EXPERT SOLUTION: Smart Management Demystifying finance in perioperative

Smart Management

Demystifying finance in
perioperative nursing
By Nadine Rosenthal, DNP, RN, CCRN, NEA-BC and Deborah Stilgenbauer, MA, RN, NEA-BC

care environment, it is now necessary to conduct
rolling budget reviews. Nurse leaders need to
address unexpected changes, such as patient
volume, acuity changes, and new technology

Increased emphasis on efficiency and effective-
ness in recent years has led to greater interest in
evaluating the nursing workload of patient care
and resource allocation.2 Prediction and justifica-
tion of perioperative nurse staffing requirements,
along with equipment and supply allocation to
accurately provide sufficient patient care, are
challenges. Given the evolving body of academic
literature tying patient outcomes to specific nurs-
ing variables (for example, ratios, education, and
experience), ORs and postanesthesia care units
(PACUs) are tasked with balancing ideal invest-
ments in care quality with current nurse labor and
supply constraints.3

As a large workforce, nurses make up the high-
est labor costs, and therefore, a large proportion
of the hospital’s budget.3 When staff and manag-
ers request more nursing capacity and additional
supplies and equipment, they must be able to
document and articulate the underlying increase
in total nursing care workload as well as the
added value and return on investment. OR
nurses, PACU nurses, and nurse leaders need
to understand patient needs, financial incen-
tives, regulatory requirements, quality manage-
ment, patient flow, census, and fluctuations to
build sound budgets and effectively manage
labor costs. In other words, perioperative nurse
managers must learn how to speak the language
of finance.

Throughout the United States, perioperative
nurses and nurse leaders are being asked to pro-
vide more and better care with fewer resources.
Building an annual budget with periodic moni-
toring is no longer sufficient. In today’s health-

10 OR Nurse 2015 March

What is a budget?
The annual budget is a plan for procuring and allocat-
ing resources for the following year based on known
and unknown factors. These factors or key metrics
vary by department. There are several models for
budget development, including zero-based budgeting,
incremental budgeting, and forecasting budgeting.
Zero-based budgets are built each year; everything in
the budget is carefully reviewed for the value it con-
tributes. Incremental budgeting assumes a percentage
increase across the board for the coming year.

Forecasting budget planning focuses on the future
and is built on expectation of revenues and volume.
The projections can be based on historical or nonhis-
torical data (for example, a new surgeon joining or
leaving the hospital staff).4

Organizations can either use one model for cre-
ating a budget or a combination of elements from
several models. No matter which method is used,
the consideration of key metrics is essential. Key
indicators used by perioperative services for bud-
get development include volume and case type,
turnaround time, first case start times, case duration
accuracy, and physician scheduling preferences.

Copyright © 2015 Wolters Kluwer Health, Inc. All rights reserved.

Clear understanding of workload analysis, season-
ality, and quantitative data must be considered
to create and manage the perioperative budget.5

There are three types of budgets: salary, supply,
and capital. Typically, the salary budget has the high-
est dollar value; however, in perioperative services,
supplies and equipment are very important as well.
Capital budgets are dollars set aside for major equip-
ment maintenance/replacement, major equipment
purchases, or upgrades. Surgeons must have the
necessary materials to perform procedures. In addi-
tion, hospitals must keep pace with innovation and
provide state-of-the-art equipment to match surgical

Once a budget is developed and approved, the
hard work begins. Managing productivity, salaries,
and supply expenses requires consistent monitoring.
Nurse leaders need reports that provide real-time
data. There are two barriers nurse leaders face when
trying to successfully manage expenses and justify

variances: delays in receiving the finance reports and
tracking metrics.

The first barrier is the delay in receiving reports.
Normally, reports related to expenses are distrib-
uted 10 to 14 days after the end of the month.
This delay gives the finance department an oppor-
tunity to be sure all expenditures are accounted
for in the expense reports. Although this delay
works in favor of the finance department, it can be
a detriment for nurse leaders who need to justify
unfavorable variances 4 to 6 weeks later. The delay
requires nurse leaders to recreate (weeks later)
why there was a need for overtime, per diem
hours, or to use expensive equipment.

The second barrier is nurse leaders identifying
and collecting the necessary metrics to support any
additional expenses. Nurse leaders need to be able
to review metrics that affect salary expense either March OR Nurse 2015 11

Copyright © 2015 Wolters Kluwer Health, Inc. All rights reserved.

12 OR Nurse 2015 March

weekly or biweekly. Important metrics that influ-
ence salary expense include the following: produc-
tive and nonproductive hours; vacancy rates and
volume; late start times; prolonged room turn-
around times; underutilization of OR time; and
availability of PACU and inpatient beds.

Staffing plan
Developing a staffing plan that starts with creating a
balanced schedule/appropriate scheduling of ben-
efit time or paid time off throughout the year is a
basic tool for operationalizing budgeted full-time
equivalents. Reviewing on-call schedules and flexing
staff schedules to reduce the number of on-call
hours can result in potential cost savings. Vacancies
and sick calls may appear to be uncontrollable fac-
tors; however, active recruiting to fill vacancies and
monitoring staff adherence to time and attendance
polices can minimize their effect.6

Volume, off-hour surgeries, same-day cancella-
tions, delays, and holding patients in PACUs will
also have an effect on salary expense. Nurse leaders
need to develop a system or “dashboard” to track
these unexpected situations and be astute to the
effect on expense. Investing time for nurse leaders
to become familiar with the basics of Excel/financial
software will facilitate tracking and monitoring of
hours or supply costs. In addition, clerical staff can
be taught to use Excel/financial software and sup-
port the nurse leader in information gathering.7

Most automated scheduling programs provide
reports that can be useful for weekly or biweekly-
monitoring. Productive and nonproductive hours,
overtime, agency utilization, sick time, and leaves
of absences are some of the metrics to review.
Frequent monitoring enables the nurse leader to
identify trends and notice when further investiga-
tion is required. Developing and monitoring pro-
ductivity measures are crucial and can be used to
explain variances (for example, cost per case and
PACU overnight stays).

Being ahead of the monthly finance reports is
key to justifying unfavorable variances. In the
absence of an automated scheduling system, leaders
need to develop a method or system of collecting
information that supports their ability to under-
stand and explain variances. Nurse leaders need to
understand that ongoing tracking and monitoring of
expenses are essential elements of staying on bud-
get or justifying expense. Learning how to articulate

reasons for unfavorable variances, as well as taking
the time to track activity that causes the variance,
are both important skills to develop. Finally, engag-
ing staff through education and providing financial
updates at staff meetings help cultivate a sense of
partnership and awareness.

The relationship between the nursing and finance
departments is essential. Building this relationship starts
with an acknowledgement of mutual goals and targets
followed by strategies and timelines to achieve these
goals and targets. In order to understand each other’s
point of view, work needs to occur on both sides.

Translating conditions
Nurse leaders need to learn and be comfortable with
the terms the finance department uses in order to cal-
culate and make decisions. In addition, nurse leaders
have to be able to translate their clinical and opera-
tional conditions into data and words that the finance
department can use, such as OR volume (number of
cases), first case on time start (within 5 minutes), OR
room turnaround time, PACU length of stay, PACU
overnight stays, and cost per case. Similarly, estimated
growth or decrease in volume associated with the
introduction of new equipment and technology,
throughput (movement of patients through the hospi-
tal continuum) associated with renovations or sched-
uling, and the effect of patient satisfaction scores are
other indicators nurse leaders need to include in their
conversations with the finance department.

The finance department, on the other hand, has to
see and feel the impact of patient acuity and
throughput and understand how their decisions
affect the patient and efficiency of the depart-
ment. Monthly meetings with nursing to review vari-
ances, opportunities for improvement (for example,
reduction in flow barriers), and supply standardiza-
tion are important. It is crucial to have open dialogue
and be transparent around current needs, deficien-
cies, and how that impacts performance. An
approach that has worked is joint department leader
rounding.8 Leader rounding builds relationships and
connects teams to purposeful and worthwhile work.
Rounding provides time not only to build relation-
ships, assess unit needs, and acknowledge accom-
plishments, but also to identify and remove barriers.

A picture is worth a thousand words. For exam-
ple, when the finance department wants to under-
stand why nursing overtime is so high, finance
department leaders should be taken on a tour of the

Smart Management

Copyright © 2015 Wolters Kluwer Health, Inc. All rights reserved.

overcrowded PACU late in the afternoon and first
thing in the morning to show overnight patients and
the overcrowded admitting intake area. It should be
described to finance leaders how this impacts and
delays cases for the morning. Finance leaders need
to see the impact of acuity and need to be made
aware that critically ill patients, who are waiting for a
bed in the ICU, are being monitored in the PACU
on mechanical ventilation, invasive hemodynamic
monitoring, and are receiving multiple vasopressor
drips. Nurse leaders need to meet with finance lead-
ers monthly to review and discuss details that are
important and affect both departments.

Partnering with finance
Healthcare reform, value-based purchasing, and
market share are external forces that incentivize
hospitals to increase quality and reduce spending.
Nurse leaders are the linchpin to affecting both qual-
ity and expense. Monitoring quality metrics has been

a focus for nursing for many years. Nurses and nurse
leaders are able to articulate clinical findings and
quantify the rates and trends for clinical outcomes.
Now is the time for nurse leaders to be able to
articulate conditions and metrics that have financial
implications. In the past, nurse leaders have had to
be self-taught, learning from experience about fac-
tors that affected financial performance.

Today, courses in finance are part of the curricu-
lum in graduate programs. How does a new leader
take the basics learned and apply that information to
budget development and ongoing monitoring? Nurse
leaders need to be able to track metrics and quantify
them (volume, delays, turnaround time, and PACU
overnights). Over time, a baseline and trends will
emerge. Once nurse leaders identify a baseline, it
becomes apparent when the metric exceeds or falls
below the norm. Depending upon the metric and
the relationship with the baseline, staffing plans can
be adjusted. Metrics can be used to validate the need March OR Nurse 2015 13

Copyright © 2015 Wolters Kluwer Health, Inc. All rights reserved.

Smart Management

for additional staffing and approval of overtime, per
diem, or supplemental staff.

Conversely, flexing schedules and approving
additional nonproductive time can offset decreases
in workload. Approving additional benefit time
during decreased workload periods support budget
management because staff utilize benefit time
when it is advantageous to the hospital, thus,
decreasing accrued time to be taken at a later date
during peak vacation and high volume periods.
Managing vacancy rates can also be an effective
strategy, especially if there are seasonality fluctua-
tions in volume and case type. OR


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ganizations. 2nd ed. New Jersey: Pearson Prentice Hall; 2005:191-195.

5. Tanaka M, Lee J, Ikai H, Imanaka Y. Development of efficiency in-
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6. Fixler T, Wright JG. Identification and use of operating room effi-
ciency indicators: the problem of definition. Can J Surg. 2013;56(4):

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Nadine Rosenthal is the director of nursing, Medicine Services, and
Deborah Stilgenbauer is the director of nursing, Finance, at New York-
Presbyterian/Weill Cornell Medical Center, New York, N.Y.

The authors have disclosed the following financial relationships: Dr. Nadine
Rosenthal is a legal nurse consultant with Wolpe Leibowitz Alvarez and
Fernandez LLP.

The authors would like to acknowledge: Beryl Muniz, RN, MAS, Vice
President, Perioperative Services, New York-Presbyterian/Weill Cornell
Medical Center, New York, N.Y. and Suzanne M. Boyle, RN, DNSc Vice
President, Patient Care Services/Nursing New York-Presbyterian/Weill
Cornell Medical Center, New York, N.Y.


14 OR Nurse 2015 March

Copyright © 2015 Wolters Kluwer Health, Inc. All rights reserved.

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