HLTH420 IP 3 NEW

Your facility has the following payer mix:
40% commercial insurances
25% Medicare insurance
15% Medicaid insurance
15% liability insurance
5% all others including self-pay

Write a 3-4 page report that addresses the following requirements:

Assume that for the time in question you have 2000 cases in the proportions above. (what are the proportions of the total cases for each payer?)
The average Medicare rate for each case is $6200- use this as the baseline. Commercial insurances average 110% of Medicare, Medicaid averages 65% of Medicare, Liability insurers average 200% of Medicare and the others average 100% of Medicare rates. (what are the individual reimbursement rates for all 5 payers?)
  1. What are the expected rates of reimbursement for this time frame for each payer? What is your expected A/R?
  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.
  3. What is the difference between the two A/R rates above? Can you collect it from the patient? What happens to the difference?
  4. Which of these costs are fixed? Which are variable? Direct or indirect?
    • materials/supplies (gowns, drapes, bedsheets)
    • Wages (nurses, technicians)
    • Utility, building, usage exp (lights, heat, technology)
    • Medications
    • Licensing of facility
    • Per diem staff
    • Insurances (malpractice, business etc.)
  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
  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.
  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?

Answers:

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1. Commercial $6,820.00,
Medicare $6,200.00
Medicaid $4,030.00
Liability $12,400.00
Self-pay/Others $6200.00
Total A/R: $14,105,000.00
2. $12,400*125% = $15,500.00, $15,500*2000= $31,000,000
3. $16,895,000.00; You may not collect over R/C contracted fees if you are a Participating Provider. However you would be able to collect the difference on a self-pay patient. Differences for contractual payers would need to be a write-off
4. Fixed: Wages-salaried (nurses, technicians) , Licensing of facility, Insurances (malpractice, business etc.)
Variable: Utility, building, usage exp (lights, heat, technology), materials/supplies (gowns, drapes, bedsheets), Medications, Per diem staff;
Direct: Wages-salaried (nurses, technicians), materials/supplies (gowns, drapes, bedsheets), Medications, Per diem staff;
Indirect: Utility/building, Licensing of facility, Insurances
5. Contribution Margin = Sales—Variable Costs $14,105,000.00-($3395.00*2000)= $7,315,000.00; $7,315,000/2000= CM per case of $3657.50
6. Breakeven Volume = Fixed Costs / Contribution Margin per unit , $4,350,000/3657.50= 1189.3
7. Profit = (volume x contribution margin per unit) – fixed costs,
$150,000.00= $3657.50V – $4,350,000,
$4,500,000=$3657.50V
$4,500,000/$3657.50=V
1230.3=V
Volume required to generate $150,000 is 1230 units.

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