hospital budgeting: capital expenditure budgets
TRANSCRIPT
CALIFORNIA STATE UNIVERSITY, NORTHRIDGE
HOSPITAL BUDGETING: CAPITAL
EXPENDITURE BUDGETS
A project submitted in partial satisfaction of the requirements for the degree of Master of Science in
Health Science, Health Administration
by
Ralph Goddard .Pollock --
June 1979
The project of Ralph Goddard Pollock is approved:
Goteti
Michael D. Sheean, M.B.A.
California State University, Northridge
ii
Dedicated with love
to my wife Rory for her love, understand
ing, and continued support.
to my mother whose love and encouragement
were never-ending.
to memories of close and dear relatives
whose devotion and dedication toward humanity
I will always remember.
iii
ACKNOWLEDGEMENTS
Sincere appreciation is extended to the many individ
uals who shared ideas and offered assistance, encourage
ment and support during the writing of my project.
Special thanks is extended to Dr. Janet Reagan, Com
mittee Chairman, whose interest, creativity and support
provided the initial direct and development of my project.
Many thanks to Dr. Krishnamurty and Dr. Sheean for
their continued guidance, support and helpful suggestions.
Last of all, my deepest appreciation to my wife Rory
and my mother for their continued support and patience
throughout the preparation of this project.
iv
TABLE OF CONTENTS
Page
DEDICATION ...
ACKNOWLEDGEMENTS
ABSTRACT
iii
iv
vii
Chapter
1
2
3 -
4
5
INTRODUCTION
BACKGROUND TOTAL BUDGETING PROGRAM •••. STATEMENT OF PROBLEM •.•..•••• SIGNIFICANCE OF PROBLEM •••.••
REVIEW OF LITERATURE
METHODS AND PROCEDURES
CAPITAL EXPENDITURE BUDGETING
ELEMENTS OF A STANDARD CAPITAL EXPENDITURE BUDGETING SYSTEM
Planning . • . . Coordinating . . Conununication . Cost Containment
DEVELOPING A HOSPITAL CAPITAL
1
1 2 4 6
7
10
12
12
12 12 13 13
EXPENDITURE BUDGETING SYSTEM 14
Scope of the Capital Expenditure Budget . • . . . . . . . . 14
Budget Calendar . . . . . . 15 Budget Hanual . . . . . . . . . 15 Budget Package . . . . . . . . . . . 16 Hospital Personnel and Departments
Involved . . . . . . . . . . . 16
CEDARS-SINAI MEDICAL CENTER . 18
v
,, '
Chapter
6
7
ORGANIZATION GOALS
RESULTS
CEDARS-SINAl MEDICAL CENTER'S PRESENT CAPITAL EXPENDITURE BUDGET
Page
18 19
21
PROCEDURE • • • • • • • • • • 21
Background 21
DESCRIPTION OF THE PRESENT PROCESS AT CEDARS-SINAl MEDICAL CENTER • • . 22
Structure of the Institution 22 Summary of Present System . . 26
CEDARS-SINAl MEDICAL CENTER'S CAPITAL EXPENDITURE BUDGET VS. A STANDARD CAPITAL EXPENDITURE BUDGET 28
Planning . . . . . . . . 28 Coordinating . . . . . . . . . . . . 29 Communicating . . . . . . 29 Cost Containment . . . . . . . . . . 30 Scope of the Capital Equipment
Budget . . . . . . . . . . . . . . 30 Budget Orientation Meetings . . . 31 Identifying the Capital Expenditure
Needs . . . . . . . . . . . . . 32 Analyzing the Capital Expenditure
Requests and Verification Process . . . . . . . . • . . . . 33
CONCLUSIONS 34
BIBLIOGRAPHY . . . . . . 37
Appendices
A SAMPLE BUDGET CALENDAR . . . . . . . 39
B ORGANIZATIONAL CHART . . . . . . . . . . . . 42
c CAPITAL EXPENDITURE BUDGET PACKAGE . 44
D ACTUAL CAPITAL EXPENDITURE SUMMARY SHEETS . . . . . . . . . . . . . 57
E FLOW CHART OF THE BUDGET PROCESS 62
vi
ABSTRACT
HOSPITAL BUDGETING: CAPITAL
EXPENDITURE BUDGETS
by
Ralph Goddard Pollock
Master of Science in Health Science,
Health Administration
This project presents a study of capital expenditure
budgeting procedures in the health care industry. Capital
expenditure budgeting philosophy in general will be dis
cussed and a few of the current problems and corresponding
solutions contained in current health care literature will
be addressed. This project also outlines the format for
establishing a capital expenditure budget for hospitals,
as well as describing and comparing the specific capital
expenditure budgeting system at Cedars-Sinai Medical Cen
ter to a standard capital expenditure budgeting system.
vii
Chapter 1
INTRODUCTION
BACKGROUND
In the early years of the twentieth century, hospitals
were not considered profit-making businesses and therefore
were not concerned with budgets due to philantropic contri
butions and other means of obtaining needed funds. In more
recent years, however, it has become apparent to increas
ingly large numbers of people that hospitals have many
problems which are identical with those of profit-making
businesses, even though hospitals still generally have
"better patient care'' as a primary objective. Hospitals
are faced with a hard dilemma--how to maintain high
standards of care while sustaining increased cost for
facilities, equipment, supplies, and service and simultane
ously experiencing increasingly severe constraints on
revenues. Hospitals also must deal with rising public
expectations of the availability and the quality of care
and of the delivery of modern medical services. This
milieu has created for hospitals an unprecedented need for
more rigorous financial planning.
With the passage of Public Law 92-603, section 234
(1972 Social Security Amendment), every hospital is
1
required to have an overall financial plan and budget.
Such a budget should be prepared under the direction of the
governing body of the hospital by a committee consisting of
representatives of the governing body, administrative staff
and the medical staff of the hospital. The overall plan
and budget is to be reviewed and updated at least annually
by the committee. P.L. 92-603 states that a hospital must
prepare and maintain:
1. An annual operating budget which records all anticipated income and expenses related to items which would, under generally accepted accounting principles, be considered income and expense items except that there will not be required, in connection with any budget, an item-by-item identification of the components of each type of anticipated expenditure of income.
2. A capital expenditure plan for at least a three-year period, including the year to which the operating budget is applicable. The plan should include and identify in detail each anticipated ~xpenditure in excess of $100,000 related to the acquisition of land; the improvement of land; buildings and equipment, and the replacement, modernization and expansion of buildings and equipment which would, under generally accepted accounting principles, be considered capital items. In addition, hospitals are required to review and update the capital expenditure plan at least annually (P.L. 92-603, Section 234-Z-2).
TOTAL BUDGETING PROGRAM
A budget is a comprehensive financial plan, expressed
in quantitative terms, through which all expenditures and
revenues from all sources may be forecast and controlled.
A budget is both a definite statement of corporate policy
2
from an external perspective and a potent management tool
from an internal perspective (Berman and Weeks,l976). The
tools of budgeting are highly useful to hospital adminis-
trators and department heads managing the scarce resources
of qualified personnel and money.
The total budget program contains three major budgets:
l. The operating budget.
2. The cash budget.
3. The plant and equipment or capital expenditure budget (American Hospital Association, 19 71) .
The operating budget is a term used to designate three
separate parts of the overall budget plan:
l. The statistical budget.
2. The expense budget.
3. The revenue budget.
The term statistical budget ~s not commonly used by
many authors, but according to the American Hospital
Association, and for this project, it will be viewed as an
essential part of the operating budget. Frequently the
term operating budget is used as a synonym for expense
budget. The hospital administration must be concerned with
hospital expenses, revenues generated from hospital ser-
vices and the volume of services to be provided. The
operating budget is usually a projection for a 12-month
period.
The cash budget is an estimate of future cash inflows
3
and outflows. It consists of the beginning cash balance,
estimates of cash. receipts and disbursements and estimated
ending balances for appropriate time intervals. The total
forecast period covered should correspond to that of the
operating budget. The cash budget should be prepared by
estimating cash collections from all sources and matching
these collections with the cash disbursements necessary to
meet obligations promptly as they come due. This budget is
of prime importance for cash planning and control.
The capital expenditure budget consists of estimates
of the costs and determination of sources of funds for
replacements, improvements, and additions in the plant and
equipment. This budget also should schedule the retirement
of fixed assets, including an estimate of salvage proceeds.
A minimum span of three years is required, but it is
preferable to cover the entire pe~iod of the long-range
plan.
A properly executed budgetary plan is one of the use
ful tools of management and can lead to improved financial
results and a sound financial position. In actuality, a
hospital's budget is its primary statement of operating
policy and an essential part of the management process.
STATEMENT OF PROBLEM
Since the advent of Medicare and more recently, the
furor over increasing costs of health care, the need to
4
substantiate and justify hospital costs is becoming more
pressing every day. A complete budgetary system is essen
tial for all hospitals.
Until recently, many hospitals attempted to operate
without a complete budget system. Others attempted to pre
pare estimates of needs without consulting the persons most
necessary to a successful budget process--department heads
and service heads. In many instances, departmental budgets
were prepared by the controller without participation by
department personnel. In these cases, it was almost impos
sible to gain the interest, enthusiasm and support of the
people most necessary to ensure proper execution of the
budget. For example, Charles Pendola (1964) surveyed the
budgeting methods three hospitals used to cope with the
problem of rising costs. Of the three hospitals studied,
only one (St. Simon Hospital) exh~bited an effective bud
getary system.
In addition, according to Public Law 92-603, as well
as other sources like the American Hospital Association and
the Hospital Financial Management Association, budgets are
absolute necessities for those institutions participating
in Medicare.
This project will examine the importance and necessity
for hospitals to establish a capital expenditure budget, as
part of a complete budget system. It will also describe
and compare the specific capital expenditure budgeting
5
system at Cedars-Sinai Medical Center (CSMC) to a standard
capital expenditure budgeting system.
SIGNIFICANCE OF PROBLEM
Rapidly rising costs coupled with the failure to ade
quately satisfy a broad range of consumer needs has
resulted in public criticism and governmental regulation of
the hospital industry. Today, the hospital is confronted
by ever-increasing demands for both traditional and new
services. Simultaneously, the resources necessary to
satisfy these growing community and medical staff demands
are becoming scarce and more costly. In the past, the
hospital industry has consumed large amounts of labor,
technology and capital. The supply of these resources can
no longer keep pace with the demands for them. As a result,
prices have risen steadily. Effective use of resources and
efficient operations are essential to assure the fiscal
viability of the institution and the maximum value for
patient care expenditures. A capital expenditure budget
is both a necessary and useful tool to assist in the allo
cation of capital resources. As the cost and scarcity of
capital funds continues to climb at an unprecedented rate,
the value of increasingly sophisticated capital budgeting
systems becomes evident (Neal, 1976).
6
Chapter 2
REVIEW OF LITERATURE
Since hospital budgeting as a tool of hospital manage
ment is a fairly new process, some of the pertinent litera
ture will now be examined. Unfortunately, there are very
few articles and books written on capital expenditure bud
geting directly relating to health care organizations.
Therefore, it is the purpose of this chapter to summarize
and highlight a few of the major works reviewed during the
investigation.
R. Neal Gilbert (1976) in his article "Four-Step
Capital Budgeting," presented a four-stage approach to
capital budgeting. This approach-ensures that the capital
resources of the health care industry are allocated in the
most efficient and effective manner possible--eonsistent
with the delivery of high-quality health care and in con
formity with the specifications of Section 234 of Public
Law 92-603. The four stages are the description, verifica
tion, evaluation and decision processes. Mr. Gilbert felt
a capital budget is both a necessary and useful tool to
assist in the allocation of capital resources. He further
points out that, as the cost and scarcity of capital funds
continue to rise, the value of increasingly sophisticated
7
capital budgeting systems becomes evident.
William Gotcher and Denis Raihall (1973) , in their
article ''Establish Priorities, Price Guidelines and Respon
sibilities to Make an Efficient Capital Budget," felt that
the principle objective of a capital budgeting policy in a
health care organization is to provide the best possible
service to the patient, while improving the welfare of the
total organization, in the form of financial returns,
improved services and improved conditions. The authors
pointed out that the total capital expenditure requests
from various departments must be considered and ranked
according to appropriate priorities.
Richard Wacht (1978) , in his article "A Capital Budget
Planning Model for Non-Profit Hospitals," discussed the
need to plan, coordinate and control capital expenditure
programs in hospitals. He described a model which is an
essential element in the capital budgeting process for
non-profit institutions. The model is a potentially useful
tool for planning and control. Its ultimate objective is
to assure hospital administrators to plan incremental
institutional expansion, including the construction of new
facilities and their subsequent operation on a financially
viable basis.
Much of the material presented in these articles did
not deal specifically with the methods by which hospitals
develop, analyze and fund their specific capital expenditure
8
requirements. The material presented was arranged to
acquaint the reader with a brief perspective about capital
expenditure budgeting in health care organizations, within
which specific discussions in subsequent chapters concern
ing a standard capital expenditure budgeting system and the
capital expenditure budgeting system at CSMC will be dis
cussed.
9
Chapter 3
METHODS AND PROCEDURES
The primary methods and procedures for collecting
information on capital expenditure budgets were obtained
from an extensive literature review, as well as actual
participation and observation of the process at Cedars-
Sinai Medical Center.
1. From literature review:
a. Journals and reference books, current articles and books on hospital budgeting, capital expenditure budgets, as well as budgets in general will be examined.
b. Publications supplied from the California Hospital Association and American Hospital Association.
2. From Cedars-Sinai Medical Center:
a. Interviews with one of the financial analysts in the Budget and Reimbursement Department at Cedars-Sinai Medical Center. Eight interviews were held over a period of three months, during which time the actual capital expenditure budget at Cedars-Sinai Medical Center was being prepared.
b. Review of pertinent documents, including Cedars-Sinai Medical Center's capital expenditure budget package.
c. Observations and active participation for a three-month period in the actual budgetary process will be provided under
10
the supervision of the 7th and 8th floor Assistant Administrator.
d. Actual participation in one of the budget workshops.
11 ' '
Planning
Chapter 4
CAPITAL EXPENDITURE BUDGETING
ELEMENTS OF A STANDARD CAPITAL EXPENDITURE BUDGETING SYSTEM
A formalized capital expenditure budgeting system
provides a format for determining the capital demands of
all departments within the hospital and gives precedence to
those demands which meet a predetermined set of criteria.
A capital expenditure budgeting system aids planning by
encouraging department heads to think about capital needs
on a recurring basis. The departments, once given the
departmental and institutional goals, are asked to list
those capital expenditures which are necessary to support
their programs. The data from the capital request forms
can be abstracted and stored for future use in planning
operational and investment activity.
A standard capital expenditure budgeting system is an
integrated planning process which should be used for both
long- and short-range (annual) capital investments.
Coordinating
By having all departments within a health care insti-
tution submit their capital requests to one appropriating
12
body at the same time helps in coordinating all the capital
expenditure demands of the entire institution. The appro
priate mechanism then functions so as to coordinate the
capital requests of all departments with each other and
with the available sources of capital funds. For example,
once the capital budgets for each department have been pre
pared, usually the Budget Committee will review the esti
mates in terms of the plans established and coordinate the
various parts from all interacting departments. The Budget
Director is then generally responsible for the coordination
of all budget activities, including processing and summar
izing the detailed estimates into the master budget docu
ments.
Communication
All department heads must be kept informed of antici
pated changes in services and programs in advance of the
actual change. Better communication channels help
encourage understanding of goals and objectives, both on
the department level and administrative level.
Cost Containment
A standard capital expenditure budgeting system helps
encourage department heads to justify their capital demands
in terms of improving the health of the community that the
hospital serves and in promoting cost consciousness through
out the organization. The department heads may reconsider
13
requesting capital demands that are not really justified.
By becoming more aware of their needs, they also help to
reduce duplication of equipment.
DEVELOPING A HOSPITAL CAPITAL EXPENDITURE BUDGETING SYSTEM
Scope of the Capital Expenditure Budget
In the early development of a hospital capital expen-
diture budgeting system, it is necessary to determine the
scope of capital activities which will be subject to the
annual budgeting process. Decisions as to whether the
budget will cover only annual or long-range capital expen-
ditures must be included in the budgeting process. Deter-
minations as to whether the budget will cover only depart-
mental renovations, expansion or equipment must also be
determined.
The time span may range from.one to three years with
annual revision and extension. Due to current government
regulations, hospitals are required to develop a three-year
plan for capital expenditures.
All capital activities should be subject to a capital
expenditure budgeting process. There are basically three
groups of capital expenditures:
1. Small capital expenditures, i.e., typewriters, office furniture, etc., should be subject to an annual departmental capital allocation process with primary control at the assistant administrator level.
14
2. Intermediate capital expenditures for equipment and minor plant renovations should be subject to an annual capital budgeting process, with primary control at the assistant administrator level.
3. Large capital expenditures for major construction and hospital expansion programs should be subject to a sophisticated planning mechanism consisting of detailed review and evaluation by the Long Range Planning Committee, the Finance Committee, the Management Committee and other committees. In addition, expenditures of this nature may be subject to additional review by the local Hospital Council and Health Planning Agency.
Budget Calendar
A budget calendar should be prepared which puts the
entire capital expenditure budgeting process on a fixed
time table. The budget calendar should specify which
steps in the capital expenditure budgeting process should
be completed at which time. A sample budget calendar has
been included in Appendix A.
Budget Manual
The contents of the budget manual should include the
scope and purpose of the budget program and the authority,
duties and responsibilities of department heads for the
preparation procedures. A budget manual includes detailed
instructions and forms for the preparation and submission
of budget schedules. It should also outline the procedures
for preparation, review and revision of the budget, as well
as the period covered and the procedures for approval. The
budget manual should be distributed to each department at
15
the beginning of the capital expenditure budgeting process.
Budget Package
The budget package should be prepared by the account-
ing department or financial analysis department. It should
be distributed to all participants in the budgeting system
at the start of the budgeting process and should contain:
1. The budget calendar.
2. The budget manual.
3. A statement of the hospital's goals and objectives for the year.
4. The capital asset planning forms, institutional statistics and data necessary for making accurate forecasts of capital activity.
5. Institutional assumptions, volume statistics, revenue forecasts and manpower forecasts.
6. A list of all departments and personnel available to assist the requesting department in the preparation of the capital asset planning form.
At the start of the budgeting period, the budget
officer should distribute the entire budget package. The
budget package may be distributed in one general meeting
of all department heads, sent through the mail to each
department or handed out at a series of budget workshops
for all department heads.
Hospital Personnel and Departments Involved
Department heads are responsible for requesting fund-
ing for equipment and physical facilities to maintain or
16
expand their own departments. The expansion or renovation
of an entire hospital wing or similar activities are plan-
ned for by an upper administrative (management) group.
Capital expenditure planning must be carried out both on
the department level and management level.
Department heads are the primary participants in the
annual capital expenditure budgeting procedure, but review
and involvement by other individuals and departments is
also required. The following is a list of some of the
participants in the capital expenditure budgeting process:
1. Department chairmen, directors and managers.
2. Assistant administrators.
3. A capital appropriations committee that reviews capital requests and whose members include representatives from administration, the clinical staff, the director of the physical facilities department, the controller's office and the governing body.
4. A medical review committee that aids the capital appropriations committee with advice. The medical review committee includes representatives from the clinical departments.
5. Purchasing Department.
6. Personnel Department.
7. Budget Officer.
8. Financial Administrator.
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Chapter 5
CEDARS-SINAI MEDICAL CENTER
ORGANIZATION
Cedars-Sinai was created in 1961, with the merger of
Cedars of Lebanon and Mount Sinai Hospitals, to provide
better professional, educational and financial resources
than either hospital could deliver independently. A decade
later, the first phase of construction of the total Cedars
Sinai Medical Center complex started with the Thalians
Community Mental Health Center, located at the 24-acre site
of the then-present Mount Sinai Hospital and Halper Build
ing. The mental health center was dedicated in June, 1973.
In the meantime, groundbreaking ceremonies in November,
1972, heralded the start of construction of the more than
$100 million Cedars-Sinai Medical Center. Under construc
tion for three years and four months, the first patients
were admitted to the new structure on April 3, 1976 and by
mid-July, all areas, including the 24-hour emergency care
unit, were operational ("Cedars-Sinai Medical Center: A
Progress Report to the Community").
Cedars-Sinai Medical Center stands today as the larg
est voluntary non-profit medical center in the West. The
eight-story structure consists of a central professional
18
~~ .
services tower to which twin patient wings are attached at
either end. The Medical Center has 1,120 beds. A Board
of Directors governs the activities of the hospital. The
clinical staff is organized by department. There are 15
departmental chairmen who formulate medical policies,
which are subject to the approval of the Executive Director
and the Board of Directors ("Cedars-Sinai Medical Center:
A Progress Report to the Community") .
GOALS
It is the goal of the Medical Center, within the
legal limits set forth by local, state and federal regula-
tory bodies, and under the terms of its constitution and
by-laws to:
1. Provide the highest standards of patient care which medical science, technical skills and an outstanding medical staff will make possible.
2. Provide medical care and services to the acutely ill, the convalescent, people with chronic illnesses, custodial patients, including terminal cases and to people with mental illnesses.
3. Develop research and teaching as basic function of a first-class hospital and medical center as far as possible.
4. Maintain a Board of Directors with wide community representation and with two-way lines of communication to its auxiliary and affiliated groups.
5. Maintain medical staffs so organized that the duties of all members to the hospital shall be determined in a democratic manner.
19
6. Acquire and receive by purchase, gift, bequest, or otherwise, lands, buildings, furniture and other property to be devoted to hospital and other kindred purposes ("Cedars-Sinai Medical Center: A Progress Report to the Community") .
20
Chapter 6
RESULTS
CEDARS-SINAl MEDICAL CENTER'S PRESENT CAPITAL EXPENDITURE BUDGET PROCEDURE
Background
When the present administration opened CSMC three
years ago, a formal plant and equipment budgeting mechanism
did not exist. Capital expenditure decisions were made on
an ad hoc basis. In order to make a capital expenditure, a
department head submitted a purchase requisition to Admin-
istration. The administrator of the hospital reviewed all
requisitions and requested department heads to justify, in
writing, those items which initial1y appeared to be valid.
If sufficient monies were available in the appropriate fund,
then the administrator would approve the requisition and
the expenditure was made.
In 1978, Cedars-Sinai realized that if plant and equip-
ment expenditures were to be made in a manner which yielded
the greatest benefit per dollar of expenditure, then this
ad hoc approach to capital expenditure budgeting must be
replaced. A systematic budgeting procedure which allowed
all requests to be reviewed simultaneously was needed.
Also, Cedars-Sinai needed a new capital expenditure
21
budgeting system to comply with Federal Government regula-
tions. Therefore, in November, 1978, a formalized capital
expenditure budgeting system was initially implemented,
which allowed for all capital expenditure requests to be
analyzed both in terms of absolute and relative merit.
DESCRIPTION OF THE PRESENT PROCESS AT CEDARS-SINAl MEDICAL CENTER
Cedars-Sinai Medical Center's present system is in its
first year. The budgeting staff at CSMC reviewed the
California Hospital Association's Budget Manual and the
capital expenditure budgeting system presently in use at
Mount Sinai Medical Center in New York. From these two
sources, the present capital expenditure budgeting system
at CSMC was designed.
Structure of the Institution
In order for a budget or management system to be
effective, the structure of the institution must be under-
stood. At Cedars-Sinai Medical Center, the size of the
institution and the decentralized administration philosophy
make the hierarchy and flow of decision-making difficult to
follow. To further complicate matters, the medical center
is a merger of two hospitals, Cedars of Lebanon and Mount
Sinai (see Appendix B) .
The budget process was developed in the Budget and
Reimbursement Department which is part of the Finance
22
. Department. The organization chart for the Department of
Finance is outlined below.
DIRECTOR OF FINANCE
Associate Director of
Finance
Associate Director of
Finance
Data Processing
Associate Director of
Finance
Patient Accounting
I Associate
Director of Finance
I
Within the Budget section, the organization chart is out-
lined below.
Payroll Budget
Non-Wage Expense Budget
BUDGET MANAGER
Revenue Budget
Capital Budget
I Financial Analyst
Budget Process. The budget process at CSMC consists
of the following steps:
l. Capital expenditure budgeting packages are distributed by the Budget and Reimbursement Department to the cost centers during the last week in November. Cedars-Sinai Medical Center's fiscal year is from April l, 1979 to March 31, 1980. The hospital has five months to prepare adequately a capital expenditure budget. The budget package consists of the following components:
23
a. Introductory Memo.
b. Preparation and Definitions.
c. Instructions for Equipment Requests (corresponds to capital budget Form 1).
d. Instructions for Renovations Requests (corresponds to capital budget Form 2)
e. Capital Expenditure Request Form.
f. Capital Renovation Form.
g. Capital Expenditure Justification Form.
h. Capital Renovation Justification Form (See Appendix C) .
2. Between November 27 and December 22, Budget Workshops for department heads are held by the Budget and Reimbursement Department to review detailed instructions on the capital expenditure budget.
3. Request Form Records with (1) intention to formally request equipm~nt or renovations, and (2) the assurance that the head of the department, responsible associate administrator and medical staff are aware of the costs and quantities that are requested must all be fully completed and signed. All requests for equipment items and renovations must be supported by justification forms.
4. All request and justification forms with the appropriate approvals and review are returned to the Budget and Reimbursement Department · within 20 working days after the scheduled workshop.
5. The Budget and Reimbursement Department then goes over all request forms checking to make sure:
a. The forms are filled out correctly.
b. All prices for equipment and renovations are entered.
c. Proper codes are listed.
24
d. No duplication of equipment is entered.
e. Proper signatures were obtained.
6. All request forms including ones that are missing current prices (due to departments not knowing actual figures) are then sent to the Purchasing or Plant Operations Departments for price review.
7. Once the Purchasing and Plant Operations Departments enter any missing prices on equipment and/or renovations, then the request forms are again returned to the Budget and Reimbursement Department for a second review.
8. The Budget and Reimbursement Department then codes all the data in order to input the data into CSMC's data base. Cedars-Sinai Medical Center has its own in-house data processing capabilities. Cedars-Sinai Medical Center's computer analyzes all the data according to four sections (see Appendix D for examples) :
a. Hospital Summary - Lists all the responsible persons (Hospital Administrator and Associate Administrators) and itemizes their total departments' capital expenditures according to priority.
b. Associate Administrator Summary - Itemizes each Associate Administrator's individual departments with corresponding capital expenditures according to priorities.
c. Department Sumn1ary - Is a list of each department's cost centers' capital expenditures by priority.
d. Cost Center Detail Summary Is a list of the equipment requested by each cost center according to priority.
9. The computerized department summaries are then sent to each department head for final review. He reviews them for errors or any changes he may want to enter.
10. The Budget and Reimbursement Department again reviews the department summaries and final
25
computer printout summary sheets are run according to the above four sections in number eight.
11. The complete capital expenditure budget, including all four sections, is assembled into book form by one of the Financial Analysts and given to the Associate Director of the Finance Department.
12. The Associate Director of the Finance Depart-. ment delivers the completed book to the Hospital Administrator (sometime at the end of April) for his review and final determination of what the capital expenditure budgets for 1980, 1981 and 1982 will be (see Flow Chart of the Budget Process in Appendix E) .
If other equipment or renovations are needed during the
year, the department heads· complete a purchase requisition
with justification attached and submit it to the Adminis-
trator for his review and approval. This procedure is
used to request equipment and renovation needs that are
not anticipated during the year.
Summary of Present System
Cedars-Sinai Medical Center appears to utilize a
fairly sophisticated systematic appro~ch toward generating,
analyzing, ranking and funding capital expenditures. The
process is planned and executed far in advance (five
months) to provide for the year-to-year requirements
generated at the department head level.
Cedars-Sinai Medical Center's capital expenditure
budgeting system provides the mechanics for generating the
capital equipment needs of the hospital and for communicat
ing these needs to the decision-making authority. ·The
26
system also provides a vehicle for developing alternate
choices to satisfy the needs. It further provides for the
systematic analysis of the alternative proposals in terms
of benefits vs. costs.
The new system benefits the Finance Department,
Administration, and department heads in planning, as well
as complying with requirements of the 1972 amendment to the
Social Security Act.
It further allows for monthly cash flow planning and
anticipates what will be needed in the next several years.
The system can be used for. cost benefit analysis on an
individual basis, but the overall goal is to monitor costs
on a cost center, department and hospital level. The
capital expenditure budget system was also designed to be
compatible with other information systems used in the
hospital.
Cedars-Sinai Medical Center's capital expenditure
budget system is of additional importance in the Certifi
cate of Need process. The Certificate of Need application
includes questions on financing of equipment and construc
tion related to the proposed project. A well-documented
and detailed capital expenditure budgeting system makes
the application process much easier to estimate arid docu
ment costs.
In conclusion, the present capital expenditure budget
ing system at CSMC is structured, explicit and it is
27
designed to encourage departmental leaders to play a sub-
stantial role in the capital budgeting process.
CEDARS-SINAl MEDICAL CENTER'S CAPITAL EXPENDITURE BUDGET VS. A STANDARD
CAPITAL EXPENDITURE BUDGET
Through an extensive literature search, the character-
istics of a standard hospital capital expenditure budgeting
system were identified. With these characteristics in
mind, a careful analysis of the capital expenditure budget-
ing system currently in use at CSMC was made (refer to
pages 12-17).
Planning
Cedars-Sinai Medical Center's capital expenditure
budget is a major tool to aid in short-term and long-term
planning for capital needs. Cedars-Sinai Medical Center
has developed a new capital expenditure budgeting system
that assures that the equipment and facilities needed to
support the overall hospital and departmental programs are
available at the proper time. In this matter, cash outlays
are controlled by a planned program of development. The
capital expenditure budgeting system also facilitates the
establishment of priorities for asset acquisition and pro-
ject selection.
Cedars-Sinai Medical Center allows adequate time (five
months) for the preparation and submission of the capital
expenditure budget for final approvals. Cedars-Sinai
28
Medical Center also complies with current government regu
lations that require hospitals to have a three-year plan
for capital expenditures.
Coordinating
Cedars-Sinai Medical Center's capital expenditure
budget aids hospital management in coordinating the alloca
tion of resources among major expenditure areas.· All
departmental capital expenditure requests at CSMC are sub
mitted to the Budget and Reimbursement Department at the
same time. This helps in coordinating all the capital
expenditure demands of the entire hospital. Cedars-Sinai
Medical Center's new capital expenditure budget system
then coordinates the capital requests of all departments
with each other and with the available sources of capital
funds.
Communicating
Good communications and understanding of the capital
expenditure budget process prevents many problems and
resistance to budgeting as well as enhances the resulting
budget. At CSMC, the capital expenditure budget workshops
help in establishing good communication lines between
department heads, Budget and Reimbursement Department,
Purchasing and Plant Operations Departments, as well as
other departments. The medical staff at CSMC are actively
involved in the capital expenditure budgeting system and
29
gained a better understanding of-the system. They are also
able to see why certain pieces of equipment cannot always
be obtained.
Cost Containment
The department heads at CSMC have to justify all their
capital demands. This additional process helps department
heads become more aware of their needs, reduces duplica
tion and promotes cost consciousness throughout the hospi
tal.
Scope of the Capital Equipment Budget
Cedars-Sinai Medical Center's new capital expenditure
budgeting process covers both short-term (one year) and
long-term (three years) capital expenditures. Cedars
Sinai Medical Center's medical and office equipment fell
into three categories for a6counting purposes:
The first category, minor movable, is defined as
items that can be readily moved from one location to
another. Wastebaskets, glassware and surgical equipment
are examples of minor movable. Because of the low cost and
short useful life of such items, this equipment is usually
expensed and entered into the non-wage expense budget
rather than the capital budget.
The second category of equipment is major movable,
which is defined as equipment that can be moved from one
location to another and has a purchase price greater than
30
$200, and a useful life of more than one year. This may
include items such as calculators, patient charts or
radiology apparatus. The cost to be capitalized should
include installation costs, commissions, freight charges
and taxes.
The final category of equipment is fixed equipment.
Items in this category cannot be moved from one location
to another and constitute a structural component of the
hospital. The asset is usually depreciated over a very
long, useful life. Examples of fixed equipment include
the mechanical system, elevators and refrigeration
machinery. In summary, only fixed equipment and major
movable equipment are included in the capital expenditure
budgeting system at CSMC.
Budget Orientation Meetings
Budgeting orientation meetings are a series of meet
ings designed to orient, train, motivate and distribute
budget materials to the department heads and others
involved in the budget preparation process. Cedars-Sinai
Medical Center's Budget and Reimbu:r·sement Department pre
sents a series of budget workshops for all department
heads. Each page of the capital expenditure budget package
is reviewed with all input forms used presented on an over
head projector as a visual aid. The presentation explains:
the need to have a budget, planning and legal requirements,
what input was expected from each department hGad, and
31
question and answer periods. The meetings are successful
and the overall advantage of accomplishing a workable capi
tal expenditure budgeting system is achieved.
Identifying the Capital Expenditure Needs
Cedars-Sinai Medical Center's capital expenditure
budgeting system appears to be fairly well structured in
terms of identifying equipment and renovation requirements
at the department head and cost center level. Cedars
Sinai Medical Center's system spells out specific pro
cedures for communicating the needs, for documenting cor
responding justifications, and for establishing user
priorities. The system also provides for identifying
replacement equipment proposals. This disecting of the
equipment investment program seems to be a sound proposi
tion, as it introduces a logical division in the decision
making process between perpetuating existing operations
and instituting new ones.
The importance of the department heads' involvement
in identifying capital asset needs cannot be overempha
sized. Cedars-Sinai Medical Center's departmental objec
tives primarily stem from programs and plans prepared by
the department head. The department heads can best iden
tify the participating capital asset needs generated by
these objectives and define the priority of those needs.
32
Analyzing the Capital Expenditure Requests and Verification Process
Cedars-Sinai Medical Center employs a formal system
of review for its capital expenditures. Each request sub-
mitted must be approved by the department head, Associate
Administrator and riledical Staff Review Committee. The
process is designed to corroborate the information given in
the Capital Equipment Request Form. This is the control
mechanism which acts to prevent unrealistic claims of
benefits and excessive understatements of costs. Only
equipment and renovations that are truly needed and justi-
fied will be evaluated.
All requests that are approved and then reviewed by
the Budget and Reimbursement Department are then sent to
the Purchasing and Plant Operations Department for verifi-
cation of purchase costs, lease (rent costs and supply
costs) and contractor's costs. The Purchasing and Plant
Operations Departments participating in the capital
expenditure budgeting process as an advisor (pricing of
equipment, renovations and alternatives) is essential to a
reliable capital expenditure budget system.
Cedars-Sinai Medical Center's new capital expenditure
budgeting system includes all the elements of a standard
capital expenditure budgeting system. The system is
structured, explicit and complete. The capital expenditure
budgeting system now in operation at CSMC could be used in
any size hospital in the USA today.
33
Chapter 7
CONCLUSIONS
The capital expenditure budgeting systems utilized by
hospitals vary extensively from one hospital to another.
The capital expenditure budgeting system presently in use
at CSMC has many advantages:
1. It complies with the requirements in Public Law 92-603 (1972 Social Security Amendment).
2. It provides information which enables participants to choose between alternate courses of action. It further provides a relative evaluation of departmental needs and departmental performance and it is useful in setting sub-objectives which are related directly to the primary objectives of the institution.
3. The system provides both quantitative and qualitative information to all of the participants in the decision-making process. This information flow provides direction to those involved in objective setting and strategy selection.
4. It motivates participants to work within the constraints of the capital budgeting system rather than to circumvent the formal decisionmaking process.
5. It recognizes the multiple participants in the budgeting process and removes the allocation process from th~ single dominant decision-maker. It encourages a participative philosophy and it is useful in reconciling conflicts over resource allocation.
6. It facilitates decentralization by enabling the associate administrators to monitor the
34
capital activity in their respective responsibility centers.
7. It recognizes qualitative factors which bear heavily on the delivery of high-quality medical care and it presents a force which prevents the primary goals of the hospital from being easily displaced by wholly economic considerations.
8. It is a vehicle which provides feedback and allows for ongoing evaluation. Rejected capital requests are returned to requesting departments with reasons for the rejection explained in detail.
9. It specifies the constraints within which decisions must be made, thereby reducing the amount of wasted effort in developing capital programs which lie beyond the institution's capabilities.
10. It provides quantitative information useful in both long- and short-term planning.
11. It discourages politicizing and power bargaining by specifying criteria for decision making.
Cedars-Sinai Medical Center's new capital expenditure
budgeting system was designed with the needs of the hospi-
tal and its staff in mind. Department head and medical
staff cooperation and involvement is critical to effective
hospital budgeting and should be continued. The new system
also helps to ensure that the capital resources of the
hospital are allocated in the most efficient and effective
manner possible consistent with the delivery of high-
quality health care.
In conclusion, CSMC's new capital expenditure budget-
ing system is a very sophisticated, complete, structured
35
and thorough system that helps management satisfy its
capital expenditure demands in a systematic, rational,
objective and manageable manner.
36
BIBLIOGRAPHY
American Hospital Association. Budgeting Procedures for Hospitals. Chicago: American Hospital Association, 1971.
American Hospital Association. Accounting Manual for LongTerm Care Institutions. Chicago: American Hospital Association, 1971.
Anthony, Robert N., and Herzlinger, Regina E. Management Control in Non-Profit Organizations. Homewood, Illinois: Richard D. Irwin, 1975.
Berkopec. Robert N. 11 Good Budgeting is the Key to Coping with Phase II. 11 Hospital Financial Management (November 1972) :56-67.
Berman, Howard J., and ~\Teeks, Lewis E. Financial. Management of Hospitals. 3rd ed.; Ann Arbor: Health Administration Press, 1976.
Bowman, Richard W. 11 Hospitals Need New Budgeting Systems ... Modern Healthcare (August 1977) :61-62 .
.. Cedars-Sinai Medical Center: A Progress Report to the Community ...
Cleverly, William 0. Financial Management of Health Care Facilities. Maryland: Aspen Systems Corporation, 1976.
Cluley, Carson H. 11 Is Your Hospital's Budget Good Enough for Management? 11 Hospital Financial Management (September 1970) :18-21.
Gass, Anthony D., and Pavony, William H. 11 How Budgeting Can Help the Hospital Achieve Its Goals." Hospital Financial Management (December 1970) :3-6.
Gilbert, R. Neal. "Four-Step Capital Budgeting ... Hospital Financial Management (June 1976) :48-60.
Gotcher, J. William and Raihall, Denis T. 11 Established Priorities, Price Guidelines, and Responsibilities to
37
Make an Efficient Capital Budget." Modern Hospital (December 1973) :62-64.
Hay, Leon E. Budgeting and Cost Analysis for Hospital Management. 2nd ed.; Bloomington: Pressler Publications, 1963.
Howe, Robert L. "A Practical Approach to Budgeting." Hospital Financial Management (December 1970) :7-10.
Kovner, Anthony R., and Lusk, Edward J. "Effective Hospital Budgeting." Hospital Administration (Fall 1973): 44-64.
MacLeod, Gordon K. Health Care Capital: Competition and Control. Cambridge, Massachusetts: Ballinger Publishing Co., 1978.
Mehta, Nitin H., and Maher, Donald J. Hospital Accounting Systems and Controls. New Jersey: Prentice-Hall, Inc., 1977.
Moss, Arthur B. Hospital Policy Decisions: Process and Action. New York: G. P. Putnam's Sons, 1966.
Pendola, Charles J. Hospital Budgeting: A Case Study Approach. Hicksville, New York: Exposition Press, 1976.
Seawell, L. Vann. Hospital Financial Accounting: Theory and Practice. Chicago: Hosp_i tal Financial Management Association, 1975.
Silvers, John Byron, and Prahalad, C. K. Financial Management of Health Institutions. Flushing, New York: Spectrum Publications, Inc., 1975.
Wacht, Richard F. "A Capital Budget Planning Model for Nonprofit Hospitals." Inquiry 15 (September 1978): 234-245.
Walters, James E., and Watson, Hugh J. "Building a Budget: Three Generations." Hospital Financial Management (September 1977) :10-17.
Witalis, Roger. "The State of the Budgeting Art: Survey Shows Many Hospitals are Not Prepared to Comply with New Law." !>·1odern Hospital (December 1973) :53-55.
38
APPENDIX A
SAMPLE BUDGET CALENDAR
APPENDIX A
SAMPLE BUDGET CALENDAR
The following is the budget time table for fiscal
1979-1980. Meeting the time table is contingent upon
cooperation from all departments. For this 1979-1980
budget, the Finance Department will work closely with
department heads to develop budget rationale and data
prior to administrative and medical staff review and
approval.
Budget Planning
8-15-78 to 11-15-78
Units of Service
10-15-78 to 11-1-78
11-1-78 to 11-17-78
11-20-78 to 12-8-78
12-11-78 to 12-15-78
Budget Workshops
11-27-78 to 12-8-78
Develop detail tasks, modify existing budget system, and develop the budget plan.
To be completed by those departments with units of service.
Accumulate and analyze historical patient.days and units of service.
Finalize patient days projections and outpatient visits.
Projection of units of service by departments.
Analysis and review of units of service with Administration.
Budget workshops for department heads, reviewing detailed instructions on the wage, non-wage and capital budgets.
Non-revenue producing departments will have their workshops first. Department heads are encouraged to
40
Budget Input
12-26-78 to 1-11-79
Budget Review
1-10-79 to 2-1-79
1-29-79 to 2-16-79
bring any of their staff involved in the budget process to the workshop.
Budget input due in Budget and Reimbursement Department, Room 2802. All departments will have 20 working days from the date of their workshop to return their input.
Input of the wage, non-wage-and capital budgets will be assembled and returned to each department for their review.
Analysis, review and revision of the wage, non-wage and capital budgets.
41
APPENDIX B
ORGANIZATIONAL CHART
®' CEDARS-SI!-lAI MEDICAL CENTER
leAH 1 /?VUAA/J'FU 7
OHGMJIZATION CIIAflT
OFFICE OF THE ADMIN:STRJHOR llllf
"?HYS!(.IAII 0£PAnTI.I£UT HfAO nt POHIS TO D•P:ECICil OF l'fiOfl:O:;I()f.~Al ~l/IVI(..l$
CII~RT NO.-I H\1
,j::,.
w
APPENDIX C
CAPITAL EXPENDITURE BUDGET PACKAGE
(.!,? !Tf,L EXPENDITURES BUDGET
INDEX
Introductory Xeno
Preparation and Cefinitions
Instructi~ns for Ecuip~ent ~equests ( Corres:G~.;:is to CAF3UD FO:l.M 1)
Instruc!ions for Renovation Re~uests (Corres~o~cs to CAPBUD FORM 2)
Capi:al Equipment Request Form
Capital Renovation Request Form
Capital Equipment Justification Form
Cap1tal Renovation Justification Form
..
2 - 4
5 - 6
CAPBUD FORt1
CAPBUD FCRH 2
CAPBUD FO:<r'
CAPBUD FOR'1 4
45
CEDARS-SINAI
TO
FRO~
Subject:
Department Heads
Ar.dr~de r~an Ov Assoc. DirectOr of Finance
Capital Expenditures Budget
::-.1EDICAL CENTER
DATE !;ovember 30, 1378
The Clpital Expenditures Budget package has been integrated into the b~dget precess to aid in the 1ong~tern and b~G?et ye?.r planr.ing of caoita1 equi~ent ~nd renovations. In addition to the b~nefits to th~ Medic~l Center which will be realized through planning, this project is being i~cle~ented to ccc;ply with require~ents in a recent ar.ie~d~ent to the Social Sect.:ritj' Act. This a~end:r.er.t requires providers to have a three-year c~pital expenditures budget as a condition of pa~ticipation in the ~edicare prcgram.
Definitions and preparation notes are ircluded in this ~ackage to fa~iliarize you with the new capital budgeting process. Detailed instructions fer request foros (For:ns 1 a~d 2) are also included. The coc;pletion of t~e request foms records I) your intentior. to fo~ally request equio~cnt or renovations, and 2) t~e assurance that the ne=i of the deoartr.ent, respons~ble associate aC,inistrator, and medical staff are aware of the costs and quantities you are re~uesting. All reGuests for equip~ent items and renovations must be supported by justification forms (Fonr.s 3 and 4).
All request and justification forms with the apprcoriate a~provals and review should be r~turned to the 8Jdcet and Rei>':lbursm~nt DeJar~"'·eot, Room 2S02, Plaza Level, South To>.er, within t•·;enty (20j ~<~orking cays af':er ycur schec!uled workshop. The forms will then be sent to the Purchasing Depart~ent or Plant Operations for verif!cation or review of costs.
Please feel free to call Rebecca Bales, extension 3131, or Michael Glachino, extension 5774, if you have questions.
AM: or
46
C,!.P IT i.L 3~~Gt:T
Sut-it re~~es~s for three yP.a~s based en the io:lc'.;ing fiscal year ca 1 e~dar:
8:.1C;et year April 1979 throug'l ~arch 1980
Bud;et year .!.;:.ril 1930 thrOVJh t·'arch 1931 Budget year April 1981 through f·~arch 1?82
Ee~i:1 a se~arate fonn for each budget year.
Re~:.1ests for e:~ic~ent or re~ovaticns t~~~ a~e rec~ired for new progra~s shou1d be se0arc.ted frcm those fer co"1t.ir-,uin? 0:::r:::io~s ty beginning a r.2·.~· fer.: and checking the a~pro;:;:ia~e Jox en ~r:e l:"l?ut foms.
For each re~ovation and equip~ent ite~ recueste~, a capi~al eq~io~ent or rer1JVJticn ~~stification forn rr:ust !)e c::-::1e~e: cr.:! ?.:-;::rc.,led (C.O:?EUD For:ns 3 a.~~ 4). T.~e justifiotion foros s~o~11d be rc:.urned to the Oud;et and Rei;JJurse-:-.e:~t Cepartr.1ent with the in?ut for~s.
Cefiniticns
CaJi:al E:ui~~~nt is defined as items that have a useful life of at least ere y2~r a~a ~n original cost of S2C8.CJ or r~re. In cases where a c:~:le~e asse~bly is ~ade of interce~e~~e~t :arts 2nd accessori~s, the c::-:-)ined c2s: of an parts n:ake uo the u~;: c2st. For exa:::ple, if a ter.-:inal, Sl.2J0, _and paper tray, S!S:, ~-.ere orC;;red the u:1it cost should te entered as $1300, with a descriotic~ cf 'ji;i:31 e~uip~ent terminal w/accesso~ies, ~cdel 120'. lte~s valued less t~~n S2CO are to be included if t~ey are p~rchased in quantities and ac:ear en the same invoice. An exa:.~ie of this is five chairs C8St~na S75 eac~ t~at are invoiced together. The ~nit ccst in this case wGu1d ~e 5~75 a~d !~e ~escription should be e~~ere~ as 'se: of chairs'. If you have ~o~bts c~ncerning whether an it~~ is c=oital eouio~ent or not, call the Generai Accounting office and ask for Sid Choudhry (X4248).
C~cital ~enovaticns are construction or re~~celing prcjects that exceed S2rC.CJ 1n iaocr and materials and have a useful life of at least one year. ihis does not include routine r::ain~enance jobs.
~~e ..... Prcc:c~s are major activities that are no~ C;Jr:e"'tlv budoeted, for whlc., rescurces would be exoended. For exa:cGle, tne procosea ~.rr.bulatory S:.:r:;ery :enter wo:.ild be consiCerEd a r;e\" ;:>ro·~rc;. These orojects must hJve ~rior acoroval by the depart~ent head ao~ resconslble associate acrninistratcr. ~ew Prograns may have beth eq~i~~ent ana renovation requests.
47
Instr~.JC~~c~s for c.~.PS~J Form
RQminder: Use a separate form for each budget year and for each ne·~ program.
1. Paoe Nv,rber
2. Budoet Year
3. Cost Center Na~
4. Hospital ~.ccount ~lurrber
5. C0st Center Number
6. A~Qrova ls
7. Patient Care
8. Priority
Begin new numbering sequence for each budget year.
Check appropriate period.
Self-explanatory
Use hospital general ledger 4-digit account number.
Use CHFC 8-digit number.
!~ust be signed by de~artr:-ent head and associate ad~inistrJtor, i~dicating ;~ey have aooroved all ite~s, quantities, a~d costs. It must then be revieweo by the ~edic31 staff, Purchasing Department and Finance Departm~nt.
Code equipment as:
D =Utilized bv oersonne1 hovioo dirPct resoonsi~ for rcnGering inpat1ent or outpat1ent care.
N = Administrative, non-patient related.
Each item must be prioritized according to the needs of the dep!rtment. Use the following codes to define priorities:
A= Required for continued licensure. Includes equipment necessary for cc~oliance with the Joint Ccrr.missic~ for the Accredition of Hospitals, fire codes, life safety codes, and other regulatory codes. Examples of this would be cardiopul~onary resuscitation equipment.
B Replacement esse~tial to maintain current operations.
C Acquisition would be revenue producing or cost saving.
D Ii.".prove$ or;era~ions or is reouired to ~r..;.:1c::r depa1·~~ent c~~e::ives. Requested ite~ i~ ;~: revenue producing or cost saving,
~ No i~orovem~~t in current operations. ~o cost saving or revenue involved.
48
CAPS'JD Fom Continued
9. Secondary Priority"
10. E~uiD~ent Descriotion
11. Eouio~ent Classification
12. Unit Cost
In Instruction No. ~. ite~s are ~rioritized accordi~g to the n€eds of the C?partment. Rank iterrs wi~hin the sc:~ prinr1ty class. Exa~.ple: Eicht ite~s within tne crioritv class of ''A~ shou1 d be ranked 1 t~ro~ch 8. • :;o t;;o eG~i p.~ent ite~s in your cost cente~ s~~uld ~ave the same priority and secondary priority cc:~~inatio~ unless ite~s are ~eoende~t u~cn each ether to function. If th~re are r..cre tr~ar, eicht re~:;ests for a priority c1ass1fi:a~ion, enter 1 9 1
• '1' is the highest ranking.
Specifically state what t~e item Is. Do not use ten:.s s~;ch as "latcratory ea;,:ip:-:-ent", or ''office r..acnines". !nterde;Jendent acc~sscries should be listed as ~~~·it~ acc!:ssori-es" unless the accessory item can be easily ana briefly described with main item. Begin description in Colur.n 21. Ro;-.an nu~7.era1s have been provided to the left of each description so you can incluce soecific deta i 1 s on th'= back of the for-:; (vender, oanu-facturer, i:"OCe1 r.t.:n~oer and sour-ce). This is necessary for the Purcnas ii1g Departr::ent to verify an accurate item cost.
Two eavip~e~t classiflcotions will be usPd. As a reminder, bo~h classifications must have a purchase price of more than S20C.CO and have a useful life of at least one year.
10 = ~ajor ~ovable - Equipment which can b~ readily moved fr~m one location to another.
20 Fixed - EcJipr.ent that is affixed or constitutes a structural co~~cnent of the hospital. This equipc-,ent Is not subject to removal or transfer.
Enter the current unit cost rounded to the nearest dollar for each item listed. Do not cc,...olete this oonion ur.iess vou are cer:talil of t~e price you are hst1ng. Cther•dise, :edve it blank ar.d Purchasing ~1111 cc:nplete it for you using the detail orovlded on the back of tne form. Justify this figure to the right in the spece provided and do not account for an inflatio~ factor in the amount.
Enter nu~:er of Items needed.
49
CAF5U::l Form Ccntir.~~d
15. Purch~se Date
16. llew Prooram
17. Co!"r.lents
Code each item as:
N New equipne~t.
R Rep1aCJ.'2:"'e~t of existin·J ·,.,.Grn o·.1t equi~"i".ent. If renlac~-e~t is ent~~ed. it is assuned to be nec~ssary for ccntinuirg cp:r~tions.
Enter the rJnth and year th3t y~~ inte1d to reauisition fer t~e i~e~. E~2~·~1e: ~arch, 1981 Sl!ould be ertere~ as 0361. As a re~in~~r, ~ake certain this ~~te falls withln t~e ~cdget year
. ycu have specified in Ite:11 ~2.
Enter title of new program, if aep1icable.
(Attach additional pages if necessary.)
50
J::e"1inder: Use a separate form for each buc;et year and for each ne\·i progra!:l.
1. Pase :h;;ber
z. ~Year 3. Cost Center ~:a me
4. Hos;>ital ~ccount ~tv~ber
5. Cost Center t-~u~.ber
6. A£orovals
7. Patient Care
8. Priority
Begin ~ew num~ering sequ!nce for each budget year.
Check appropriate box.
Self-explanatory
Use hosoital seneral ledger 4-digit accGunt nur:1ber.
Use CHFC eight-digit number.
Must be signed by de~ar~m!nt head and associate ad~inistrator indicating tney have acproved ~11 projects an~ costs. It m~st then be reviewed by the "'edical stuff, Plant Operations and Finance Depa rment.
Code renovation as:
D = Utilized by r.erso~nel havino direct res~cns~C1ii:'l for render1r:g 1npatient or out~at1ent care.
N = Ad~inlstrative, nan-patient related.
Each renovation rr.ust be prioritized according to the needs of the deoartPent. Use the following codes to define priorities:
A = Recvired for continued licensure. Includes renovation necessary fc:- comolianc~ with Joint Cor..-,ission for the Accreditation of Haspitais, fire codes, life safety codes, and other reaulatorv codes. Exa~oles of this would be constructing rar.:ps for wheel chai;-s.
B Replacenent essential to maintain current operations.
C Construction would be revenue producing or cost saving.
D Jrr.proves operations or is required to i~o1'2~~~t der2rt:.r~nt objectives. ~em1~5t~d job is not rev~nue prcducing or c~st saving.
E s ~o 1mpro,·err.ent In current operations. No cost saving or revenue involved.
51
lns!ructior.s for c.;?SUD Forn 2 continued
9. S~c~~darv Priority
10. Oescrirtion of work
11. Cost of Proje:t
12. Coyoletian Date
13. New Program
14. Cor. . .,ents
In instruc ion ~o. 8. ite~s are prioritized a~r..ordir.~ ~ ~!"~e n~~1s o-7 t"',e Ce;;art!':'er~t. Ran~ i~;;'~ ~:~:::~. :-; ~:;e s.~~~ ~ ... -icrlty c~-3ssification. Ex~:: .. _. "'. ~l;,·t i:~~·~s -.... ~ti-t1n t:~e sa.:;;~ priority c1ass of ''A'' s~ould te ra~;.ed 1 tn~ou;h 8. No t~o renovatic1 ite-s in vo~r cost center should have the sa~~ :lriority ~;c seccr.CGry pricrity co~~ination unless rer;ovaticr:·s are de~enCent uoon each o~her to fJ~ction. lf ~here are ~Jre tha~ eig~t req~es~s for a pr~ority classification, enter '9'. '1' is the higcest priority ranking.
Specifically state ~hat the work is b?ginning in co1~.;::.n 21. ~o nat use t.:?~s suc:h as 'construction'. Rc~~n nu~~rals ~~ve :2e~ ~rcviCed to ~he left of each ~escrio~ion for vcu t~ crovide details on tl:e back of ~~e ~o~.~ Inc1u~Getal1S or ccnstr~ctlon, pr1ce scJrce, a~d price breakdown.
Enter the total cost of the project including labor and ~aterials in w~ole dollars. Co not CCTJlete this ~or~i:~ ~~less vc~ ~re ce~t~i~ y~~r orice 1s CC~r?ct. CJtr,e::-n·~ SE ,~.~e :rH? 1 :e.,-r, D 1 d'1)( and Plant C~erations wi11 cc<~lete it for you using the detail provided on t.'1e back of the form.· Justify to t~e ri~ht in the spaces provided. Do not try to account fo1· an inflation factor in the amount.
Enter the nonth and year that you would like construction to be cc~p1eted. Make certain this date falls within the budg~t year you have specified in Item 2.
Enter title of new program if applicable.
(attach additional pages if necessary.)
52
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Z) Budget Yur (checlr. one)
"""' - OJ/00 CJ ""'"' - Ol/81 D 0</81 - Ol/81 CJ l) Coit Ce,.,ter ~~~ -------------
CEOARS-S INA! MEDICAL CENTER
CAPITAl ~NOVATIONS BUDGET
:: ~~;:';::.~-::.:;lllllllll lludget Dept. Use Only
[rH+++-f+-1
f+H++-H-1
7) Pctlent C.are 8) Priority
j;.1 r··
7) P•tlent Cue D • P•tfent ffthted H • Hen P•tlent RtLHed
9) lnd Pr:~~rlty
REQUESTs roR: WHINU!NG OPERATioNs D (check one) NEW PROGRAM c::::J
10) Ducrlf.!_fon of Work! •
---·'·{~f~~~m:, ... , .. ~ .. j •• ,.,, •• ,; ........... " ••
·::atttlllllllll& ,::mttttttttl-H+H++++-H-H+++t+-l-H
VIII
" "H++H-l-H--+
Ill
I -lj "I .,,\ •1\ 1 nl • •IH~ • >
8) Priority A • H•nd.tcd by Sccurlty/Rcgul•tory Polley I • Fleplolle":Ment Euentlal for Contln~o~lng Op•r~ttoos C • Revenue ProJuclng/Colt So~vll"'g D .. !ll!prov•l Oper•tlons, /'lo Cost SHine;~ £ ·~rgln•l l~o~ct
IJ) New Pr09rM Title (If appllc.ble) ---------·
HI llcto~lls orCo-P~ents
6) Ooeput~nent He•d Approul
Auoc, Alhl". Approv1l
~dlc1l St.rr Review
Phnt Op. Review
flncnct Dept. Re.,dew
11) Who Ia Dol hr Cost IZ) COfll:llete of Proj11ct O.te (tt1H)
,. 1~L'' .J, ;[;,] ~-.r,;l ... I. ,I
D
.J
I) P•g~ __ or __
0Ate
Ph1nt Operations Use On! - ,.[;~ .. !.
CN'BUO for. 2
U1
"""
CEDARS-SIN~! MEDlCAL CENTER
Initial Cate
Cost Center Name _____ _
CHFC No.
Budoet Year 4!79-3!80 .-. 4/80-3/81 .-. 4/81-3/82 il
---'
1) Med. Staff Review
2) Dept. Head Approva 1
3) Assoc. Admin. Approval
4) Description of equ ipl"l'.!nt ________________________ _
5) How will this equip"ent help your depar~ent f"nction more effectively?
6) Does this ( ) No ( ) Yes
equip~ent reJ1cce existing equip~ent? Please sta:e whv the equipment is needed and how it will Please sto:e t~e reason(s) for the replacenent and what to the re~laced equipment.
be used. will happen
7) Will this equipc-.ent ~e cost effective? ) Yes No Please explain.
8) Will this piece of equipment generate direct revenue? ( ) Yes ) No
If so, how? ------------------------------------
9) What supplies are necessary to operate this r:;achine? --------------
1/hat will be their cost per year?
10) Will additional employee(s) be necessary to operate this equipment? ( ) ~o ( ) Yes How many? AJ-1 PM Graveyard What will be their labor cost per year?-- -- -- $ ______ _
11) Specifically, how will the equipment be maintained, and by whom?
What will be the approximate maintenance cost per year?
12) Will the equipment require additional space? ( ) No ( Yes If yes, "here is it to be located and "hat will the cost of construction or remade 1 i ng of space be? ------------------------------------
13) Impact if not approved:
14) Surrmary remarks from prep a rer: ___________________________ _
15) Disposition: Approved
------;,.ejected _______ D.eferred until
Prepared by:
Re~arks=---------------------------~~~~~~ CAP8'JD fORlL,L
55
CEDARS-SINAI ~EO!CAL CENTER
C.4PIHL RENCJVATIO~ JUST!F!CAT!O'l Initial Date
1) Med Staff Review
Cost Center Na~--------------------CHFC No. ---------------------------- 2) Dept. Head
Budget Year Approva 1
3) Assoc. Admin. Apprcva 1 4/79-3/so =:J 4;8o-3/81 0 4;a1-3;sz 0
4) Description and location of renovation? ---------------------
5) How will this renovation help your depart~ent function more effectively?
6) Will this renovation be cost effective? ) Yes ) No Please explain.
7) Will this renovation generate direct revenue? ( ) Yes ) No If so, how? __________________________________________________ __
8) Will this renovation create a need for additional supplies or equipment? ( ) Yes ) No If so, please specify ________________________ _
~hat w1ll be their cost per year?
9) h'i11 additional er'1Dloyee(s) be necessary as a result of this renovation? ( ) Yes ( ) .\o H0w many? AM PM Graveyard What will be their labor cost per yea;:r- ---- $ ________ _
10)
11)
Will additional maintenance be required ( ) Yes ( ) No If so, what will mainte~ance cost per·year? Impact if not approved:
12) Surrrnary remarks from prepater:
13) Disposition: Approved Rejected
----------,Deferred until
Prepared by:
Remarks:
as a result of this renovation? be the approximate additional s _____ _
CAPBUD FOR.'i 4
56
APPENDIX D
ACTUAL CAPITAL EXPENDITURE SUMMARY SHEETS
ClOARS•S!NAI HfD!CAL CENTER CAPITAL RENOVATIONS HU0GET
TOTAL CAPITAL EXPENDITURES BY PRIORITY
110SPIHL SUMMARY FYE I 03/ll/60
A : MANDATED ~y S~CURITY/REGULATORY POLICY 8 ~ REPLAC[M(NT ESSENTIAL TU CURRENT OPERATIONS C • kEH~<UE PRODUCING/COST SAVING 0 a I~PRuVtS UPE~ATlONS
E • MARGINAL IMPACT
A B RESPONSIBILITY PERSON
-------·------------- ·--------- ----------A!NS"'URTH
A"oOREWS
CALDWELl. Sl9,9'18 St.2,000
KATZ S35,200 s I, 254
KING
LACKEY $800
LEISHER Sl4,t25 $21>,500
HARTIN Sll,t'IS $bOO
RUBENSTEIN
SCHI<ARTZ S22, 300 ~14,000,
========.== ========== $102,818 s1os, 154
c
----------
SI2,2QO
S7,St.5
S4,000
$21,000
Slb7,000
======='=== S211,80S
0
·---------13,500
S!Q,297.
$82,'170
$23,700
$51,700
$204,500
sHS,IOO
sz,soo
$10,400 =========s:
S728,bb7
E
----------
ss.t.oo
S200
:::::::::::::r 15,!100
TOTAl.
----------Sl, so 0
132 .ll7
st72,7H
Sbli,JSQ
S5!,700
$600
$2bb,l25
SSIJ,6'15
sz.~oo
$lJb,700 :::;:::.:::-s sltl)~,<"o
lJl 00
59
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: :;
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0 :: ~ 0 z 0
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' ;:: L ' . '
! ! . . c 0 . , . . L . .
0 . , . L .
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' . 0 0 . . . :' : 0
UIPANIM~Nl SUMMARY
Rl Sf'IINSII<Il II Y PlNSWI IHPANI'If.Nl NH•f
PAIHNI CAl<~ Sl4111S
>I•JN•f>AllfNI NILAIH>
ANI!I<lwS
CEDARS•SINAJ M~U!CAL CENltR TOTAL CAPTIAL fUUIPMtNI fXPENO!IURES
SUNTED HY PATI[NT CANf STAIUS AND PRIORJIY
Nf_CI.oiWS K J;ff'P(J()IJ( T !liN MGf<T
FYI: I Ol/31/80
(I lAPII•.JUN C2lJt!L•lH P C311>C I •ll£C Pfl I 1111 I 1 Y CtiST UNT!H NAill.
f'll[llfi[TY fl Pll[tH SHI)f' !1.722
(q)JAN•MAR
PAl;E b
03/1!:./1'1 C5Ell09
TUIAL
S/. 7<!t!
S7,722 SO SO $0 ~1,12~
f'fl[flfl[ IV t PR[NI S~fiiP $bOO HOO
NHIIIWS ss,ooo ,';,000
-----------· ---------·-- ··---------- ............................. --------""·--$/,1)0 ~0 so $5,000 $5,1:>00
f'fiiOfll IY ll (;JIAPIIJ(S !3,500 $I, ~00
·------·---- .............................. ------------ ------------ -----------· $0 \0 Sl,SOO )I) .l j, ':>0 0
------------ -----------· ··---------- ------------ ------------SIJ, 122 so ~3,500 S';,OOO 'lb,"cc -----------· ------------ ---------·-- .......................... _
_______ ... ____ 3.11. 322 \0 s 3, ';()0 $!'>,000 $1b,ll22
0'\ 0
fi)Uif'"t.~T LJEIAIL FUi< CriST CtldtRS
RESPU~S!HIL I TY PE><SrJI·, DtPAR I H: 1d
Cil5T CtrJ!t.R
~d.i"' ut""
~Ut>U•S IE IN PRU,~SS!U'-AL SERVICES ~IDIAT[UN SAFETY 0'FlCER ~oi02!2P
PR[[)R[IY
•TdrAL A
I 2 4 ,
l~UIP O~SCH!PTIUN
'' J C lirl" A V E U Y t ~ l t A K ItS H. R (. l PErHIJ,.;~A~'>~CE PH.t..NTIJ~
''IJIAT!<jrr Alh r'IJN!TL'R r IJL l!CHA~i.t.L Ar<Allf:.R (SOX NIJC Mt.Dl
*TIJTAL RAirJAT!ur, S~rETY uFriCER
CEDARS•SINAI MEDICAL CENTEH CAPLTAL EUUIPMENT HUDGET
F Y£ I 05/3!/HO
UNIT CrlS T
l!!,SOO 1950
$2,0'30 ~30,000
ClUAN CUST lrF NEW ~ErJUfST Rf:.f'L
~1,~00 N :>'ISO N
l2,0SO N ~)IJ,OOO N
$34,~00
$34,500
UATE ----U!tlU 041'1 u97'1 U479
PAT R~LAnD
PAGI: 139
03/14/7'1 CSf:.Cl02
UN!CJUE NI)Mti
-------------------- -----NUN-PATIENT RELATf:.O 00~07
O!KECT PATIENT CAHE oosu~
Ll!RECT PATIENT CARE 0050'1 O!Rf:.CT PAT!t.NT CARE U09U7
0"1 I-'
APPENDIX E
FLOW CHART OF THE BUDGET PROCESS
CC.'IT!IiU!I~G OP[P.IIJIO.'IS
CAPITAL BU[:GET )
I ~------------_J _______________ ,
"'" PR%RNiS CCHT/IIUI/1':; OPERATIC:IS
R[TU::I/ All FC!l.i!S rQ;l [QU!Pii[IH fli/D RE!lOVHIO!IS
TO BUDGET AND Rf,fi~!HHSH:UIT
(CAPauo rmt·1s ,:4)
SUilHIT ll[QUEST rOP.'iS TO PURCHAS I /;G OR
PLANT Of'EflfiTICIIS FOR· PRICE REVIEW
R£1/0'IATJC'iS
!1£\,' 1".~.:·:-.~A'lS
63