HSN/476 Week 2: Budgets and the Nurse Leader, sample paper

Nine Patients, Two Nurses at Minimum: Building and Reading the Staffing Budget of a Small Inpatient Unit Where Fixed Staffing Drives the Numbers

[Student Name]

University of Phoenix

HSN/476: Healthcare Policy and Financial Management

Week 2 Assignment

[Instructor Name]

[Date]

The hospital, the unit and every figure are a composite written for a model paper.

In Week 1, I explained how a critical access hospital is paid and why nursing appears in its finances only as a cost. This paper moves to the document through which that cost is planned and controlled: the operating budget of my unit, a combined acute and swing-bed unit that averages nine patients a day. Building it shows a problem that larger units rarely face. On a small unit, the number of nurses is set less by the number of patients than by the minimum needed to keep the unit safe at all.

The Budget Types a Nurse Manager Uses

A hospital prepares several budgets. The operating budget covers the revenue and expenses of running services for a year, and for my unit its largest line by far is personnel. The capital budget covers purchases of equipment and buildings that last several years. The cash budget tracks when money actually comes in and goes out. Nurse managers are usually responsible for the personnel and supply portions of their unit's operating budget and contribute requests to the capital budget (Finkler et al., 2013).

Why the Personnel Line Matters Most

Personnel dominates the budget for a reason that holds across hospitals: nursing is the largest labor cost in health care. In a national analysis of more than three thousand hospitals, registered nurse labor alone accounted for about a quarter of all hospital expenditures (Welton, 2011). A manager who controls the personnel line controls most of what the unit spends, and a manager who misreads it can be pushed into cuts that affect patients directly. That is why the rest of this paper concentrates on hours and people rather than on supplies.

Step 1: Workload

The budget starts with expected volume. Last year the unit averaged 5.1 acute patients and 3.9 swing-bed patients a day. The hospital's planning committee expects the same total next year, so the budget uses an average daily census of 9.0, or 3,285 patient days.

Step 2: Hours Needed by Workload

For units of similar acuity in larger hospitals, a common target is about 8.0 nursing hours per patient day for registered nurses and nursing assistants together. At 8.0 hours for 3,285 patient days, workload alone would require 26,280 productive hours.

Step 3: The Minimum Staffing Floor

Workload is not the whole story. The unit must always have two registered nurses on duty, because one nurse alone cannot safely manage an emergency, take a break or admit a patient while another deteriorates, and it needs one nursing assistant on duty at all times. That floor requires 2 registered nurses times 24 hours times 365 days, or 17,520 hours, plus 8,760 assistant hours, for a total of 26,280 hours. At a census of nine, the minimum floor and the workload estimate happen to require the same hours, which means the unit has no room to reduce staffing when census falls.

On days when census rises above about eleven, workload requires a third nurse for part of the day. The budget adds 1,460 registered nurse hours for those days, based on last year's pattern, bringing total productive hours to 27,740.

Step 4: From Hours to Full-Time Equivalents

A full-time equivalent is 2,080 paid hours a year, but not all of them are worked. Staff on my unit take an average of 10% of their paid hours as vacation, holidays, sick time and education. Productive hours must therefore be divided by 0.90 to find paid hours. For registered nurses, 18,980 productive hours divided by 0.90 is about 21,089 paid hours, or 10.1 full-time equivalents. For nursing assistants, 8,760 productive hours becomes 9,733 paid hours, or 4.7 full-time equivalents.

Step 5: From Full-Time Equivalents to Dollars

At an average registered nurse wage of $41.50 an hour and benefits at 30% of wages, the registered nurse cost is 21,089 paid hours times $41.50, or $875,194 in wages, plus $262,558 in benefits, for $1,137,752. At $19.75 an hour, nursing assistants cost $192,227 in wages and $57,668 in benefits, or $249,895. Personnel for the unit totals about $1.39 million before overtime or agency staff, which the budget sets at zero as a goal the manager must manage toward.

Reading a Variance

In the first quarter of the year, census averaged 7.2 instead of 9.0, and the monthly report showed the unit over budget on hours per patient day by 24%. Read quickly, the report says the unit was inefficient. Read correctly, it says something else. The unit worked almost exactly its minimum floor, 6,570 hours for the quarter, the same hours it would have worked at a census of nine. Because patient days fell, hours per patient day rose automatically. The variance was a volume effect, not a spending problem.

A flexible budget, one that recalculates what the unit should have used at the census it actually had, would show this clearly if it included the minimum floor as a fixed cost rather than treating all nursing hours as variable. Finkler et al. (2013) describe separating fixed and variable costs as the first step in interpreting a variance, and on a small unit most nursing hours are fixed.

The Manager's Response

I presented the quarter to the chief financial officer with the fixed floor shown separately. Three actions followed. The hospital agreed to report my unit's performance against the floor rather than against hours per patient day alone. I proposed cross-training two emergency department nurses to float to the inpatient unit, so that when census is low one inpatient nurse can cover a shift in the emergency department, lowering the unit's hours without breaking the two-nurse rule. And because Medicare pays about 58% of the unit's days at cost, I showed that a large share of the fixed staffing cost is returned through the cost report, a point that changes how the hospital should view it (Medicare Payment Advisory Commission, 2023).

Conclusion

Building the budget step by step showed that my unit's staffing is driven by a safety floor rather than by census. A variance that looked like overspending was a fall in volume on a unit whose costs are mostly fixed. Nurse leaders who understand their budget can explain that difference and protect safe staffing while still finding savings. Week 3 will look at cost-control strategies and what they do to quality.

References

Finkler, S. A., Jones, C. B., & Kovner, C. T. (2013). Financial management for nurse managers and executives (4th ed.). Elsevier Saunders.

Medicare Payment Advisory Commission. (2023). Critical access hospitals payment system (Payment basics).

Welton, J. M. (2011). Hospital nursing workforce costs, wages, occupational mix, and resource utilization. Journal of Nursing Administration, 41(7/8), 309-314. https://doi.org/10.1097/NNA.0b013e3182250a2b