Operating Budget in Healthcare


The process of planning a budget for a healthcare establishment involves considering many factors that influence the operations. In the case of this clinic, the purchase of an MRI machine, and the acquisition of billing software will impact the distribution of finances. Additionally, various environmental forces, including significant changes in the industry have to be considered to ensure that no revenue loss is in place. This paper aims to analyze changes that will affect healthcare financial planning, offer a budget for 2017, and provide measurements for success.

Environmental Forces that Affect the Clinic

The fundamental changes that occurred over the years and have a major impact on the clinic’s operations are legislative initiatives, for instance, the Affordable Health Care Act, and a shift towards patient-centered care. Greevy (2018) emphasizes the importance of The Republican tax and its impact on the healthcare industry. According to this law, a smaller number of people will be able to receive aid from the government that would help them pay for healthcare services.

The health service providers will be affected dramatically as over thirteen million of the US citizens will not have an insurer by 2017 (Greevy, 2018). This factor will lead to a need for better management of private pay and approaches to providing services for those who cannot afford to pay for them. Fewer people will be eligible to receive Medicaid coverage, which will lead to a decrease in revenue for the health provider in question. Additionally, according to Greevy (2018), the Health Insurance Portability and Accountability Act will alter approaches to revenue reimbursement in the industry. The legislation requires a financial specialist to pay additional attention to assessing possible risks when planning the future for their healthcare organizations.

Risk management and monitoring the processes is becoming especially important for healthcare providers. Greevy (2018) states that “careful documentation around changes in insurance premiums, coverages, co-pays, and reimbursements is critical for compliance” (para. 4). The clinic will be able to mitigate the possible risks associated with this component by creating a centralized billing office and purchasing software that will decrease the number of errors and increase the efficiency of the process.

Morgan (2018) states that the insurance industry, which provides reimbursements to the clinic, is likely to transform due to customer demands. It evident that the companies will change their approach to reimbursements by integrating more technologically advanced solutions. Thus, without software that can help manage these operations, the organization will lose revenue.

Several aspects create a potential risk for the clinic because adjustments have to be made to improve the existing model for operations. According to Dyrda (2016), pharmaceutical costs have increased over the past several years, which affects the financial planning for hospitals. Additionally, the author emphasizes that margins in some parts of the industry, for instance, pediatrics, decreased due to the lack of proper funding.

Outpatient care is underfunded as well, while additionally, reimbursement for these services is not sufficient (Dyrda, 2016). The factor is challenging because chronic disease care facilitates through outpatient services are becoming increasingly popular. Thus, to successfully operate and bring revenue, the clinic should adjust billing policies and review the reimbursement processes in accordance with the environmental changes.

Operating Budget

An appendix presents a sample budget for the hospital and budgets for 2015 and 2026. In order for this clinic to increase its revenue, two significant changes will be implemented. Firstly, billing software will be purchased and installed for $50,000 to enhance the process of receiving reimbursement (“Medical billing software prices,” n.d.). Secondly, in alignment with the clinic’s plan, an MRI machine will be installed, which should result in additional profits from clients that will be able to receive scans on-site. The combined price for preparing the MRI to operate is estimated at $210,000, while the added staff salary of $614,318 will be paid to two radiologists and two receptionists. Both new software and the MRI machine should be pursed outright to avoid additional payments in the form of interest costs.

The proposed budget aligns with the organization’s financial objectives because it does not overburden the clinic with unjustified expenses. The overall spending remains similar to those in the years 2015 and 2016, however, the purchase of equipment and software, as well as maintenance and staff salaries are added. Those expenses are justified due to the fact that the previous cost and benefit analysis provided an insight suggesting that the purchase of the MRI machine will bring revenue to the company within the next five years. Thus, the target profit margin should increase due to the introduction of new services.

The clinic anticipates more expenses due to a need for additional personnel. In addition, according to Becker’s Hospital CFO Report (2014), the majority of costs that healthcare establishments have been associated with labor pay. This can be seen in this proposal for an operational budget; thus the clinic can efficiently function under the proposed financial plan. Annual inflation rates and salary increase were considered in this proposal to calculate the rates efficiently. Other costs were estimated based on the clinic’s performance in 2015 and 2016.

Measuring Performance

A balanced scorecard should be introduced to identify the efficiency of the clinic’s financial performance. Becker’s Hospital CFO Report (2014) offers to implement labor productivity tools that would help examine and manage the workload for people in the clinic. The approach will be beneficial for this clinic because the measurement will enable us to improve the allocation of resources within the current budget plan.

Furthermore, by comparing the actual patient flow with the number of medical professionals engaged in processes changes can be proposed that would help save money. This is important because the organization will have to hire four additional staff members. The scorecard will help ensure that their work is productive. Additionally, it is necessary to have a scorecard that would help understand the actual expenses and management of finances. It will help identify the adherence to the created budget and provide insight into possible changes. This can be done on a monthly basis to align the current spending with the one that was planned for the year.


Overall, while the budget proposed in this paper exceeds the estimations from 2015 and 2016, the change is justified because of anticipated revenue and mitigation of errors that occur during reimbursement, brought by the MRI machine and billing software. These purchases are required to respond to the changes that occur in the external environment of the company. The MRI will allow receiving additional revenue, thus affecting the profit margin, which will help mitigate the adverse trends that occur in outpatient care. The software will ensure that reimbursements from insurers and payment from clients are appropriately handled by the clinic. This factor is required due to legislative changes that affect the number of insured individuals in the US.


Becker’s Hospital CFO Report. (2014). CFO perspective: Finding savings in the annual operating budget. Web.

Dyrda, L. (2016). The key factors affecting 2017 hospital budgets from 2 CFOs. Web.

Greevy, H. (2018). Healthcare compliance has big changes in store for the rest of 2018 and beyond. Medical Economics. Web.

Medical billing software prices – what’s the right cost? (n.d.). Web.

Morgan, B. (2018). Here’s how IOT will impact the insurance claims process. Forbes. Web.


Operating Budget Proposal (created by the author)

2017 Projected
Salaries $1,536,759
Overtime $58,377
Shift Differential $111,872
FICA $70,739
Pension $52,721
SUB-TOTAL $1,830,470
MRI Machine $150,000
Billing Software $50,000
SUB-TOTAL $200,000
Office Supplies $12,358
Patient Care Supplies $54,710
Travel & Training $10,232
Memberships $1,829
Equipment Repair $12,360
MRI Machine Maintenance $22,000
Rentals & Leases $3,111
Miscellaneous $544
SUB-TOTAL $117,147
TOTAL COSTS $2,147,618