Organizations in industries outside of healthcare started ditching their static annual budgets years ago in favor of the more proactive option of a rolling budget. This trend has now hit the healthcare industry, and systems across the nation are using this forward-looking approach for their operating budgets rather than hindsight analysis.
One health system that has made this switch is Asheville, N.C.-based Mission Health. This was not a change that happened overnight, as the seven-hospital system started exploring whether to make the transition to a rolling budget more than two years ago.
Mission looked at the value derived from its annual static budget and realized it wasn’t worth the time and energy spent on it. Mission was dedicating a significant amount of time to its annual budget — three to five months — only to find it sometimes lost its relevance after just one quarter.
After doing an internal evaluation, Mission examined why others in the healthcare industry were making the switch to a rolling budget. “The more we looked into the reasons why others had made this change we re-examined the comparison and it made sense for us,” says Larry Hill, vice president of finance at Mission.
Mission decided to make the switch, and it began working with Strata Decision Technology in late 2014. “I remember when we announced to our leadership at large that we aren’t going to do a budget this year. There was a lot of cheering,” says Mr. Hill.
Although Mission is still in the planning stage and hasn’t fully implemented its new system, it has big plans for the future.
“Even though we won’t go through this big annual push, we are still planning to produce an annual target for our own compatibility,” says Mr. Hill. “And the difference will be that our numbers and targets are going to be different every quarter.” This switch will allow the system to be more proactive. “If we’re doing great we can celebrate or make plans to push that greatness forward. If we’re off target, hopefully it gives us more time to react,” he says.
There are two main pieces to Mission’s rolling budget process: forecasting and management accountability.
“For our system, we’re forecasting at the hospital level and we have a group of stakeholders at that level for producing those forecasts,” says Mr. Hill. Mission also has systemwide meetings to collaborate on results. “The system has a first pass result, and if those results are not in line with long-term operating cash flow margins then we go back and overlay additional strategies to update the forecasting,” says Mr. Hill.
Since Mission decided to transition to a rolling budget, the system has received many calls from others in the industry who are interested in learning more about Mission’s planning and experience. “Many are thinking about it and are on the fence,” says Mr. Hill.
Mr. Hill says it is reaffirming that other industries have used this model and had tremendous success with it. “Jack Welch and GE didn’t believe in budgets. He believed in forecasting and continuous improvements,” he says.