ORMED MIS™ Decision Support for Healthcare

Finance Management - Healthcare

Cost Accounting and Budgeting: Sample Implementation Program

The implementation process is built into six major phases:

1 - Planning and Orientation
2 - Building of Master Files
3 - Building of Assumptions
4 - Analysis and Interpretation
5 - Flexible Budgeting Implementation
6 - Case Mix Implementation


1 - Planning and Orientation

The objective of the planning and orientation process is to develop a specific plan and insure that each party understands his/her role in the process.

Cost Accounting Training

Facility personnel responsible for the implementation of the system will receive training in cost accounting with specific emphasis on implementation and use. This training will consist of a three day seminar in Minneapolis, Minnesota and continuous training of personnel on-site. You will be able to send up to 3 staff members to the seminar in Minneapolis. All out-of-pocket expenses (such as lodging, air-fare, ground transportation and meals) are borne by the facility. The registration fee for the seminar is included in the license fee.

Facility Level Project Planning

Project planning is a joint effort between HDS and facility personnel. Specific goals of this step are to define facility specific objectives in implementing a cost accounting, flexible budgeting and case mix system; assign priorities to the objectives; develop detailed implementation schedules; and assign responsibilities.

Department Director Presentation

A one-to-two hour training session for department directors is held early in the system implementation. The purpose of the training is to explain basic cost accounting terms and concepts, define department directors' involvement in the project, and solicit their support.

Software Installation

This step is performed by HDS personnel. An explanation of steps performed is given to facility personnel.

2 - Build Master Files

Master files are used to define facility specific parameters into the system. Once entered, they require only periodic maintenance as operations change.

Establish Patient Types and Financial Classes

Management reports are reviewed to determine the degree of detail maintained by the facility with respect to statistical data (procedure volumes, case mix data, etc.). Appropriate master files are built describing patient types and financial classes for the system.

Review Organization and Classify Departments

Each department is classified with respect to the nature of its activities. These classifications include direct revenue producing (patient and non-patient) and indirect (fixed, variable, benefits and other). Additionally, a review is made to determine if revenue and associated expenses are captured in the appropriate departments (matching principle).

Determine Department Groups

Departments are grouped along lines of responsibility (e.g., vice presidents) or by similar functions (e.g., dietary and cafeteria). Department group descriptions are entered into the Ormed system.

Determine Indirect Department Groups

Indirect departments are grouped by like functions and similar cost behavior patterns. Indirect department group descriptions are entered into the Ormed system.

Select Preliminary Service Units for each Department

A review of activities of each direct and variable indirect department is made to determine a preliminary list of service units. This step will be the basis for subsequent discussions with department directors.

Download Procedure Descriptions & Frequencies

The procedure master description and master file will be downloaded from your patient billing system into an ASCII file format. This downloaded file will be used to upload procedure assumption files into the Ormed system.

Create Worksheets for Assignment of Service Units

Worksheets will be developed and printed utilizing the downloaded procedure data. Department directors will use these worksheets in assigning service units to each procedure.

Establish Expense Classes & Subclasses

Natural expense classification and sub-classifications will be established. Normally, the classification will follow the facility's chart of account numbering format with little change.

Download Account Descriptions and Balances

The chart of accounts and associated historical or budgeted account balances are downloaded from your general ledger system. This file is converted into a spreadsheet and will be used to upload account assumptions and standards back into the Ormed system.

3 - Build Assumption Files

Assumption files store specific operational data for the facility such as procedure volumes and account standards. Multiple sets of assumptions can be stored in the system. Assumptions can be changed individually or with the global assumption change utilities.

Assign Service Units or Standard Values to Procedures

Department directors are interviewed to complete the definition of department service units. The procedure worksheets are distributed and assistance is provided to the department directors in the assignment of service units to individual procedures. This phase requires the greatest amount of the department directors' time.

Determine Budgeted, Actual or Standard Procedure Volumes

Budgeted, actual or standard procedure volumes will be entered into the Ormed system. These volume assumptions can be generated by the department heads based on historical volumes, or built into the Ormed system using general parameters as determined by administration.

Load Procedure Files

Service Units and procedure volumes are entered into the procedure spreadsheets and uploaded into the Ormed program through the use of Ormed utilities. This is performed jointly by HDS and facility personnel.

Establish Labor Standards

We will review actual staffing patterns, management engineered standards (as available), and interview department directors to determine the cost behavior patterns of staffing with respect to workload. Upon completion of this step, each labor account will be expressed in terms of fixed hours, minimum hours and variable hours per each of the service units.

Establish Other Account Standards

All other accounts will be analyzed to determine fixed and variable components. The sources of information are contractual documents, pricing schedules, etc., combined with interviews of the department directors.

Upload Account Standards

The results of the account analyses are entered into the spreadsheet by facility personnel. The account master file and the account standards file are uploaded to the Ormed system using a special utility program.

Establish Transfer Unit Relationships

Analyses are performed to determine the relationships between the service units (transfer units) of the providing indirect departments (e.g., laundry, dietary, etc.) and each of the using departments. Transfer unit relationships are expressed in terms of fixed and variable units per using department service units (for example, 2.8 meals per patient day). The data is entered into the Ormed system by facility personnel.

Establish Department Allocation Tables

Manual allocation tables are established for each indirect department not utilizing a system-calculated ("automatic") allocation table. Medicare allocation tables (e.g., square feet, etc.) may be used as the basis for many of the manual tables, but Medicare tables must be reviewed for accuracy and modified and expanded as required.

Establish Service Unit Allocation Methods

The appropriate method of allocating fixed indirect costs for each direct and variable indirect department is determined by your staff and HDS consultants. This data is entered into the Ormed system. by facility personnel.

Perform Costing Functions

The actual costing functions are performed by the Ormed system. Time is allocated for unforeseen difficulties such as incomplete data files. After the costing is complete, a full set of Ormed management reports is printed for review.

4 - Analysis and Interpretation

Review Results

A thorough review of management reports will be performed jointly by HDS and facility personnel for reasonableness, and corrections will be made to the assumptions as required. Any required re-runs of reports will be accomplished during this analysis process.

Meet with Administration

A meeting will by conducted with hospital administrative personnel to present the reports and explain their uses as well as any findings we have noted during the project.

Meet with Department Directors

A meeting will be conducted with hospital department directors to present the reports and explain their uses as well as any findings we have noted during the project. HDS personnel will meet individually with any department directors requiring additional information or clarification concerning the reports.

5 - Implement Flexible Budgeting

We will work to train you in the use of flexible budgeting. Specifically, we will define the reports that will be downloaded on a monthly basis to serve as input into the Flexible Budgeting module. As a result, you will receive a monthly analysis showing variances for the current month and year-to-date at the department, account and service unit level.

6 - Implement Case Mix

We will train you in the use of the Case Mix module. We will insure that the interface between Med-Link and your patient billing system is working smoothly and accurately. You will be trained in how to retrieve summarized information at patient, payor, DRG, and doctor levels. As a result, you will have patient detail information presenting costs (fixed, variable, labor) for each charge item and product line information presenting costs, reimbursement and profitability.