Budget season shouldn’t be something you and your colleagues dread. You all deserve a better budget season, and you can be the one to help them get there. Your support here can be more valuable than ever, because overall, budgeting is getting harder for hospitals, IDNs, and other large provider organizations. As the healthcare landscape becomes more complex, historical trends are less useful — but at the same time, accurate and flexible budgeting is only becoming more important. 

You have a range of budgeting options in front of you, but finding the right one can be a challenge. Ongoing effects of the COVID-19 pandemic, along with an aging population and unpredictable labor challenges, mean that budget season is an opportunity—an opportunity to improve organizational health and help your colleagues make better decisions. 

To help you kick things off as a budget hero at your organization, we’ve got a few tips. 

1. Mind the Gap

First, know that the path to optimal budgeting is a journey. You’re trying to move forward into a strategic approach to budgeting that allows you to respond to ongoing change, set realistic operating level goals, and assign accountability to the appropriate level of decision-making. Your journey will be unique and will vary depending on your resources, data, partnerships, and technology. 

Just like with any other journey, your first step is understanding where you are today. For most organizations, that’s likely a static budget, but you might be at a point where you’re using rolling forecasts or even employing case-based budgets (the holy grail) — or you might be somewhere in between. As you take a fresh look at your budget processes and collaborate with financial, clinical, and administration, you can better plot your budget journey.  

2. Know Your Methodologies

Part of your budget goal will be aiming for a methodology that best suits your needs. Each has their own pros and cons, but by helping everyone at your organization become familiar with the progression, you can accelerate your progress. Here’s a quick introduction.

Static Budgets 

These are easy to implement since they’re focused on current data (vs. forecasted) and don’t fluctuate with volume changes. Unfortunately, this method lacks flexibility and impedes your ability to forecast new lines of business.

Flex Budgets

This level of budgeting method incorporates metrics into the modeling process, allowing you to incorporate volumes into modeling forecasts. It can be challenging, though, since it requires a true understanding of fixed/variable components. 

Rolling Forecasts

This option moves beyond a reliance on set periods (fiscal periods or fiscal years). Rolling forecasts support periodic updating of budget assumptions avoiding the “fiscal year cliff”, meaning you always have a head start on your next budget. 

This approach is a strong candidate for navigating uncertainty since you can more fluidly adapt to new trends. The challenge is that if you’re doing this on your own, you can feel you’re in an eternal budget season. Technology and strategic use of data can alleviate much of this burden. 

Also, it’s worth noting that rolling forecasts are increasingly popular. An HFMA survey in March 2021 found that 34% of respondents were considering adding rolling forecasts to their budgeting process. 

Case-Based Budgets

This is the most advanced budget methodology and a hallmark of an evolution into a patient-centric approach to healthcare finance. You’ll be able to estimate the number of visits or discharges based on a roll-up structure that your users define. This level of budgeting requires the use of a comprehensive decision support and cost accounting tool. 

3. Assess Your Team

As you look to help your organization progress on their budget journey, it’s important to understand who’s involved in your current process. This can include financial staff and leadership, but also clinical department managers, and possibly even IT. If you are new to a strategic approach to budgeting, there are likely multiple people in your organization who you should begin pulling into your discovery process early on. 

4. Set Yourself Up for Success

While it might be a bit early to nail down set KPIs, the key to your success will be monitoring results against anticipated amounts. Discrepancies between targets and actual results are areas for improvement. 

5. Turn Uncertainty Into an Asset

By rethinking budgeting, you’re supporting your colleagues as they find opportunities in an uncertain future. Consider the coming challenges of: 

  • Shifting and emerging standards in regulatory staffing levels
  • Vaccine mandate challenges
  • Contract worker needs
  • Supply chain challenges around personal protective equipment (PPE), global supply chain disruptions, and inflation and cost increases. 
  • Continually shifting volumes
  • An uncertain payor contract landscape
  • Other sources of funding opportunities you could be taking advantage of

As an emerging budget hero at your organization, you want to be as informed as possible about the healthcare and hospital budget process. That’s why we want to recommend two points of action you can take today. 

Watch the video below, and share it with your colleagues while you’re watching so you can discuss the topics covered.