2-3 pages APA 6, in-text citation, Cite at least three (3) scholarly references 

** reference documents and budget are attached**

Assignment Details:

You are a staff member in the finance department at Nouveau Health, whose sole responsibility is to advance the success of the organization through assisting in planning, forecasting, and finance management. 

Complete the following: 

  • Prepare next year’s financial plan and operational budget. 

Note: Use the budget from Unit 1; it did not take into account the growth of the new facility. The CEO has asked that you expand that budget and provide a finalized budget that will take into account the new services offered. The CEO has stated that there is $3 million that you can incorporate in to the budget for additional staffing, services, maintenance, and so forth. 

Health Care Financial Planning


For a health care organization to continue in business and perform its
function of providing health care, the health care organization must be
financially viable. Financial viability is achieved in many organizations by the
use of diverse financial functions, such as financial planning, budgeting, and
accounting. Each function is necessary to ensure an organization’s financial
viability. This session will focus on financial planning and the sources of
revenue for health care organizations.

Strategic Financial Planning

Strategic financial planning starts with the executive management of a health
care organization developing a strong preliminary strategic plan for the
organization that includes the following:

• Identifying optional or potential strategic plan directions and goals
• Forecasting outcomes for each of the optional or potential strategic

• Developing models and calculating the potential revenue and expenses

associated with a particular business endeavor
• Comparing the return and cost of each strategic alternative to assist in

determining what priorities are feasible
• Evaluating the different costs of different financing options
• Providing comparative financial data to decision makers regarding


The presentation of data and alternatives should be in a format that supports
decision-making purposes.

Sources of Health Care Revenue

A health care organization must be able to identify sources of revenue to
effectively evaluate its options and make strategic decisions. The following
are three primary sources of revenues for health care organizations:

• Government health insurance programs
• Employer-sponsored health care insurance
• Revenues from individual recipients of health care services

The primary government health insurance programs are Medicare and

Health Care Financial Planning


Medicaid. The programs derived from the Social Security Act of 1965.

The first primary source of funding for most health care organizations is
Medicare. Medicare provides health insurance for the disabled, widows of
Medicare beneficiaries, and senior citizens. Qualifying recipients are required
to pay annual premiums and deductibles to receive the health insurance.
Through the years, Medicare has changed to accommodate new medical
innovations, such as the increase of managed health care providers in the
United States. Because of the increase, new legislations were passed that
allowed Medicare beneficiaries to enroll in health plans with reduced
copayments and access to prescription medications, while not increasing the
costs to taxpayers.

The second primary source of funding for most health care organizations is
Medicaid. Medicaid is a partnership funded by the federal government and
participating states that provide health insurance for their poor. All states
that participate in the Medicaid program must adhere to federal
requirements. Like Medicare, many health care organizations serve Medicaid
beneficiaries. Because Medicaid has a fast reimbursement period, many
health care organizations rely heavily on Medicaid funding as their primary
line of business to help pay their overhead costs, such as payroll and utilities.

The third primary source of funding for most health care organizations is the
employer-sponsored health insurance programs. Employer sponsored health
insurance programs are funded by health insurance companies who charge
employers for the costs of providing health insurance for their employees.

Health care organizations may seek other sources of revenue, such as grant
funding for infrastructure building. For example, a community health center
may seek grant funding to provide specific training to health care workers.

When used properly, the listed sources of revenue for health care will serve
as a main catalyst in ensuring an organization’s financial viability.

Operations Budgets


All organizations, including health care organizations, must have an

operations budget to operate effectively and stay financially viable. This

section will review the purpose of an operations budget, considerations for

development of an operations budget, and content of an operations budget.

Purpose of an Operations Budget

An operations budget is used for several purposes. The two primary purposes

are to provide guidance to managers about the amount of resources they

have available to operate their unit and to guide the performance of the unit.

Operations budgets also provide a measure for financial departments to

determine if costs are in line with what is needed for the organization to earn

a profit. They are then used to monitor and ensure a unit’s operations are

within projected costs.

Operations Budget Versus Facility Budget

An operations budget generally is distinct from an organization’s financial

plan or facility budget. The financial plan is a high-level plan to articulate the

organization’s financial goals and objectives. The plan includes anticipated

revenues and expenses on the aggregate. An operations budget details the

projected costs for operating a unit or department. In the case of a small

organization, an operations budget details the projected costs for operating

the organization. A facility budget is a compilation of all department and unit

operations budgets into a complete integrated document.

Developing an Operations Budget

There are many ways to develop and organize an operations budget. An

operations budget generally starts with a manager preparing a preliminary

budget of his/her unit of responsibility. The manager of the unit will use

previous budget information and take into consideration the future needs and

costs of the unit. This includes determining if there are any changes to

standard costs, such as employee wages or costs of materials to operate.

Although the manager of a unit will prepare a preliminary budget for the unit,

often times a financial department will provide some standard costs that are

to be included, especially when costs are used by multiple departments.

Examples of some standard costs that can be provided to a manager by a

finance department include employee salary expenses, employee-related

costs, insurance costs, and overhead costs. Any costs that are unique to a

unit will be projected by the unit manager. After the unit manager prepares a

Operations Budgets


preliminary operations budget, it is reviewed by others and adjusted

according to the organization’s priorities and goals.

Prioritization Considerations

Operations budget allocations within the health care industry vary by the type

of organization. For example, organizations that provide health care services

must consider the cost of health care equipment, such as X-ray machines and

MRI machines. Health care insurance and/or reimbursement organizations

budget for the costs of technology used in paying claims and/or bills and

maintaining a provider and/or member services departments. As you can

imagine, the nuances within the operating budgets are numerous.

Contents of an Operations Budget

Operations budgets are detailed in projecting various aspects of operations.

The following are some examples of units that one might expect to see within

a health care organization’s operations budget:

 Expected number of personnel

 Expected salary of personnel

 Expected employee related costs such as taxes and insurance

 Expected amounts of health care supplies anticipated to be utilized

 Expected costs of employee uniforms, for example, operating room


 Expected costs of operating technology such as telephone, computers,

and network capabilities

 Expected costs of health care equipment, for example, dialysis


 Expected costs of on-going training and professional development

 Expected costs of building improvements


Inpatient $ 25,000,000
Outpatient 15,000,000
Emergency Room 10,000,000
Laboratory 5,000,000
Pharmacy 1,500,000
Home Health and Hospice 1,500,000
Ambulance Services 950,000
Substance Abuse 250,000
Other 850,000
Subtotal $ 60,050,000
Less Chartiy Care 18,000,000
Net Revenues $ 42,050,000
Payroll (including nursing salaries) $ 12,500,000
Benefits 3,000,000
Contract Labor 100,000
Insurance 300,000
General Services (laundary, security, etc) 3,000,000
Depreciation 1,500,000
Interest Expense 300,000
Professional Services 10,000,000
Total Operating Expenses $ 30,700,000
Net Income $ 11,350,000



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