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Describe How to Compile an Operating Budget
Calisse R. Browne
Regis University

Abstract
This paper describes how to compile an operational budget from the article “Hospital Nursing Costs, Billing, and Reimbursement” including the relationship of the budget to the four major financial statements and GAAP principles.

Compile an Operational Budget from the article
“Hospital Nursing Costs, Billing, and Reimbursement”
An operational budget for a hospital nursing department forecasts this unit’s contribution to the income statement (Gapenski, 2012, p. 234). The operational budget has volume assumptions, revenue assumptions, cost assumptions, and a pro forma profit and loss statement.
For nursing departments, volume assumptions drive variable cost assumptions such as labor. The revenue assumptions and the pro forma profit and loss statement typically are not applied as nurses are billed as a fixed cost as part of the hospital’s room rate. Typically, the volume assumptions are based on patient location and tied to the Diagnosis Related Group (DRG) weighting, which distributes nursing care expenses across three categories of care such as routine, intermediate, or intensive (Welton, Fischer, DeGrace, Zone-Smith, 2006). The study documented in “Hospital Nursing Costs, Billing, And Reimbursement” found patient location a less accurate indicator of nursing costs when compared to nursing intensity, indicating the patient location methodology does not link nursing care costs with hospital revenue as accurately as the nursing intensity methodology would.
Modifying the billing methodology of nursing care by using the nursing intensity model as described in “Hospital Nursing Cost, Billing, And Reimbursement” would change billing to account for nursing care by patient based on actual nursing care hours. The operating budget would then use the revenue assumptions and...

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