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Ethical Principles in Hospital Budgeting

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1. What are the ethical principles that should guide budget development?

2. If a department is consistently going over budget, yet the department's management is sound, what are some of the things that could be causing the problem?

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Solution Summary

This solution identifies the ethical principles that should guide budget development and if a department is consistently going over budget, yet the department's management is sound, it explains what could be causing the problem.

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Interesting and complex questions indeed. Please see attached file for my response (also below) to your two questions, and for several other sources as well. I hope this helps and take care.


We will look at the questions in the order that you presented them. Let's look at the first one.

1. What are the ethical principles that should guide budget development?

The ethical principles that guide the hospital will also guide the budget development process, only directed more specifically to financing. Although each organization will have their own set of policies and guidelines, the ethical principles for financing may look something like this:

Budgeting or financing

The executive director shall not deviate from the Health Organization-stated policies in allocating resources or funding. The Executive Director shall not cause or allow budgeting that is not based on generally accepted financial practices and which:
? Fails to separate budgeted items from year to date expenditures
? Fails to include financial projections based on ling range planning.
? Fails to include a cash flow analysis
? Plans the expenditures in any fiscal year of more funds than anticipated revenues, unless cash reserves are to be utilized and prior approval is obtained from the HCO
? Fails to estimate revenue and expenses based on reasonable and explicit assumptions.
? Fails to provide funds for the HCO including meetings, and associated expenses, teleconferencing, legal fees, insurance fees, liability fees, and auditing fees.
? Endangers the fiscal soundness or viability of HCO for future years. (Adapted from http://www.ciphi.ca/pdf/execlimits.pdf ).

Another healthcare organization follows this policy and guiding ethical principles in budgeting:

POLICY: he program uses a formal written procedure to prepare a revenue and expense budget.


- A Revenue and Expense Budget will be developed on an annual basis for submission in a Program Proposal to Ministry of Children and Families by the Program Manager. T
- The Revenue and Expense budget shall be developed based on the previous year's actual costs and anticipated program requirements for the coming year.
- The Revenue and Expense budget require the approval of the Addictions Manager and South Peace Health Council or designate, prior to submission to Contract Manager for the Ministry of Children and Family Development.
In other words, generally accepted financial standards and procedures, when followed, are considered to be the ethical guiding principles in budgeting development and application.

2. If a department is consistently going over budget, yet the department's management is sound, what are some of the things that could be causing the problem?

1. Customer Retention

Loyal customers are the cornerstone of success for healthcare organizations at every level, from insurance providers and HMOs to hospitals and individual practitioners. Customer retention and satisfaction is a top priority concern for many Health Plans, since high disenrollment rates affect profitability. Staggering turnover rates of 20 percent per year cost healthcare groups millions of dollars annually, notes Roberta Clarke, a leader in healthcare marketing and a professor of marketing at Boston University. A 200,000-member plan with a $120 monthly premium and an 8 percent annual disenrollment loses $24 million in revenue each year, according to The Bayer Corporation Guide to Improving Member Retention. And industry experts agree that, in healthcare as in other industries, the cost of acquiring new customers is 6 to 10 times greater than the cost of retaining existing clients.
As if keeping customers around was not hard enough, healthcare organizations face the daunting challenge of having to please not only members, but multiple intermediaries as well.

Some studies also suggest that physician satisfaction can influence patient satisfaction, which has consequences for membership retention in HMOs.

According to a Creating Member Value article by Reidenbach and McClung, customer retention is the strongest determinant of organizational profitability and shareholder value. The top four reasons that determine customer satisfaction are: doctor choice, responsiveness, access to medical care, and perceived healthcare cost.

Responsiveness is the second most important factor and the easiest one to improve with HMOZ. Responsiveness was defined as:
? Reps follow up on any commitments made to clients.
? Situations or problems are resolved to the customer's satisfaction.
? Responses are quick and efficient.
? Reps confirm customer satisfaction before ending the conversation.
? Reps have complete knowledge of HMOs' products, services, policies, and procedures.
? Reps show empathy in upsetting situations.
? Customer's self-esteem is maintained during conversation.
? Reps acknowledge customers promptly and courteously.

The administration is easy. HMOZ CRM helps reps with all of the above, the only extra component required is a smile for each of your clients.

This study also showed that retention ratio (loyal members vs. switchers) was 2.7 times higher in plans that had great products and services with a low price (best value) than those with low quality products and the same low price. Successfully managed customer relationships can result in a 50+ percent customer retention increase.

Any other key factors in customer retention? The following are case studies where customer relationship management solutions resolved customer retention problems.

Solution - Personalized customer care:

Case 1 - To woo employers and help keep their employees enrolled, Harvard Pilgrim Health Care in Brookline, Mass., created a partnership program that pairs HMO employees with executives from the plan's largest employers. The teams help troubleshoot and avert employer attrition.
For example, when Harvard Pilgrim contemplated a premium increase, one team identified several major employers that would leave the plan if rates were hiked. The HMO met with the team and reached a compromise to retain those employers. In 1997, U.S. News & World Report ranked Harvard Pilgrim the best healthcare organization in the state and third best nationwide.

Solution - Programs and campaigns:

Case 2 - When CareAmerica of Woodland Hills, Calif., looked at its records and local competition, it realized that patients often switched plans without changing doctors. The HMO saw that it needed to develop a customer-loyalty program based on a direct relationship between its staff and its enrollees.
Targeting its 45,000 Medicare members, CareAmerica began a community-level customer service program that includes separate toll-free numbers and employees for each area, plus problem-solving CareAdvisors assigned to individual members. A year after the program was launched, monthly disenrollment had fallen from 2 percent to about 1.7 percent. That is an increase of 3.6 percent per year.

Solution - Responsive, faster, and more efficient customer service:

Case 3 - Through its annual Health Care Financing Administration audit, Intergroup of Tucson, Ariz., discovered it had the highest disenrollment in the state and the quickest disenrollment of Medicare members. Focus groups, surveys, and interviews showed that unresponsive customer service was a top cause of dissatisfaction among this ...

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