Question
Evaluating Financial Statements
Deliverable Length: 3 to 4 pages excluding cover, abstract and reference pages. (APA FORMAT). Students need to support their work with at least 4 academic or professional peer-reviewed sources published within the past 5 years.
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?)
- What are the expected rates of reimbursement for this time frame for each payer? What is your expected A/R? (Account Receivable)
- 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.
- What is the difference between the two A/R rates above? Can you collect it from the patient? What happens to the difference?
- 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.)
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| Subject | Nursing | Pages | 5 | Style | APA |
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Answer
Evaluating Financial Statements
1). Calculation of Pay Per Case
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Evaluating Financial Statements |
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Commercial Insurance |
40% |
0.4 x 2000 |
800 |
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Medical Insurance |
25% |
0.25 x 2000 |
500 |
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Medicaid Insurance |
15% |
.15 x 2000 |
300 |
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Liability Insurance |
15% |
.15 x 2000 |
300 |
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Others |
5% |
0.05 x 2000 |
100 |
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Total |
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2000 |
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Commercial Insurance |
110% |
6200 |
6820 |
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Medical Insurance |
100% |
6200 |
6200 |
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Medicaid Insurance |
65% |
6200 |
4030 |
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Liability Insurance |
200% |
6200 |
12400 |
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Others |
100% |
6200 |
6200 |
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Total |
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35650 |
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Accounts Receivable Per Pay |
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Payers (% of Medicare Payment) |
% of Cases |
No. of Cases 2000 |
Pay Per Case |
No of Cases x Pay |
A/R per Pay |
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Cx2000 |
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D x F |
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Commercial (110%) |
40% |
800 |
6820 |
6820x800 |
5,456,000.00 |
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Medicare (100%) |
25% |
500 |
6200 |
6200x500 |
3,100,000.00 |
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Medicaid (65%) |
15% |
300 |
4030 |
4030x300 |
1,209,000.00 |
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Liability (200%) |
15% |
300 |
12400 |
300x12400 |
3,720,000.00 |
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Sel-Pay (100) |
5% |
100 |
6200 |
6200*100 |
620,000.00 |
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14,105,000.00 |
The expected A/R = 14,105,000/2000 = 7052.50 (EHR Medicare Calculations Payments, 2013).
2).
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Pay Per Case |
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6820 |
125% |
8525 |
Commercial |
6200 |
7750 |
40% |
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6200 |
125% |
7750 |
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6200 |
7750 |
25% |
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4030 |
125% |
5037.5 |
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6200 |
7750 |
15% |
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12400 |
125% |
15500 |
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6200 |
7750 |
15% |
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6200 |
125% |
7750 |
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6200 |
7750 |
5% |
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44562.5 |
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Total A/R = |
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44562.50/2000= |
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22.28125 |
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Total A/R = 44562.50/2000 = 22.28125
3). The difference between the two above
7750 – 6200 = 1550
Formula Charge per case x 2000 = TTL Gross =
TTL Gross – Total A/R = $44562.50 – 14, 105 = 30, 457. 50
This is the amount that cannot be collected for contractual payers.
4).
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Materials/supplies (Gowns, drapes, bed sheets) |
Variable |
Direct |
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wages |
Fixed |
Direct |
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Utility and usage Expenses |
Fixed |
indirect |
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Building |
Fixed |
indirect |
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Medications |
Variable |
indirect |
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Licensing of facility |
fixed |
indirect |
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Per diem staff |
variable |
indirect |
(Homecare & Hospice, 2013)
5). Break even analysis is part of cost-volume profit analysis or CVP. Cost-volume profit analysis is a process that analyzes how profit changes in consideration to the variable and fixed costs including the selling price and the quantities of goods being sold. Break even means a point where an organization makes no losses or profit. The total expenses equal all the total revenues earned.
Assumption Price of each case 6,200
Contribution margin per case Price – Variable cost
CM = 6200 – 1300 = 4,900
6) a). Materials/Supplies - $2270 = Variable Costs b). Wages – 2000 = Fixed c). Utility, building, usage – 1125 = fixed d). Insurance – 175 = fixed.
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Price per case |
6200 |
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FC |
6,600,000.00 |
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VC |
1300 |
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CM |
4900 |
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B/even(FC/CM) |
1,346.94 |
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VC |
1,751,020.41 |
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FC |
6,600,000.00 |
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Total Expenses |
8,351,020.41 |
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Total Revenues |
8,351,020.41 |
Total fixed costs = 3300*2000 = 6,600,000
Total variable costs =2270
Breakeven Units = Fixed Costs/CM = 6,600,000/4900 = 1346.94 units
(Brealey, Myers, Marcus, Maynes & Mitra, 2009)
7). To make $150,000 profit then the amount would be added to the Breakeven point =
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Price per case |
6200 |
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FC |
6,600,000.00 |
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VC |
1300 |
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CM |
4900 |
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B/even(FC/CM) |
1,346.94 |
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150,000 units |
30.611224 |
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VC |
1,790,815.00 |
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FC |
6,600,000.00 |
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Total Expenses |
8,390,815.00 |
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Total Revenues |
8,540,810.00 |
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Profit |
149,995 |
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For 150,000 |
150,000/4900 |
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30.611224 |
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Total Units to be sold are |
1,346.94 |
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B/even units + 30.611224 |
1,377.55 |
Total units to be sold to make 150,000 profit = 1,377.55 (Acorn, n, d)
References
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Acorn (n, d) Chapter 5 Breakeven Analysis (CVP Analysis) retrieved August 5, 2017 from http://www.acornlive.com/demos/pdf/P2_PM_Chapter_5.pdf Brealey, R., Myers, S., Marcus, A., Maynes, E. & Mitra, D. (2009) Fundamentals of Corporate Finance. McGraw-Hill Ryerson. USA. pp. 284 EHR Medicare Calculations Payments (2013) Medicare calculations retrieved August 5, 2017 from https://www.cms.gov/Regulations-and-Guidance/Legislation/EHRIncentivePrograms/Downloads/MLN_TipSheet_MedicareHospitals.pdf Homecare & Hospice (2013) Rate Rebasing in Medicare Home health Services retrieved August 5, 2017 from http://www.congressweb.com/nahc/docfiles/Home%20Health%20Rebasing%20White%20Paper.pdf
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