and what is expected from the individual manager. The
sense of participation ensures their commitment to achievement of organizational goals.
Co-ordination: Inter departmental problems get discussed at various budget meetings.
Medical administrators and key staff members attend these meetings from finance,
engineering and personnel departments.
Creation of database: The exercise results accumulation of substantial data at one place. For
example, it could identify departments, which need investment or where there is a surplus
labor. Further, the data provided in the budget detail sheets could be utilized to establish
trends for projecting future growth.

PROBLEMS IN BUDGETING
Reasons why a budget may not deliver the desired benefits are:
 Lack specific goals and objectives
 Lack of training and motivation. It is often perceived by the key personnel as a
pressure technique imposed by the top management, and not as a planning device.
They may not deliberate stand aloof or non cooperate.
 Departmental goals may be at variance with the co operate goals. At highest level the
management may like to deliver best possible health care. At the operating level one
has to take care of constraints imposed by budgets, number and quality of staff.
 Allocation of funds – managers may find it hard to allocate funds fairly and in the
businesses best interests
 Short term vs. Long term planning – budgets usually only look at an annual plan
therefore may fail to take a longer term view
NURSE ADMINISTRATOS ROLE IN BUDGETTING
1. Budget required for the nursing department should be co-operative activity of the
nursing superintendent and her associates including the supervisors
2. Participation in planning budget
3. It is prepared under the direction and supervision of the administrator or financial
officer designated by him
4. The administrator supplies special forms to guide the budget.
5. Consult and take assistance of her/his subordinates in determining the needs of the
unit for ensuring year on the basis of information received.
6. Request sufficient funds to suggest a sound programme such as to provide for
developing programme provision, expansion of programme, to attract and hold
qualified staff to provide for expansion of physical facilities, supplies, equipment, for
improving instruction and also to carry out adequate functions of the institution.
7. Submit budget request with justification with proposed expenditure. The administrator
defines her/ his budget so that nursing unit will have enough money to conduct
programme effectively. Money must be available to allow experimentation also.

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Mr. Channabasappa. K. M

8. When the budget is allotted, the administrator should support the budget. He/ she
should interpret the subordinates, any changes that may affect instruction services for
the adopted budget. She/ he secures for the adapted budget. Once the budget is
adapted, it is the responsibility of the administrator to see that expenditure should not
exceed the appropriation made
9. Since the nurse administrator also is responsible for budget, she/ he should cover the
routine budget control.
10. The budget request may be broken down to the different unit’s e.g. Salaries, supplies,
equipments and other purchase requirements.

CONCLUSION

Budgeting is a tool of administration, which help to make the functioning of an
organization very effectively. Viewing budgeting as a two-part process--budget setting and
budget managing--and implementing best practice principles within each part can help
hospitals generate better year-end financial results that can be invested in teaching, research,
and patient care, and improve financial viability. Nurse Managers are responsible for a
significant portion of institutions financial recourses. These sources can be invested very
wisely for the provision of quality health care by the manager who is knowledgeable about
the budgeting can effectively articulate the need for recourses.

BIBLIOGRAPHY
1. G.R Kulkarni, Financial Management for Hospital Administration, Jaypee Brothers
Publication,New Delhi, Page No-:41-91
2. B.M Sakharkhar, Principles of Hospital Administration, 2
nd
edition, Jaypee Brothers
Publication,New Delhi, Page No:171-176.
3. Linda Roussel, Management And Leadership for Nurse Administrators,4th Edition,
Jones And Bartlet Publishers, Boston, Page No:272-302
4. B.T.Basavantappa,Text Book Of Nursing Administration, Jaypee Brothers
Publication,New Delhi
5. Catherine.E.Loveridge, Nursing Management In New Paradigm,Aspen
Publication,Maryland
6. Bessie.L.Marquis, Leadership Roles And Management Functions In Nursing,
Lippincott Publication ,Philadelphia
7. http://www.ehow.com/how_4471831_make-hospital-budget.html#ixzz1E1ObwVQZ
8. http://allbusiness.com/accounting/budegt
9. www.budgetmap.com

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Mr. Channabasappa. K. M

B. EDUACATION INSTITUTION

INTRODUCTION:
The word "Budget
1
' is derived from the old English word "budgettee" means sack or
pouch which the chancellors of the exchequer used to take out of His" papers for laying
before the parliament, for the financial scheme. Now the term refers to the financial papers.

MEANING OF BUDGET:
Budgeting, though primarily recognized as a device for controlling, becomes a major
part of the planning process in any organization.

"Budget" is a concrete precise picture of the total operation of an enterprise in monetary
terms.

DEFINITION

Budget is the heart of administration management. Budget served as a powerful tool
of co-ordination and an effective device of eliminating duplication and wastage.

According to T.N. Chhabra, a budget is an estimation of future needs arranged
according to orderly basis. Some or all activities of an enterprise for a definite period of
time".

BUDGET- A TOOL FOR EFFECTIVE ADMINISTRATION

When budget becomes really an effective tool of administrative management, the
executive must have adequate powers. Facilities and discretion in budgetary matters with
following principles.

Executive programme : Budget should go hand in hand with programming under the direct
supervision of Chief executive.

Executive responsibility: The Chief executive must see that the departmental programmes
fulfill the intent of the legislature and due economy is observed in the execution of the
programme.

Reporting : Budgetary process like preparation of estimates, legislature action and the
budget execution must be based on full financial and operating reports coming from all levels
of administration.

Adequate tool : Chief executive must have an adequately equipped budget office attached to
him and authority to earmark monthly or quarterly allotment of appropriation.

Multiple procedure : The methods of budgeting may vary according to the nature of
operation.

Executive direction: Appropriation should be made for broadly defined function of the
department.

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Mr. Channabasappa. K. M

Flexibility in timing: Budget should have provisions to accommodate necessary changes in
the light of changing economic situations.

Two-way budget organization: Traffic between central office and the agency offices respon-
sible for budgeting and programming should move in two-way rather than one-way street.

BUDGET- A TOOL FOR LEGISLATIVE CONTROL

The budget is the most important tool of legislature control over the public purse.
Control over public purse enables the legislature to control the executive, and the history of
this control may be broadly identified with the evolution of democracy itself. This control
was originally restricted to the raising of revenues only, but in course of time, it spreads out
and included control over expenditure as well.

BUDGET PROPOSAL / PLANNING

In India, usually annual budget estimates for coming financial year are prepared in the
month of September / October of the current year. It is to be submitted by the 'directorate of
medical, health and F.W on October 25th to the State Government so the budget preparation
is started at the district level.

Every head of the hospitals are required to prepare budget estimates in respect of
medicines, diet, equipment, surgical dressings, even etc are to he worked out.
Recurrent budget.

The Planning should include : -
 Forecasting : Sound forecasting may be related to making decisions on purchases,
expansion, advertising servicing, working capital needs etc.
 Accounting : Well conceived accounting system must be needed to compare the
budget information with actual accomplishment. The cost information tells us
howmuch it will cost to produce or give services.
 Lines of authority: Budget preparations, operation and supervision need / require
clearly defined lines of authority.
 Budget committee: Budget needs budget committee in an organization.
1. To receive and approve all forecast departmental budgets, provide reports showing
comparison of actual and budget income and expenditure
2. To request for special studies of deviations from the budget and consider revision of
budget to meet changed conditions.

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Mr. Channabasappa. K. M

BUDGET PROPOSAL FOR NURSING EDUCATION INSTITUTION:

The administration of school or college of nursing requires a budget and this budget
will probably allocated directed but as in most hospital schools of nursing and alleges, it will
be included in the total budget of the hospital with a certain amount remarked for the school
or college.

In general, the items which arc budgeted for the average government schools of nursing in
India are:

1. Salaries for professional, Clerical and Domestic staffs and drives
2. Stipends for the students.
3. New equipments and supplies.
4. Hires and oilier house hold supplies.
5. Office supplies include stationery and postage.
6. Maintenance of transport and cost of petrol.
7. Maintenance of library or setting up a new library.
8. Contingency fund for educational tours, professional activities, capping and
graduation ceremonies, prizes, entertainments etc.

PREPRATION OF BUDGET STATEMENT IN NURSING EDUCATION

The nurse Administrator or head of a budgetary unit is responsible for the preparation
of the annual budget of the school of nursing. In conference with the president and other
budgetary unit heads. The administration gets on over all view of the budget. So that is
requirements are reviewed and activates submitted in time for inclusions.

In the proposal for the next financial year, when the budget allotted the amount should
be made known the staff. So that they may establish priorities among items on which of is
proposed to be spent purchases should be made, accounts maintained in accordance with the
financial practices of the institution.

Item Income
or
expenditure
Actual
last
year
Current Year Budget
Next year
Budget Actual Proposal Approval
1.
2.
3.
4.

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Mr. Channabasappa. K. M

STEPS IN BUDGETING FOR COLLEGE OF NURSING:

1. Request the professors of various departments and librarian 10 present their needs for
the coining year by a specified dale, and confer with these who have presented such
need.
2. Review the budget appropriation and actual expenditure for the current year in
conjunction with statical data.
3. Ascertain whether any changes are contemplated.
4. Prepare the programme which the new budget is 10 cover.
5. Determine the percentage of salaries of personnel. eg. Principal. Vice Principal.
Professors, Lecturers, Librarian, Clerk, Peon, etc.
6. Estimate the requirement for the coming year from the information supplied as the
expenditure for supplies, equipments and repairs to date.
7. Prepare a summary of new needs, both personal and material with data to support the
request.

Implementation of Budget:

Where the budget or money has been given to college, utilize it as per planning. Eg.
Giving salary, purchasing equipment, library books, programmes, etc.
We evaluate that how much money has been spent and how much remaining So that
we can plan for the next budget.

Budgeting Expenditure:
- Salaries and wages
- Material
- Utilities
- Service and maintenance
- Expenditure an academic activities
- Research activities
- Miscellaneous Sports activities
Welfare of students
- Library

Budget Model:
Based on steps of budget preparation a new budget model prepared for school and
Colleges. Student’s strength – 50 members.

Subject Particulars
Amount in
rupees

Sports Fees
For purchase of Sports goods 65% 2340.00
Tournament – 30% 1080.00
Others – 5% 180.00
Total - 100% 3600.00
Library Fees Regular subscription of newspaper, 1800.00

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Mr. Channabasappa. K. M

magazines 50%
For purchase of books 30% 1080
For binding old books/new 10% 360.00
For repair charts 5% 180.00
For repair furniture’s 5% 180.00
Total 100% 3600.00

Medical examination
fees
For honorium to doctors 50% 450.00
For first aid 20% 180.00
For assistance to doctors 10% ` 90.00
Total 720..00

Vocational education
books
For purchase of materials 60% 1080.00
For books purchase 10% 180.00
For registration with the commission fees
20%
1800.00
Total 3600.00
Audio visual aids Type of model 60% 2800.00
Repairing old A.V. aids 20% 800.00
Maintenance 20% 800.00
Total 4400.00

Laboratory fees
Solutions 40% 1000.00
Test tube / equipments 40% 1000.00
Maintenance 20% 800.00
Total 200.00

THE RESPONSIBILITIES OF PRINCIPAL / NURSING ADMINISTRATION IN
BUDGET INCLUDES THE FOLLOWING -

1. Participation in planning budget.
2. Consult and take assistance of his / her subordinates in determining the needs of the
unit for ensuing year on the basis of information received.
3. Request sufficient funds to suggest a sound Programme such as to provide for
developing programme provision, expansion of programme, to attract and hold
qualified staff to provide for expansion of physical facilities, supplies, equipment, (or
improving instruction (School and College) and also to carry out adequate functions
of the institution.
4. Submit budget request with justification with proposed expenditure. The administrator
defines her / his budget so that nursing unit will have enough money to conduct
programme effectively. Money must be available to allow experimentation also
5. When the budget is allotted, the administrator should support the budget. He / she
should interpret the subordinates, any changes that may affect instruction services for
the adopted budget. She / he secures for the adopted budget. Once the budget is
adapted, If is the responsibility of the administrator to see that expenditure should not
exceed the appropriate made

85
Mr. Channabasappa. K. M

6. Since the Nurse Administrator who is responsible for budget, she / he should cover
the routine budget control

CONCLUSION
Budget is quantitative statement usually in monetary terms, of the expectations of a
defined area of the organization over a specified period of a time in order to manage financial
performance. The organization may use sophisticated and complex forecasting methods,
including statistical techniques to assist in making projections related to the budgetary period.
Management normally uses the past as the common starting point for projecting the future.

BIBLIOGRAPHY
1. Eleanor J Sullivan, Philip J Decker. Effective leadership and management in nursing. 4
th

edition published by Addison wesely. Page no.91-104.
2. B T Basavanthappa. Nursing administration. Jaypee publications. 1
st
edition. Page no.152-
161.
3. T Ramaswami. Principles of management. 1
st
edition. Himalaya publishing house. Page no.
361-394.
4. Google .com
5. Budget planning guidelines. Com
6. Pubmed.com

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