Health care finance
Health care finance
1. What are the expected rates of reimbursement for this time frame for each payer? What is your expected A/R?
Percentage of Medicare payments (Payers) Percentage of
Cases (%) Number of
Cases (#) Pay per
case number of cases x
pay A/R per
Commercial (110%) 800 6,820.00 $6,820×800 5,454,000.00
Medicare (100%) 500 6,200 $6,200 x 500 3,100,000.00
Medicaid (65%) 200 4030 $4030 x 200 806,000.00
Liability (200%) 200 12400 $12,400 x 200 2,480,000.00
Self-Pay/other (100%) 300 6200 $6,200 x 300 1,860,000.00
Total A/R 13,7000,000.00/2000
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The table indicates different levels of rates subjected to different payers. To arrive at the answer the following computations has to be adjusted.
How was the solution reached =
The expected A/R = (2000 x 40% x 6280 + 2000 x 65% x 4030 + 2000 x 25% x 6200 + 2000 x 15% x 12400 + 2000 x 5% x 6200)/2000 = 6850
The expected A/R is positive implying that it’s a viable reimbursement policy which should continue. The value is also high considering the risk related to the work hence a positive number in an improvement.
2. What rate should you charge for these services (assuming one charge rate for all payers)? (This gives you your total A/R.) Calculate the total charges for all cases based on this rate.
Considering other factors, rates charged should be lower and affordable and that will provide enough amount of A/R. To create the charges give the following consideration:
Assume there is a charge rate for all = 120%
Commercial Insurance =120%*6200 = $7440 (40%) 2000*40*7440=59,552,000
Medicare Insurance=120%*6200=$7440 (25%) 2000*25*7440=3,720,000
Medicaid Insurance=120%*6200=$7440 (15%) 2000*15*7440=2,232,000
Liability Insurance=120%*6200=$7400 (15%) 2000*.15*7440=2,232,000
Other Insurance120%*6200=$7400 (5%) 2000*.05*7440=744,000
Problem is=Total A/R= AMOUNT DIVIDED BY 2000 Total A/R = 68,480,000/2000 = 34,240
3. What is the difference between the two A/R rates above? Can you collect it from the patient? What happens to the difference?
There can be existence of having a difference between the calculated A/R of the reimbursement scheme. For this to happen (for the difference to exists), under the assumed rate of 120%, there must in each case exist the expected charges that are expected to be either lower than the projections or higher than the targets. It therefore implies that there will be the difference existing between the two computed A/R, and the difference can be collected at different amount form each patient (Barker, n.d). Difference in this case is to be determined by the average versus the reimbursement rate in each patient category. And depending on the rates of return set for the cases of fixed rate, the rate of payment is expected to either go higher or lower.
4. Which of these costs are fixed? Which are variable? Direct or indirect?, materials/supplies (gowns, drapes, bedsheets), Wages (nurses, technicians), Utility, building, usage expenses (lights, heat, technology), Medications, Licensing of facility, Per diem staff, Insurances (malpractice, business etc.)
Fixed Variables Direct Indirect
Materials/supplies (gowns, drapes, bedroom sheets X X
Wages (nurses, technicians) X X
Utility, building, usages exp. (lights, heat, technology) X X
Medications X X
Licensing of facility X X
Per Diem staff X X
Insurance (malpractice, business etc.) X x
Fixed costs are the cost that does not change with the change in any other dependent variable while the variable costs are those costs that are affected by the change in dependent variable. Also direct costs are the cost that can be traced back to the source of the raw materials while in direct costs are those costs that cannot be traced back or linked to the raw materials. Therefore in the context of classification of costs shown in the table above, they have been classified based on their nature and purpose.
5. Calculate the contribution margin for one case (in $) with the following costs for this period, per case: a. materials/supplies: $2270 b. Wages: $2000 c. Utility, building, usage exp: $1125 d. Insurances (malpractice, business etc.): $175
Contribution margin is the amount that remains after subtracting the variable costs from revenues generated by a business (Schmitt, n.d). It is the amount that remains to cover the fixed expenses of the business. It is calculated by subtracting the variable costs form the revenue and dividing the difference by the available units to determine margin per unit.
Materials and supplies= $2270
Utility, building, usage expenses $1125
Contribution margin-variable cost = 5570 – 2270 = 3300/2000 = 1.65 units
6. Using the above information, determine which is fixed and which cost is variable. Then calculate the breakeven volume of cases in units for this period.
Fixed costs are the cost that does not change with changes in dependent variables, while the variable costs are those cost that depends and varies as dependent variable changes (Barker, n.d).
Contribution margin is: == Revenue-variable cost
= $ 7052 – $ 2270 – $ 1125 = $ 3657/ 2000 = $ 1.825 per unit
Breakeven point = Fixed cost/contribution margin
Breakeven point = $ 2175/ $ 1.875 = 1189 units
7. Suppose you want to make $150,000 profit between this period and next period to fund an expansion to the NICU, how many cases would you have to see? At what payer mix would this be optimal?
Breakeven point is the point at which the company’s sales covers their expenses.
Breakeven point of this project = Fixed cost / contribution margin
$ 150,000 would =$2175/ contribution
After contribution, the contribution margin would be = $ 150,000/ $ 2175 = 68.96 dollars per unit
Author, N. (2013). Accounts Payable and Recievable. Retrieved from Intellipath:
Author, N. (2013). Evaluating Financial Statements . Retrieved from Muse: https://class.aiu
Baker, B. (n.d.). Health Care Finance: Basic Tools for Nonfinancial Managers . Jones &
Schmitt, M. (n.d.). Unit 3 IP Instructions and Calculations.
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