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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?)

1. What are the expected rates of reimbursement for this time frame for each payer? What is your expected A/R? (Account Receivable)
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
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?

Subject Pages Style Business 7 APA

Evaluating Financial Statements

Evaluating Financial Statements

1). Calculation of Pay Per Case

 Evaluating Financial Statements Commercial Insurance 40% 0.4 x 2000 800 Medical Insurance 25% 0.25 x 2000 500 Medicaid Insurance 15% .15 x 2000 300 Liability Insurance 15% .15 x 2000 300 Others 5% 0.05 x 2000 100 Total 2000 Commercial Insurance 110% 6200 6820 Medical Insurance 100% 6200 6200 Medicaid Insurance 65% 6200 4030 Liability Insurance 200% 6200 12400 Others 100% 6200 6200 Total 35650

 Accounts Receivable Per Pay Payers (% of Medicare Payment) % of Cases No. of Cases 2000 Pay Per Case No of Cases x Pay A/R per Pay Cx2000 D x F Commercial (110%) 40% 800 6820 6820×800 5,456,000.00 Medicare (100%) 25% 500 6200 6200×500 3,100,000.00 Medicaid (65%) 15% 300 4030 4030×300 1,209,000.00 Liability (200%) 15% 300 12400 300×12400 3,720,000.00 Sel-Pay (100) 5% 100 6200 6200*100 620,000.00 14,105,000.00

The expected A/R = 14,105,000/2000 = 7052.50 (EHR Medicare Calculations Payments, 2013).

2).

 Pay Per Case 6820 125% 8525 Commercial 6200 7750 40% 6200 125% 7750 6200 7750 25% 4030 125% 5037.5 6200 7750 15% 12400 125% 15500 6200 7750 15% 6200 125% 7750 6200 7750 5% 44562.5 Total A/R = 44562.50/2000= 22.28125

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).

 Materials/supplies (Gowns, drapes, bed sheets) Variable Direct wages Fixed Direct Utility and usage Expenses Fixed indirect Building Fixed indirect Medications Variable indirect Licensing of facility fixed indirect 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.

 Price per case 6200 FC 6,600,000.00 VC 1300 CM 4900 B/even(FC/CM) 1,346.94 VC 1,751,020.41 FC 6,600,000.00 Total Expenses 8,351,020.41 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 =

 Price per case 6200 FC 6,600,000.00 VC 1300 CM 4900 B/even(FC/CM) 1,346.94 150,000 units 30.611224 VC 1,790,815.00 FC 6,600,000.00 Total Expenses 8,390,815.00 Total Revenues 8,540,810.00 Profit 149,995 For 150,000 150,000/4900 30.611224 Total Units to be sold are 1,346.94 B/even units + 30.611224 1,377.55

Total units to be sold to make 150,000 profit = 1,377.55 (Acorn, n, d)