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Tips to create financial foundation for your imaging facility

Radiology Administrator's Compliance and Reimbursement Insider, July 1, 2007

Face it. Some of us would rather lose a tooth than sit down to develop the annual department budget. But procrastination often leads to more detrimental losses than those most often felt in the dentist chair.

If the budget process intimidates you, you're not alone, said David Sack, radiology director at Stamford (CT) Hospital. Sack discussed budgetary basics in his presentation "Winning the Jackpot: The Keys to Budget Creation, Review, and Defense," during the 2006 Amer i can Healthcare Radiology Administrator's annual meeting in Las Vegas. (The next meeting takes place in Orlando, FL, July 8-12; visit www.ahraonline.org for information.)

Many radiology administrators such as yourself worked their way into a management position after years in the trenches.

So although many department leaders perhaps didn't major in radiology business management, they still must create that annual budget and present their fiscal prowess to upper management.

"The annual budget process is vital for your success in your position," Sack said. "It allows you to prioritize initiatives and strategies, and provides a method to measure overall performance against established goals. That's something everyone can understand."

The numbers drill

Creating a budget requires an enormous time commitment. First, you must sort through the various pieces of the budgetary puzzle. Historical data and previous accounting often offer misleading, inaccurate, or just plain confusing data.

Further, earlier radiology fiscal wizards might have placed items in strange cost centers or used complicated terms to describe topics no more complicated than your budget at home. For example, Jason Newmark, operations manager for Stamford Hospital's ambulatory radiology facilities, discovered a $2,400 line item labeled "purchased services," which he eventually learned paid for regular cleaning of the offices' aquarium.

Combine all of these difficulties with a general fear of fiscal management, and compiling the annual budget starts to feel like the Novocain might be wearing off.

"People, in general, are afraid to make mistakes. They're afraid to ask for help because it could show some sign of weakness," Sack said.

Conversely, those in charge of your hospital's fiscal management don't necessarily understand radiology either, he said. "That's why it's so important for radiology administrators to understand the budget process."

A budget bit

The annual budget allows you to prioritize initiatives and strategies. Need to improve patient-flow but need additional staff members to do so? The annual budget helps you make that case to the hospital higher-ups. Further, it offers you options to measure overall performance against the goals you establish.

"The budget process is vital for your success. It enables you to step back and look at the big picture," said Sack.

People formulate a budget in a variety of ways. Some use an annualized budget to forecast their expenses, others develop a fixed, or flexed, budget. Still others operate from zero-based budgeting (see "Budget terminology" below).

All options represent appropriate accounting tactics, but each offers a unique focus-a focus that may or may not work out well for your department in the long run.

Labor: The biggest bite

Every radiology administrator, like every business manager, knows his or her greatest annual expense stems from labor costs. At Stamford Hospital, Newmark uses a spreadsheet to break down full-time staffing expenses:

  • By modality
  • By number of rooms
  • By number of hours of operation
  • By productive hours per day
  • By productive hours per week

    Every department maintains a set number of non-productive hours for sick time, vacation days, personal days, and so forth, Newmark explained. So be sure to factor that in to the whole budget process.

    "You have to make the administration understand that this part of the budget is purely bodies to cover minimally what the hospital currently provides as services," said Newmark. When an administrator or hospital plans expanded services, it comes with expanded staffing obligations, he said.

    Understand the department's workflow

    Take the time to understand the department's workflow, Newmark said. Every piece of equipment and every room operates at a particular capacity. "You can't be booked 100% of the time," he said.

    So be realistic when creating a labor budget and ac curately represent the amount of time and staff it takes to complete each procedure.

    With a full understanding of existing staff and performance conditions, you can better argue your overall departmental needs to the hospital/facility chief financial officer by projecting future staff needs. Take the time to model your plans for department growth both in modality use and in the staffing level it takes to manage that growth, Newmark said.

    Developing a staff budget won't seem like subclavial surgery if you seek assistance from employees. Get them involved, said Newmark.

    Staff members hold much of the process and hands-on information you need to formulate this year's annual budget, discover the previous year's pitfalls, and plan for future development.

    Insider sources

    David Sack, radiology director, Stamford Hospital, 30 Shelburne Road, Stamford, CT 06904; dsack@stamhealth.org.

    Jason Newmark, operations manager, Stamford Hospital, 30 Shelburne Road, Stamford, CT 06904; jnewmark@stamhealth.org.

     

    Budget terminology

    Fixed: In this type of budget process, the amount budgeted equals the amount spent. A fixed budget does not account for possible changes in business activity. Such a budget works well for those without changing costs and without alternating incomes. Otherwise, a fixed budget tends toward inaccuracy over time.

    Flexed: Your radiology department budget calls for the performance of a certain number of procedures. It actually performs more scans than expected, but the costs increase, too. Under a flexed budget, as long as the expenses and revenues balance out, you're fine. A flexed budget represents various levels of production.

    Benchmarking: Comparing one radiology department to another based on a predesignated set of criteria. At times, such comparisons may help radiology administrators better govern their spending habits based on similar facilities in similar demographics. But true apple-to-apple comparisons are rare. Before embarking on a benchmarking document, carefully categorize the differences and similarities between organizations.

    Annualized: Forecasting year-to-date expenses. Some hospitals formulate a budget at different times of the year. An annualized budget takes the amount of money already spent and extrapolates that spending forward throughout the re mainder of the fiscal or calendar year.

    An annualized budget, however, assumes that everything spent in the first six months will be spent again in the next six months. Although that may be partly true with some items, such as staff salaries and basic supplies, other items, such as equipment maintenance costs, may throw an annualized budget out of whack.

    Zero-based: This budget begins every year with a clean slate. Under such arrangements, administrators assume a zero-dollar assignment for everything and move forward to justify each line item independent of the work completed the year before.

    Under such a budget, managers use historical data but are not governed by it.

     

    Stark, anti-kickback primer

    Stark Law

    The federal physician self-referral law, commonly referred to as the Stark Law, establishes two basic principles:

    1. The referral prohibition: A physician may not refer a Medicare beneficiary to a healthcare entity where a fiduciary relationship exists

    2. The billing prohibition: A healthcare entity may not bill for improperly referred services unless an exception applies

    Anti-kickback statute

    The federal healthcare program's anti-kickback statute is considered the older cousin of the Stark Law.

    This broad criminal statute prohibits one person from knowingly and willfully giving, or offering to give, remuneration of any kind as an inducement for business or business referrals for which payment may be made under a federal healthcare program.

    Remuneration includes anything of value. The term "inducement" means any act intending to influence a person's judgment (i.e., influence them to refer patients to your facility).

    Editor's note: This passage is excerpted from The Compliance Officer's Handbook, published by HCPro, Inc.. To order or for more compliance information, visit www.hcmarketplace.com.

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