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Implications of Current Issues on Budgetary Planning in Healthcare

Updated on April 2, 2014

In the United States today there are many factors organizations must understand and plan for in order to develop effective budgets. Implications of the current economy, new health care legislation and the increasing Medicare population must be discussed by the leadership of the organization during budget planning.


Current Issues

The economy of the United States is declining and will be in crisis if an intervention is not carried out. As a nation, we do not save enough to finance our financial system and must borrow about $500 billion annually from the rest of the world (Bergsten, 2011). The state of the population is also declining; unemployment is high while wages are stagnant for those employed. A fundamental rebalancing of the structure of the US economy will be required to avoid a major economic crisis. One of the components to solve this dilemma is to reduce government spending in which funding for Medicare and Medicaid will be cut. This will mostly be done through reductions in payments to providers and health-care plans.

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Healthcare Organizations Role

In order for organizations to remain competitive and successful they must be up to date and be able to discuss, evaluate and plan for the current health care legislation. The Affordable Care Act seeks to provide insurance to the millions of people without insurance. This law has a high cost for the government in a time where they need to decrease government spending. In order to compensate for this, the law also provides a plan to reduce the increasing cost of Medicare. It creates a team of experts to evaluate treatments and limit government reimbursement to only those treatments shown to be effective (Pingleton, 2012). This not only cuts costs but can increase the quality of patient care and patient satisfaction. The down side is that organizations and providers must understand what treatment are covered or they will not be compensated. Providers also have incentives to “bundle’' services rather than charge by individual procedure (Pingleton, 2012). The Accountable Care Act will slow Medicare beneficiary spending growth to roughly the growth rate of the gross domestic product (Gold, 2012). This act will help balance the nations budget while reducing payments to organizations and providers. The Center for Medicare and Medicaid Services (CMS) goal is to improve the quality, safety and efficiency of care through financial incentives. Through quality measures, value-based purchasing and the Health Information Technology for Economic and Clinical Health Act (HITECH or 'meaningful use') CMS monitors organization practices giving incentives or enforcing penalties depending on the program (Pingleton, 2012). Organizations that are not compliant with CMS goals and legislation changes can lose a significant amount of money.

Medicare affects on Healthcare Budgets

The effect of an increasing Medicare population is different for different organizations. In a hospital setting, an increasing Medicare population correlates with an increase of the inpatient hospital population (Strunk, Ginsburg, & Banker, 2006). The challenge for hospitals is to prepare for this increase to maximize profits. In order to do this, it is imperative to understand current and new Medicare legislation and budgeting appropriately. In order to project the possible socioeconomic outcomes and their implications on the budget, leaders must know how to discuss the issues effectively group members. A Good leader does this by:

  • Distribute an outline of issues before the discussion so that everyone is on the same page and have time to prepare questions or propose new ideas.
  • Encourage participation and allow enough time for everyone to participate.
  • Discuss different view points and don't judge or criticize ideas.
  • Identify areas of agreement and disagreement.
  • Encourage people to relax, laugh and have fun.


Budgetary planning involves evaluation of the economy, legislation, and the increasing Medicare population. Medicare reimbursement assumptions are made according to the estimated Medicare population and projected cut backs on Medicare reimbursement rates. As the economy declines, leading to the population having less disposable income, the hospital volume declines and the patient mix changes. New legislation can lead to new payer mix changes and how or when reimbursements are made. It is important to acknowledge these changes, adapt to them and incorporate them in the devolvement of the budget.


Bergsten, C. F. (2011, October). U.S. economy: beyond a quick fix. Vital Speeches of the Day, 348-354. Retrieved from

Gold, M. (2012, March 29). Medicare advantage - lessons for Medicare’s future. The New England Journal of Medicine, 366(13), 1174-1177.

Pingleton, S. K. (2012, July). Millennial health care change you can believe in. CHEST, 22(1), 22-29.

Strunk, B. C., Ginsburg, P. B., & Banker, M. I. (2006, May). The effect of population aging on future hospital demand. Health Affairs, 25(3), w141-w149.


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