The Crimson Press Curriculum Center

First Page and the Assignment Questions:
This is not why I went to medical school! Preparing a budget was okay when it was just a rough guesstimate of the upcoming year, but to have to work with this level of precision is beyond the beyond.

The speaker was Robert Clark, MD, Head of the Division of Gastroenterology in the Department of Medicine at Southern Seattle University School of Medicine. Dr. Clark, along with the other division heads in the department, had recently been asked to prepare a detailed forecast of the financial implications of how each of the physicians in his division planned to spend their time in the upcoming year. He was not happy:

Lawyers and accountants keep track of the details of their days, but not physicians. Not only is this excessive detail but it’s totally disrespectful!

BACKGROUND

Southern Seattle University Health System (SSUHS) comprised Southern Seattle University Medical Center (SSUMC) and the Southern Health Network. Organizational details, including an organizational chart, are contained in the Southern Seattle University Health System (A) case.

Jonathan Wilson, M.D., the Chair of the Department of Medicine had recently asked his 12 division heads to submit budgets for the upcoming fiscal year. He had not been pleased with the results. He commented:

If we were operating in the same environment we were 2 or 3 years ago, most of the budgets would be fine, but we’re not. Managed care is discounting our fees deeply, for example, Moreover, there are going to be some personnel changes taking place in some of the divisions (retirements, and so forth) and the heads seemed to be completely ignoring their financial impact.

   I’m not planning to decrease a division head’s autonomy, by the way. I still think they’re the best judge of what they need. But if a division such as gastroenterology falls short of its financial projections, the entire department suffers, so I felt that the only approach was to force them to be more serious.

ACTIVITY-BASED BUDGETING

With the assistance of an external consultant, Dr. Wilson had developed what he was calling an“activity-based” approach to budgeting for each of his divisions. Under this approach, each faculty member was asked to project how he or she would spend the 220 work days in a year. He commented on some of the thinking that underlay the approach:

There are many ways to budget faculty effort, and ABB [activity-based budgeting] is a bit unusual. Many places like to think in percentages, but the problem with that is the percentages initially add to more than 100, and then you have to play games to get them adjusted. This can cause problems with the auditors especially if some of the time is NIH- funded.

Assignment

1.    Using Dr. Clark’s estimates, the information in Exhibit 1 from this case and Exhibit 4 from the (A) case, and making assumptions where necessary, prepare a budget for the Division of Gastroenterology for the upcoming year. How does your budget compare to Dr. Clark’s budget in Exhibit 5 of the (A) case? What accounts for the differences?

2.   Do you think this budget will achieve an appropriate balance among research, teaching, and clinical care? If not, how would you change it?

3.   Do you think Dr. Clark can achieve the results forecast in this budget? If not, why not?