Why Budgeting Matters in HIM
Budget development is a core financial management responsibility for HIM leaders, ensuring departmental resources are allocated appropriately to support operations while aligning with organizational financial goals.
Operating Versus Capital Budgets
Operating Budget
The operating budget covers day-to-day expenses required to run the department, including salaries, benefits, supplies, and ongoing software licensing fees. Operating budgets are typically developed annually and reviewed monthly against actual spending.
Capital Budget
The capital budget covers significant investments in equipment, technology, or infrastructure that provide value over multiple years, such as purchasing new scanning equipment or funding a major software system upgrade. Capital expenditures typically exceed a dollar threshold defined by the organization and are depreciated over their useful life.
Common Budget Types
Zero-Based Budgeting
Zero-based budgeting requires managers to justify every expense from a base of zero each budget cycle, rather than automatically carrying forward prior year figures. This approach encourages careful evaluation of ongoing necessity for each cost item.
Incremental Budgeting
Incremental budgeting starts with the prior year's budget and adjusts figures up or down based on anticipated changes in volume, inflation, or new initiatives. This approach is simpler but can perpetuate inefficient spending patterns if not carefully reviewed.
Flexible Budgeting
Flexible budgets adjust based on actual volume levels, such as patient encounters or coding volume, providing a more accurate comparison between budgeted and actual performance when volume fluctuates significantly.
Variance Analysis
Variance analysis compares actual financial performance to budgeted figures, identifying favorable and unfavorable variances. A favorable variance occurs when actual costs are lower than budgeted or actual revenue is higher than projected, while an unfavorable variance indicates the opposite. HIM leaders should investigate significant variances to determine root causes, such as unexpected overtime costs or lower than anticipated coding productivity.
Cost-Benefit Analysis
When requesting new resources, such as additional coding staff or new technology, HIM leaders should prepare a cost-benefit analysis demonstrating the expected return on investment. This analysis should quantify anticipated benefits, such as reduced denial rates or improved turnaround times, against the associated costs.
Justifying New Expenditures
- Presenting clear data demonstrating current performance gaps
- Quantifying expected financial or operational benefits of the investment
- Identifying risks of not making the investment, such as compliance exposure
- Aligning the request with broader organizational strategic priorities
Conclusion
Sound budget development, informed by variance analysis and well-supported cost-benefit justifications, enables HIM leaders to effectively manage departmental resources and secure support for necessary investments.