HLTH 6840 Week 10 Policy Budget Impact Paper Example

Budget Impact of the Phased Medical-Surgical Ratio: Who Pays, in Which Year and Out of Which Line, With Every Assumption Stated

Student Name

Walden University

HLTH 6840: Health Policy and Management

Instructor Name

Month Day, Year

Budget Impact of the Phased Medical-Surgical Ratio: Who Pays, in Which Year and Out of Which Line, With Every Assumption Stated

Scope and Method

This document estimates, for the committee's budget discussion, the impact of Option B, the phased medical-surgical ratio, in the composite state over five years from enactment. It separates costs by who pays, hospitals or the state, and shows offsets on their own line so readers can see how much the net figure depends on them. Every quantity is built from an assumption in the register below, described by type and attributed to the kind of source a real analysis would use; because the state is a composite for this course, the values are illustrative. A sensitivity pass then shows how the result changes when the most uncertain assumptions change.

Assumption Register

Table 1 lists the assumptions.

Table 1

Assumption Register (Illustrative Values, Composite State)

How the Staffing Need Is Calculated

With 5.6 patients for each nurse, a census of 9,000 requires about 1,607 nurses on duty at a time. At five patients per nurse, it requires 1,800, an increase of 193 positions; at four, 2,250, an increase of 643. Each position staffed around the clock needs about 5.2 full-time equivalents, so phase 1 requires about 1,004 added FTEs and phase 2 about 3,344 in total. At $120,000 each, that is about $120.5 million a year in phase 1 and $401.3 million a year in phase 2. Because the calculation uses a statewide average, it understates the need in hospitals above the average and overstates it slightly where hospitals already staff below the ratio, since those hospitals would not reduce staff; the net effect is likely an underestimate, which the sensitivity pass addresses.

Costs and Offsets by Year

Table 2 sets out the five-year budget impact. Phase 1 takes effect at the start of year 2 and phase 2 at the start of year 4.

Table 2

Five-Year Budget Impact, Base Case (Millions of Dollars, Illustrative)

Who Pays, and Out of Which Line

Almost all gross cost falls on hospital operating budgets, in the nursing salary and contract labor lines. The state's cost is small, about $440,000 a year drawn from the health department's licensing budget line, but it matters because without it rules and enforcement would lag. Offsets do not fall neatly in the same lines. Shorter stays reduce hospital costs under fixed per-case payments, so hospitals capture some savings; fewer readmissions reduce payer spending more than hospital costs, and under some payment arrangements fewer readmissions reduce hospital revenue. Hospitals may also save on turnover, since lighter workloads are associated with less burnout and job dissatisfaction (Aiken et al., 2002), though the base case does not count those savings separately. The base case assigns offsets to hospitals and payers together, but a hospital chief financial officer would see less than the full offset in the nursing department's budget.

Sensitivity Pass

Three assumptions drive the result. Offsets. If offsets are zero, year 5 net impact rises to about $441 million; if they reach 200% of added staffing cost, roughly what a Queensland evaluation reported, where avoided costs exceeded twice the cost of added nurses (McHugh et al., 2021), year 5 becomes a net saving of about $361 million. Agency share. If agency staffing in year 4 is 50% rather than 30%, cost rises by about $45 million that year. Census and hospital variation. If the true need is 20% higher, as it could be than the average-based calculation because of variation across hospitals, phase 2 staffing cost rises by about $80 million a year. The sign of the net result, cost or saving, depends mainly on offsets, which is why the evaluation plan should measure them directly. A reader who doubts any figure can replace it in the register and rerun the arithmetic, which is the purpose of stating every assumption.

What the Budget Impact Shows

On the base case, the ratio is a substantial net cost to hospitals, small in year 1, around $80 million to $95 million a year in phase 1 and around $240 million to $280 million a year in phase 2. The state's direct cost is minor by comparison. Whether the policy is a net cost to the health system as a whole depends on offsets that published evaluations suggest could be large (Lasater et al., 2021; McHugh et al., 2021) but that accrue partly outside hospital budgets. Two practical implications follow for the committee: the bill should fund an evaluation that measures offsets in the state's own hospitals, and the committee should consider whether payers who capture savings should contribute, for example through rate adjustments, to the hospitals that bear the cost.

References

Aiken, L. H., Clarke, S. P., Sloane, D. M., Sochalski, J., & Silber, J. H. (2002). Hospital nurse staffing and patient mortality, nurse burnout, and job dissatisfaction. JAMA, 288(16), 1987-1993. https://doi.org/10.1001/jama.288.16.1987

Lasater, K. B., Aiken, L. H., Sloane, D. M., French, R., Martin, B., Alexander, M., & McHugh, M. D. (2021). Patient outcomes and cost savings associated with hospital safe nurse staffing legislation: An observational study. BMJ Open, 11(12), Article e052899. https://doi.org/10.1136/bmjopen-2021-052899

McHugh, M. D., Aiken, L. H., Sloane, D. M., Windsor, C., Douglas, C., & Yates, P. (2021). Effects of nurse-to-patient ratio legislation on nurse staffing and patient mortality, readmissions, and length of stay: A prospective study in a panel of hospitals. The Lancet, 397(10288), 1905-1913. https://doi.org/10.1016/S0140-6736(21)00768-6