In the Classroom
Healing the Balance Sheet

It used to be that nurse managers were focused primarily on clinical issues. Their job was to make sure their department was delivering high-quality care. This is still their job. But with prospective payment systems, managed care, and increased competition, they also need to be concerned about financial management more than ever.

Steven Finkler"They have a much bigger job than they used to have," said Steven Finkler, professor emeritus of public health and administration at New York University and academic director of Wharton’s new Financial Management for Nurse Managers and Executives program. Finkler, author of 17 books, including Financial Management for Nurse Managers and Executives, teaches in the Johnson & Johnson/Wharton Fellows Program in Management for Nurse Executives and the Wharton Nursing Leaders program. The new finance program was developed as a result of discussions with participants in those programs who asked for a more intensive exploration of financial management.

A Much Bigger Job

With the nursing department as the largest single department in many hospitals, the nurse manager is the focal point for delivering care and managing budgets. For a hospital with a billion dollars in revenue, the chief nursing officer might have responsibility for $500 million. Even a nursing manager in charge of a small department typically has responsibility for a multi-million-dollar budget.

Nurse managers clearly need financial skills. While chief nursing officers often have MBAs, many nurse managers have made their way to their positions based on their clinical training and expertise without formal financial or business education. "They were promoted to management for being exceptionally good clinicians," Finkler said.

What do nurse managers need to know about finance? Some of the critical financial areas covered in the program are:

  • The broader environment: They have to understand the context for their decisions. For example, insurance companies and government regulators might cap their payments to the hospital for certain procedures. Fixed reimbursements mean hospitals have a strong incentive to release patients earlier or swallow the costs of longer stays.  Nurse managers have to balance the delivery of quality care against the demand for management of costs.

  • Health economics: Sometimes cutting a half-empty, 500-bed hospital down to 300 beds does not result in the savings that might be expected. The hospital requires the same overhead, so it might make sense to try to increase volume rather than scale down size. "Nurse managers need to understand what the overall organization is trying to achieve and the actions they can take to make the overall organization profitable," he said.
  • Staff acquisition and retention: With a national nursing shortage, nurse managers also need to understand the cost implications of retaining staff. For example, if a nurse can’t work on Thursdays because of childcare issues, it might make more sense for the hospital to work around this schedule rather than try to hire a replacement. The cost of advertising, filling a nursing position, and training a new nurse can be very high. It often makes it worthwhile to invest in retention.

  • Budget process: Nurse managers have to understand the budget process, including financial analysis, variance analysis, financial forecasting, and break-even analysis.  In purchasing new equipment or setting up a new venture, they need to demonstrate that it is not only clinically beneficial but adds to the overall financial health of the organization.

  • Time value of money:  A key principle is to understand that a dollar today is not the same as a dollar tomorrow. This means that even if the organization recoups the dollar value of an investment in a new piece of equipment over a period of 10 years, it could still lose money (because those funds could have been put to more profitable uses). Net Present Value (NPV) analysis can help to identify the cost of waiting for returns.  An understanding of the concept of the time value of money is critical in making the financial case for any investment within the organization.

"Hospitals can’t afford to waste money," Finkler said. "Finances have to be carefully monitored and understood, and nurse managers have to make cost-effective management decisions."

The Cost of Answering the Call

To illustrate the complexity of the tradeoffs facing nurse managers, consider the seemingly simple challenge of responding to a patient call button. More than the quality of medical treatment, which can often be hard for patients to gauge, the responsiveness of staff is a key determinant of overall patient satisfaction. Since nurse managers are often judged by patient satisfaction scores on their unit, they want to keep these as high as possible.

But Finkler points out that the cost of adding another nurse to respond to the call button is much higher than it might appear. Increasing staffing by a single nurse means covering the unit for 24 hours per day, 365 days per year. This essentially means hiring five more nurses, at an annual cost of roughly $90,000 each for salary, benefits, and shift differentials. This means an added cost of roughly half a million dollars to put just one more nurse on the unit at all times. It will likely lead to a faster response to call buttons, but is it worth it?

‘"Where do you draw the line between what care is needed and what care is wanted?" Finkler asked. "Patient satisfaction is a huge competitive issue, but do you put more money into perception or substance? These are the challenges facing nurse managers."

A Unique Environment

Any manager who comes up through the ranks in a specific functional area and then takes on broader management and financial responsibility might face similar challenges. But the work of nurse managers is different in several ways. First, they have people’s lives at stake. This adds more pressure to every decision. Second, the health care system is very complex. It is not a free market. "There is a lot of government regulation and huge lack of knowledge and uncertainty on the part of customers," Finkler said. Third, doctors play a unique role in hospitals. "Where else can a nonemployee walk into an organization and give orders to your employees?" Finkler asked.

Nurse managers often find themselves caught between demands by patients and doctors for spare-no-expense care and pressure by insurers and hospitals to contain costs. If an expensive test is effective in finding a problem in one in a million cases, it doesn’t make economic sense to order it. But every patient will want that test. "The patient wants the best of everything, and the physician wants to give them the best of everything," he said. "Payors are negotiating fiercely to lower the rates. The nurse managers are caught in the middle. They have to provide high-quality care and make cost-effective decisions."

Related Programs

    

This month's articles: