MMHA 6475 Week 7 Program Operating Budget Example

What Tamarack Hospital at Home Costs to Start and to Run: An Operating Budget With Break-Even Analysis

Student Name

Walden University

MMHA 6475: Program Planning, Implementation, and Evaluation

Instructor Name

Month Day, Year

What Tamarack Hospital at Home Costs to Start and to Run: An Operating Budget With Break-Even Analysis

Approach

This budget covers the start-up costs of Tamarack Health's hospital-at-home program and one year of operation at an average daily census of six patients. Every line refers to the numbered box on the Week 4 logic diagram that it funds, so the finance committee can see what each dollar buys. Amounts are round illustrative figures; an organization would replace them with its own salary scales, vendor quotes and payer rates. Revenue is shown separately, with its assumptions stated, because payment for home hospital care depends on contracts and on federal waiver rules that may change. Budgets for new programs should separate one-time from recurring costs and test the volumes on which the plan depends (Finkler et al., 2019).

Start-Up Costs

Table 1 lists the one-time costs of building the program.

Table 1

One-Time Start-Up Costs (Illustrative)

Recurring Costs

Table 2 lists one year of operating costs, separated into fixed costs that do not change with the number of episodes and variable costs that do.

Table 2

Annual Recurring Costs (Illustrative)

Notes on Costs

Staff account for most of the fixed cost. Six visiting nurse positions allow two visits a day for six patients, seven days a week, with travel time and coverage for leave. The command center needs 5.2 positions to keep one nurse on duty around the clock. Hospitalist time is budgeted as a dedicated share of a physician's effort rather than as extra work for the inpatient team, because rounding by video still takes time and early programs that added it to existing workloads struggled to keep physicians engaged. These positions are fixed within the planned census: the program pays for them whether it has four patients or eight. Variable costs, which rise with each episode, are mainly paramedic visits, courier deliveries, supplies and home testing.

Revenue

Revenue is shown separately because it depends on payer decisions outside the program's control. The budget assumes average revenue of $7,800 per episode, an illustrative figure reflecting a mix of Medicare episodes paid as inpatient stays under the federal waiver that allows hospital care at home, Medicare Advantage contracts paying a negotiated case rate and commercial contracts. Three assumptions underlie it: that the federal waiver remains in place, that at least one major commercial payer signs an agreement, and that the average episode falls into payment groups similar to those of comparable inpatients. If the waiver lapsed, Medicare revenue would fall sharply, and the program would depend on commercial and Medicare Advantage contracts.

Break-Even

Break-even volume is the number of episodes at which revenue covers recurring costs:

Break-even episodes = annual fixed costs / (revenue per episode minus variable cost per episode)

With the illustrative figures, each episode contributes $7,800 minus $1,150, or $6,650, toward fixed costs. Fixed costs of $1,969,600 divided by $6,650 give a break-even point of about 297 episodes a year. At an average stay of about four and a half days, a full census of six patients would produce roughly 480 episodes a year. The program therefore breaks even at about 62% of its planned capacity.

The figure is sensitive to volume. At 240 episodes a year, revenue of $6,650 per episode would cover only $1,596,000 of fixed costs, leaving a shortfall of about $373,600. At 360 episodes, the program would produce a surplus of about $424,400. Because pilot volume will be lower than full capacity, the program is likely to run at a loss during its first months, which the start-up funding should cover. The break-even point also excludes the value of freed inpatient beds, which may allow the flagship campus to admit more patients; that value is real but harder to measure and is treated as a separate benefit in the evaluation.

Implications for the Proposal

The Week 3 maintenance objective calls for recurring costs to move into the operating budget by month 18. The break-even analysis shows that this is realistic only if the program reaches roughly 300 episodes a year, which depends on adopting the second and third hospitalist groups on schedule. The budget should therefore be read together with the launch plan: if referral volume lags, the program will need either more launch funding or a narrower staffing model. A finance committee reviewing this budget should ask for a quarterly comparison of actual episodes with the break-even line, so that a volume shortfall is seen early (Finkler et al., 2019).

How the Budget Compares With Published Evidence

Published studies offer a check on the budget's logic, though not on its figures. The original multisite study reported lower mean costs for home episodes than for comparable inpatient stays (Leff et al., 2005), and the later randomized trial found that the direct cost of the acute care episode at home was substantially lower than in the hospital, driven largely by lower labor costs and fewer laboratory and imaging tests (Levine et al., 2020). Tamarack's budget follows the same pattern: its variable cost per episode is modest, and most of its cost is fixed staffing that becomes efficient only at sufficient volume. The studies were conducted at academic centers with established programs, so Tamarack should expect its first-year cost per episode to be higher than theirs until volume grows.

References

Finkler, S. A., Smith, D. L., & Calabrese, T. D. (2019). Financial management for public, health, and not-for-profit organizations (6th ed.). CQ Press.

Leff, B., Burton, L., Mader, S. L., Naughton, B., Burl, J., Inouye, S. K., Greenough, W. B., III, Guido, S., Langston, C., Frick, K. D., Steinwachs, D., & Burton, J. R. (2005). Hospital at home: Feasibility and outcomes of a program to provide hospital-level care at home for acutely ill older patients. Annals of Internal Medicine, 143(11), 798-808. https://doi.org/10.7326/0003-4819-143-11-200512060-00008

Levine, D. M., Ouchi, K., Blanchfield, B., Saenz, A., Burke, K., Paz, M., Diamond, K., Pu, C. T., & Schnipper, J. L. (2020). Hospital-level care at home for acutely ill adults: A randomized controlled trial. Annals of Internal Medicine, 172(2), 77-85. https://doi.org/10.7326/M19-0600