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FINANCIAL MANAGEMENT IN A HEALTH CONTEXT

FINANCIAL MANAGEMENT ESSENTIALS FOR NSW HEALTH MANAGERS

WELCOME

• Acknowledgement of Country and

Elders

• Acknowledgement of Carers

HOUSEKEEPING• Phones/iPads/Laptops

• Water

• Restrooms

• Emergency evacuation

• Break times

• “Parking” list

• Questions

2

PROGRAM OVERVIEW

Financial Management in a Health Context

DAY ONE FACE-TO-FACE

EDUCATION SESSION

Tasks:

Pre-program survey

Discussion, activities, reflections

Workplace Report guidance assistance

Post Day One Survey

Interpreting and Responding to

Financial Information

DAY TWO FACE-TO-FACE

EDUCATION SESSION

Tasks:

Workplace Report discussion

Full Time Equivalent overview

Cooinda case study

Post program Survey

Four to Six Weeks

INTRODUCTIONS

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YOUR EXPECTATIONS

1. What outcomes would you like to achieve as a result of attending this program?

2. What do you consider is effective cost centremanagement? Provide three examples

NSW HEALTH VALUES

• Collaboration

• Openness

• Respect

• Empowerment

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FOCUS OF DAY ONE

Financial Management

Context: principles,

responsibilities and policies

1. Planning and

Prioritisation

2.Budgeting: costs,

activity and funding sources

3.Budgetary Control: Variance analysis

4. Decision making /

corrective action

HEALTH FUNDING

• The cost of providing health care has been steadily rising over the

past few decades

• A focus on efficiency and accountability is essential and will remain

central to provision in the future

• Although the National Health Reform Agreement has now ended, it’s

objectives remain NSW Health priorities:

- Improve patient access

- Ensure sustainability of funding

- Improve transparency of health organisation funding

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FINANCIAL MANAGEMENT IN HEALTHPRINCIPLES

Ownership Accountability Transparency

Integrity ConsistencyFinancial

Stewardships

Accounting Standards

Value for Money

FINANCIAL MANAGEMENT IN HEALTHRESPONSIBILITIES

Plan and prioritiseDevelop a realistic

budgetUnderstand and

control your costsReduce waste and increase utilisation

Risk monitoring and awareness

Monitor results and take corrective action

when necessary

Information, integrity and reliability

Operate within the financial delegations

and comply with regulations

Evaluate new activities

Safeguard assets

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PRINCIPLES AND RESPONSIBILITIES

Considering the principles and responsibilities of financial management:

1. Identify three areas that you feel are the most important for the success of your organisation.

2. Explain why.

ACCOUNTABILITY

“Accountability is something you choose to

exhibit – it is not assigned to you. In short,

you can be given responsibility, but you have

to take accountability."

The Oz Principle: Getting Results Through Individual and Organisational Accountability

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CONFLICT OF INTEREST

Public

Duty

Private

Interest

Potential

Perceived

Actual

Conflict of Interest

DEALING WITH CONFLICTS OF INTEREST

• via a conflict of interest declaration formRegister

• the involvement of the individualRestrict

• the individual from the conflict matterRemove

• the private interestRelinquish

• a disinterested third party to overseeRecruit

• the decision making processReview / Renew

• from the public sector agencyResign

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CONFLICTS OF INTEREST

For the allocated scenario discuss:

1. What type of conflict of interest exists and

2. what could be done to manage it.

DELEGATIONS

Level 5

Level 4

Level 3

Level 2

Level 1 Secretary

Deputy Secretary

Level 3

Level 4

Level 5

Level 3

Deputy Secretary

Level 3

Risk

Efficiency

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DELEGATIONS REFLECTION

a. Why do delegations of authority exist?

b. What delegations do you have and how do they compare with others in your group today?

PROCUREMENT

Purchase

OrderRequisition

Goods

Receipt

Note

Invoice Payment

Operations Procurement Finance FinanceOperations

Segregation of Duties

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PROCUREMENT CARDS (Pcards)

The NSW Health policy on Procurement Cards (PCards), published

February 2016, states that all NSW Health entities are required to use

PCards where practicable for purchase of all goods and services

valued at or below $5,000 (and in line with user Delegation). This limit

may be increased at the Chief Executive’s discretion.

PCards are a type of credit card with features that provide expenditure

control. They are a cost effective way of purchasing high volume, low

value goods and services. PCards replace the need to create

purchase orders for these types of transactions. They also intend to

reduce the number of invoices received and the delay in delivery of

goods.

PROCUREMENT CARDS (Pcards)

If you are not currently using a PCard, you might discuss the

suitability of having a PCard with your direct line manager and/or the

finance department of your health organisation. If you have an

existing PCard and are having issues, you can contact the PCard

Support team:

Email: HSNSWPCardSupportTeam@health.nsw.gov.au

Phone: 1300 883 965.

Further information regarding Procurement can be accessed via the

NSW Health Goods and Services Procurement Policy Manual.

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PROCUREMENT

1. What are the separation of duties and why do they exist?

2. What is the purpose of a PCard and how is it consistent with effective controls and segregation of duties?

PLANNING

NSW Health Plan: Towards 2021

Health Org Plan

Health Unit Plan

PlanningPlanning starts from State

Government and is

cascaded throughout the

organisation

NSW State Reporting

NSW Health Reporting

Health Org Reporting

Health Unit Reporting

PerformancePerformance

monitors and

manages resources

to meet service

demands and

achieve desired

outcomes

NSW Government Premier’s Priorities

NSW Health Budget

NSW State Budget

Health Org Budgets

Health Unit Budgets

Budget

Budgeting

allocates

resources to meet

service demands

and achieve

desired outcomes

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PLANNING - VALUE FOR MONEY

Community

Needs and

Expectations

Program and

Service

Delivery

Design

Fiscal

Strategy

Review Alloc.

Best Program

and Service

Mix

FundingResource Mix

(Inputs)

Activities

Goods and

Services

(Outputs)

Impacts on

Community

(Outcomes)

Community

Needs and

Expectations

Resource Management

Maximising delivery effort over time

Efficiency

Effectiveness

Appropriateness

Value for

Money

ALLOCATING SCARCE RESOURCESThe Apex Local Health District

Using the project proposal

summary table and background

information provided,

1. identify which projects you

will fund and

2. document your rationale

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The Apex Local Health District

2. What other information would you need for each

proposed project to make a properly informed decision?

3. Explain how you balanced short and long-term return on

investment decisions

4. How will the ongoing cost for these initiatives be funded

ALLOCATING SCARCE RESOURCES

1. How were CORE values demonstrated as you tried to reach a decision on funding priorities?

2. What are some actions you can take to involve staff in the financial management process in your workplace? Link each of your ideas to one or more of the CORE values.

APEX LHD CORE VALUES

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BUDGETING

• What is a budget?

- Put simply, it’s your operational plan in dollars and cents

• Budget components:

- Revenue

- Expense

• Cost centres

TYPES OF BUDGET

Capital

Buildings

Machinery

Equipment

Recurrent / Operating

Salaries and Wages

Good and Services

Maintenance

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SERVICE AGREEMENTS

• The NSW Government establishes an annual Service

Agreement with each NSW Health Organisation

• The Service Agreement exists between the NSW Health

Organisation and the Ministry of Health

• It is aimed at promoting budget integrity

BUDGETS

1. What is the relationship between the budget and Key Performance Indicators?

2. What is the link between activity and a budget?

3. What are the benefits of budgeting?

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NET COST OF SERVICE

Expenses

Less: Revenue

Less: Gain/(Loss) on disposal

Less: Other gains/(losses)

• Salaries and wages

• Goods and Services

• Maintenance

• Private patients

• Department of Veteran Affairs

• Grants

• Disposal of assets

• Bad debts

Eg:

INTRODUCTION TO MURRABA HOSPITAL

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MURRABA HOSPITAL BUDGET

1. What is the Net Cost of Service for Murraba Hospital?

2. What is the total expense budget for MurrabaHospital?

3. What is the difference between Net Cost of Service and Capital?

MURRABA HOSPITAL BUDGET

$

Administration 2,852,922

Allied Health 315,953

Murraba Hospital (150 Bed)

Full Year Budget - Year Ending 30 June 2017

Meals & Entertainment (47,576)

30,223,003

3,796,354

Food 17,754

EMPLOYEE RELATED

VISITING MEDICAL OFFICERS

Administration 1,044,210

20,054,425

782,260

TOTAL EXPENSES 54,856,042

Accommodation (4,071,009)

REPAIRS & MAINTENANCE

GOODS & SERVICES

Other Revenue (226,585)

TOTAL REVENUE (6,938,440)

47,917,602

CAPITAL 200,000

TOTAL NET COST OF SERVICE (NCOS)

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POTENTIAL REVENUE SOURCES

Facility Fee

Prosthetics

Room rates

PRIVATE

PATIENTS

Motor Accident

Patients

Ineligible

patients

Workers

Compensation

Dept Veterans

Affairs

COMPENSABL

E PATIENTS

Interstate

patients

Patient

transport

Transitional

Aged Care

High Cost

Drugs

PUBLIC

PATIENTS

Donations /

Gifts / Bequests

Grants – CW,

State, Private

Fundraising

Lease / Rent /

Car Parking

GENERAL

RESTRICTED FINANCIAL ASSETS AND CUSTODIAL TRUST FUNDS

Restricted Financial Assets

Grants

Donations

Bequest

Custodial Trust Funds

Funds held on behalf of third

parties

Private Practice Trust Funds

Funds that have conditions or restrictions as to their use, for example:

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THE FLOW OF FUNDS

TOTAL HEALTH EXPENDITURE

“In Scope”

i.e. Commonwealth

and State funded

“Out of Scope”

i.e. State responsibility

ABF funded Block funded Block funded

• Acute admitted

• Emergency department

• Non-admitted

• Sub and non-acute admitted

• Mental health admitted

• Small hospitals - Residential aged care service

(RACS)

• Teaching, Training, Research

- TTR

• Population health

• Ambulance services

• Pillars*

• Ministry of health

* Pillars - Agency for Clinical Innovation (ACI); Bureau of Health Information (BHI); Cancer Institute NSW;

Clinical Excellence Commission (CEC); Health Education and Training Institute (HETI).

PUTTING THE FUN IN FUNDING

Can you think of any other ways to generate own source

funding in your health organisation?

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FUNDING SOURCES

1. What are the main funding sources for your organisation?

2. Is your organisation funded on an activity or block basis?

ACTIVITY BASED FUNDING (ABF)

• Funds are allocated based on the specific activities

or services provided

• Has increased transparency in funding allocation

• Identifies relative resource use from which to consider:

- Are we using the right model of care?

- Are we allocating resources correctly?

- Are we providing the highest quality of service to our patients,

with the resources we have available?

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TRADITIONAL FUNDING/PURCHASING PRINCIPLES

Traditional approaches to funding

health care involve providing $

for inputs for example:

• positions

• infrastructure

• goods and services

G&SInfrastructure Staff

$

ABF FUNDING/PURCHASING PRINCIPLES

• Funding is now linked to

outputs or activity

• The NSW Health

Organisation determines

the inputsG&S

Infrastructure

Staff

Emergency

Care

Non Adm

Services

MH

Services

Acute Care

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BLOCK FUNDING

• There are small number of services and activities provided by NSW

Health where it has been difficult to determine a consistent agreed

price

- Such services continue to receive funding via alternative models

such as Block Funding

• Regardless of the funding model applied to your service or unit, it is

important to continually seek efficiencies and cost savings

ACTIVITY BASED MANAGEMENT (ABM)

ABM in the health care environment:

A management approach that focuses on strategic decision-making

and aims to improve patient care through:

• optimising resource allocation

• meeting performance targets

• identifying areas for improvement

• evidence-based decision-making.

Activity Based Funding

(ABF)

to

Activity Based Management

(ABM)

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ACTIVITY BASED MANAGEMENT EXPLAINED

• http://www.heti.nsw.gov.

au/programs/activity-

based-management-

for-better-care/

ACTIVITY BASED MANAGEMENT CYCLE

Document care delivered

Extract and verify patient activity and

financial information

Assign costs to patient-level

data

Analyse and report on

performance

Make informed service

improvement decisions

Implement service

improvements

Allocate and manage

resources

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ABM AND YOU

1. How does ABM relate to your NSW Health organisation?

2. Does having and understanding of ‘Activity’ help you make better decisions regarding financial and resource management? If so, how?

THE IMPORTANCE OF BUDGETARY CONTROL• The key role of monitoring and reviewing data

• Ensuring activities are undertaken within the available resources

• Communicating decisions and impacts

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USING A BUDGET

• Reviewing actual performance

against budget

• Variance

- Favourable

- Unfavourable

MURRABA HOSPITAL

FYActual

$

Budget

$

Variance

$

Variance

%

YTD_Actual

$

YTD_Budget

$

Variance

$

Variance

%Budget

Medical 687,908 693,766 5,858 0.84% 3,806,711 4,072,595 265,884 6.53% 8,145,190

Nursing 1,712,047 1,503,453 (208,594) -13.87% 9,338,440 9,020,720 (317,720) -3.52% 18,041,439

Employee Related 2,399,955 2,197,219 (202,736) -9.23% 13,145,151 13,093,315 (51,836) -0.40% 26,186,629

394,045 316,363 (77,682) -24.55% 2,149,334 1,898,177 (251,157) -13.23% 3,796,354

Drugs 163,958 147,745 (16,213) -10.97% 894,318 886,470 (7,848) -0.89% 1,772,940

Blood Products 9,042 9,321 279 2.99% 49,319 55,925 6,606 11.81% 111,849

Linen 74,760 63,564 (11,196) -17.61% 407,782 381,385 (26,397) -6.92% 762,770

Goods & Service 247,760 220,630 (27,130) -12.30% 1,351,419 1,323,780 (27,639) -2.09% 2,647,559

TOTAL EXPENSES 3,041,760 2,734,212 (307,548) -11.25% 16,645,904 16,315,272 (330,632) -2.03% 32,630,542

Dept Veteran Affairs (35,240) (34,950) 290 0.83% (210,240) (209,700) 540 0.26% (419,400)

TOTAL REVENUE (35,240) (34,950) 290 0.83% (210,240) (209,700) 540 0.26% (419,400)

NET COST OF SERVICE 3,006,520 2,699,262 (307,258) -11.38% 16,435,664 16,105,572 (330,092) -2.05% 32,211,142

Visiting Medical Officers

FY 20XX/20YY

December

FY 20XX/20YY

December

Murraba Hospital

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STATE-WIDE MANAGEMENT REPORTING SERVICE

• A centralised, web-based system that provides financial data to cost

centre managers

• Compares actual to budget performance

• Variance

• Potential impacts on budget

• Training

- Individual

- Group

SMR SERVICE TRAINING

SMR Service Training Team

HSNSW-

SMRServiceSupport@health.nsw.gov.au

• Individual

• Group

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MURRABA HOSPITAL VARIANCE ANALYSIS

Calculate the Variance and Variance % for the blank cells in the month and YTD columns.

COST CONCEPTS

Variable costs

Fixed costs

Mixed costs

Cost drivers

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COMMON COSTS

1. What are the costs you have influence over in the department / unit where you work and are able to manage?

2. What circumstances or factors influence your ability to manage your costs?

THINKING ABOUT COSTS

1. Identify the three largest costs in your area and indicate:

• Is the cost mainly fixed or variable?

• What is the most likely cost driver for each identified cost?

2. What is the benefit of understanding this information regarding major costs?

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BRAINSTORM: FINANCIAL RISK MANAGEMENT

1. In your groups identify as many financial risk management activities that have been discussed today as you can.

ENGAGING STAFF

It is important to consider:

• Management style

• Communication

and collaboration

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ENGAGEMENT AND COLLABORATIONEffective financial management requires:

• An appreciation of and support for the resources allocated to the unit,

by the people working within the unit

• A commitment by managers to communicate transparently with

people in their unit about the resources required and used to

efficiently achieve the operating goals of their unit.

1. Reflecting on the first two bullet points above, who are the key

people you need to engage with to gain a better understanding of

you health organisations financial management goals, tools and

resources?

PERSONAL REFLECTION

To what extent do you involve your staff in the financial management process?

1 2 3 4 5

I need to improve I do this sometimes I do this consistently

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QUALITY OF DATA

Consider the collection of activity data

• Counting

• Coding

• Costing

Everyone plays an important role in

ensuring both patient activity data

and financial information is correct

DATA INTEGRITY

1. What is the impact of inaccurate recording of data?

2. What are some ideas you can take back to your workplace to improve data inaccuracy?

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MURRABA HOSPITAL –BUDGET CONTROL

Part 1

a. Review the budget report

b. Provide advice and opinion

c. Summing up

OPTIONS ANALYSISOptions

Ability to

reduce costs

Improved

budget value

More

efficient

options

Do nothing

Seek more resources x

Re-organize existing resources

a. Review large expenditure items x x x

b. Review discretionary expenditure x x

c. Stop some activities x

d. Do things differently x x x

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MURRABA HOSPITAL –BUDGET CONTROL

Part 2

Options matrix tool analysis

END OF DAY 1 - WHAT’S NEXT?

• Workplace Report

• Overview of Full Time

Equivalent (FTE)

• Cooinda Local Health

District case study

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WORKPLACE REPORT

Instructions and Tips:

• Identify a resource management issue and outline a strategy to address

the issue

• Proposed strategy to be in line with your NSW Health Organisation

Strategic plan / Service Agreement

• Engage with your Business Manager / Business Partner to assist

• Upload report to My Health Learning one week prior to attending day two

• At day two lead informal discussion, 10 minutes to share

• If working as a group:

- all members actively participate in workplace report creation and leading

discussion

WORKPLACE REPORT – continued

• Focus on strategies that can be implemented in future, not ones that

have already been implemented

• Strategies should focus on at least one of the below:

- the ability to reduce cost

- the ability to improve budget value, ie generate revenue

- the ability to implement a more efficient operation

• Strategies should not:

- shift costs to other areas

- justify future expenditure already decided on

- identify/correct errors in finance process or allocation of FTE.

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WORKPLACE REPORT TEMPLATE

Five parts to complete:

1. Background: Brief background to resource management issue

2. Do Nothing: What are current cost drivers & risks of doing nothing

3. Identify two strategies: Use the modified options matrix tool to identify two

strategies that may resolve your issue

4. Expected improvement and risks: Identify the expected improvements and

potential risks of each strategy. Quantify the benefit

5. Recommendation: Make a recommendation of your preferred option and

explain why

PROGRAM SUPPORT

• Collaborate with your colleagues

• Share your learning with your team / colleagues

• Connect with your Business Manager / Business Partner

about your project

• Contact the HETI Leadership, Management Development and

Educational Design (LMDED) Portfolio if you require assistance.

HETI Management Development Programs

02 9844 6136

Email:

HETI-Management@health.nsw.gov.au

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CHECK OUT AND CLOSE

• Expectations

• Parked questions

• Any immediate feedback or requests for

support?

• Share one key ‘take away’ message from

today

• Please complete the Post day 1 survey via

My Health Learning Pathway

• Look forward to seeing you at day 2.