Question

Assignment Details 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 2,000 cases in the proportions above. What are the proportions of the total cases for each payer? The average Medicare rate for each case is $6,200. 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? 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 the following costs are fixed, which are variable, and which are 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, and so on) Calculate the contribution margin for one case (in $) with the following costs for this period, per case Materials/supplies: $2,270 Wages: $2,000 Utility, building, usage exp: $1,125 Insurances (malpractice, business, and so on): $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?

Answer 1

Please see the table below. Please be guided by the second row to understand the mathematics. All financials are in $.

	Proportion	Nos. of cases	Baseline rate	Average Rate	Individual reimbursement rate	Expected rate of reimbursement
	A	B = 2,000 x A	C	D	E = C x D	F = B x E
Commercil insurance	40%	800	6,200	110%	6,820	5,456,000
Medicare insurance	25%	500	6,200	100%	6,200	3,100,000
Medicaid Insurance	15%	300	6,200	65%	4,030	1,209,000
Liability insurance	15%	300	6,200	200%	12,400	3,720,000
Others	5%	100	6,200	100%	6,200	620,000
Total	100%	2,000				14,105,000

What are the proportions of the total cases for each payer?

Column B above has the answer.

What are the individual reimbursement rates for all 5 payers?

Column E above has the answer.

What are the expected rates of reimbursement for this time frame for each payer?

Column F above has the answer.

What is your expected A/R?

Total of column F i.e $ 14,105,000

What rate should you charge for these services (assuming one charge rate for all payers)? (This gives you your total A/R.)

One charge rate = Expected AR / (Number of cases x 6,200) = 14,105,000 / (2,000 x 6,200) = 113.75% or 114% (say)

Calculate the total charges for all cases based on this rate.

Total charges = 113.75% x 6,200 = $  7,052.50

What is the difference between the two A/R rates above? Can you collect it from the patient? What happens to the difference?

The difference between the two rates:

1. The rate in first case is a differential rate policy for differential payers
2. The second one is a fixed, level rate for all the payers
3. So, the difference is some sort of premium or discount for different payers.

Yes, we can collect the difference from the patient.

In a steady state, the difference will slowly and slowly disappear and there will be one uniform charge rate applicable to all the payers.

Which of the following costs are fixed, which are variable, and which are 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, and so on)

Please see the table below for classification of the costs.

	Fixed	Variable	Direct	Indirect
materials/supplies (gowns, drapes, bedroom sheets		Yes	Yes
wages (nurses, technicians)	Yes		Yes
Utility, building, usages exp (lights, heat, technology)		Yes	Yes
Medications	Yes			Yes
Licensing of facility	Yes			Yes
Per diem staff	Yes			Yes
Insurance (malpractice, business etc.)	Yes			Yes

Calculate the contribution margin for one case (in $) with the following costs for this period, per case Materials/supplies: $2,270 Wages: $2,000 Utility, building, usage exp: $1,125 Insurances (malpractice, business, and so on): $175

Contribution margin = Sale price - Variable costs per unit = 7,052.50 - Materials / supplies - utilities = 7,052.5 - 2,270 - 1,125 = $  3,657.50

Hence, contribution margin per unit = $ 3,657.50 / 2,000 = $ 1.83 per unit

Balance others are fixed costs for a period.

Then, calculate the breakeven volume of cases in units for this period

Fixed costs = Wages + $building, usage exp. + Insurances (malpractice, business, and so on): = 2,000 +175 = $ 2,175

Break even volume  = Fixed costs / Contribution margin per unit = 2,175 / 1.83 = 1,189 units

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?

Number of cases to be sold = (Fixed costs + profit) / Contribution margin = (2,175 + 150,000) / 1.83 = 83,213