About Our Budgeting Process
Budgeting is of paramount importance in a large health care system due to several critical factors. Revenue considerations play a pivotal role as health care systems rely on a unique payor mix (Medicaid, Medicare, private insurance, self-pay, etc.) and may also rely on a unique mix of other revenue sources such as direct Federal funding, grants, and investments. Operating costs are another vital aspect as health care systems encompass a wide range of expenses, including staff salaries and benefits, contract labor, facility maintenance, and medical/program supplies. Effective budgeting helps control these costs, ensuring that resources are allocated efficiently to support ongoing operations. Budgeting in a large health care system is essential for financial stability, resource allocation, and the ability to deliver high quality care while maintaining long-term sustainability. Southcentral Foundation uses a budgeting process that is closely tied with strategic planning and takes into account the entire organization, with everything geared towards supporting the Vision and Mission.
SCF’s first priority in budgeting is to project total revenue from all sources and to cover expenses and contributions to reserves with this expected revenue. If this proves especially challenging and/or nonrecurring priority initiatives are identified, the onetime shortfall may be funded from unrestricted net assets because SCF has built up substantial reserves over the years. SCF strives to ensure that employees are kept whole. Inflation is accounted for in both employee compensation and infrastructure maintenance. This includes employees who do not directly generate revenue but contribute to the functioning of the organization, such as improvement employees and workforce development employees. SCF considers these employees just as important as those who do directly generate revenue. SCF uses global budgeting, where providers are paid a fixed salary and revenue is not kept by specific departments corporatewide. Generally, departments or divisions are allocated a percentage of their annual increases or decreases in net patient services (third party) revenue budgets, but these allocations are generally subject to reallocation between departments within the division. So, most of this “revenue growth formula” revenue is used where it is needed most in the organization.
SCF places a very high priority in budgeting toward ensuring that the Nuka System of Care can continue to operate as the system SCF has developed in partnership with customer-owners. After revenue growth allocations and funding inflation, the goal is to fund as many increments of a “workload growth formula” as required based on actual growth in empanelment. Every 1,100 customer-owners that are added to the system is an increment. This formula ensures that SCF adds capacity to its customer-facing services, such as adding a primary care provider, registered nurses, Certified Medical Assistants, and everything that those employees need, including a small allocation to administrative support.
After applying the increases described above and ensuring that SCF has appropriate financial reserves, the last part of the budgeting process is allocating any funds left over on discretionary priorities. SCF always attempts to have at least some funding available for this discretionary allocation, even if in some years SCF is unable to fund or fully fund the workload growth formula allocations or has to limit inflation funding. Since revenue generating programs receive direct increases under the revenue growth formula and receive most of the funds under the workload growth formula, SCF generally prioritizes administrative or non-revenue generating programs for these discretionary budget allocations. Even so, revenue-generating programs can and do receive some allocations from this process. This is the money SCF uses for things such as improvement/innovation projects and infrastructure programs. For example, SCF’s Finance department or HR department might be allocated more money in this phase. All of SCF’s senior leaders consider what is best for the entire organization and not just their own divisions when creating budgets. The Vice President Leadership Team at SCF will advocate for money being spent outside their divisions if they believe that to be best for the whole organization.
For more information on budgeting at SCF, or any other aspect of SCF’s Nuka System of Care, feel free to contact the SCF Learning Institute.