401362 Summary Of A Budget Interpretation: Health Services Financing Assessment Answer

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Question :

401362 Health Services Financing Autumn 2020

Unit Details

Unit Code:
Unit Name:
Health Services Financing
Credit Points:
Unit Level:
Assumed Knowledge:
Competent use of Microsoft Excel, and high school mathematics (arithmetic, formulas and algebra, reading graphs).

1.1.1 Summary: Summary of a Budget Interpretation

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Word file
500 words
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Understanding and interpreting budgeting information is crucial when addressing organisation strategic priorities, planning and evaluating the effectiveness of the organisation. Health services managers must interpret budgets to identify elements that should be discussed in future planning meetings. This may include areas where expenses are higher than anticipated or may not be operating in the most cost-effective manner.


For this task, students will be provided a sample budget for a health service. Students will need to interpret the budget and then provide a summary of their findings and key discussion points that would be addressed in a review of the service’s performance throughout the fiscal year. The budget summary should present budget and actual transactions in summary form. This assists individuals in fiscal roles understand how the actual revenues compare to the budget and how actuals in the current fiscal year compare to previous fiscal years. Providing a budget summary helps identify where activity can be increased or where it may be necessary to reduce activity.

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Answer :

Summary of Budget Interpretation

Budgets are prepared for two main reasons - Firstly to forecast the future year activities based upon the past years performance and secondly to evaluate the actual performance in the year with the budget/forecast. The process becomes very important in health care organizations’ as the funding of these organizations is based upon the forecasted level of activities. Also the spending of the funds can be diverted to the all the departments based upon the forecasted activities (Stratadecsisons.com, 2020).  

The budget schedule C of Nepean Blue Mountains Local Health District in NSW uses Activity Based Funding and so they are analyzed for year 18-19 and 19-20 to evaluate the cost and level of services provided by the health care during the two years as compared to the forecasted activities and observe the expenditure of the funds so that the revenue budget for the future years can be prepared more specifically and funds can be diverted efficiently (Ihpa.gov.au, 2020). 

The summary of the forecasted activities, budget and variance  for the two areas is as follows:

2018-19Variance (initial vs annualized)2019-20Variance (initial vs annualized)
State price $4,713
Forecasted Volume (NWAU 18) [Acute admitted, emergency and non-admitted]123,3795.4%126,8414.8%
Forecasted Volume (NWAU) [Sub Acute services ]10,0284.1%10,3974.1%
Forecasted Volume (NWAU) [Mental health]11,7084.4%12,3733.2%

The expense budget for each category is  calculated at lower of the PAC or  state price for NWAU while the growth funding is provided at State Price.  Thus if the PAC is less than the state price the districts are funded for the growth activity at higher rate than the cost. It can be seen that there is growth activity for about 4-5% in acute and non-acute services while it is 3.2% in mental health services. The PAC in 2018-19 is less than the state price and thus the funding to the district is higher than the cost for services but in 19-20 the  PAC is marginally less than the state price.  

The district health care thus needs to check into the PAC calculations. The PAC does not include the cost of mental health sub acute and non-grouped Sub-acute activity. However there have been growth in these activities in the last two years. Mental health activity is block funded or shadow funding is done for the activity, the increase in the activity however needs that it should be included in the Activity based Funding. However transition grant is received by the district health care as the PAC is greater than stet price in 19-20,  the  grant is discouraged and the state restricts the utilization of the grant to certain growth areas only. 

From the above analysis, it is observed that the district needs to focus upon two things urgently-firstly, it needs to re-evaluate the PAC of its activities by identifying the key drivers applying the Activity Based costing system more efficiently. The increase in growth activity will lead to budget deficiency if PAC is significantly less than state price. The district will have to revise the process of volume forecast (NWAU) and will need to address it separately.  Secondly, since the mental health services (admitted acute and sub-acute) and non-admitted services are increasing, there should be proposed a separate and dedicated funding for this category also.