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 peerreviewed 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 selfpay
Write a 34page 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.)
 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
 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.
 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  Business  Pages  7  Style  APA 

Answer
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 
SelPay (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 costvolume profit analysis or CVP. Costvolume 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)
References
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