Question

Question #1: All Care Health Maintenance Organization is seeking a managed care contract with Sure Teeth, a locally owned dental supply company. All Care estimates that the cost of providing preventive and curative care for the 500 employees and their families will be $120,000 per month. The Sure Teeth has offered All Care a premium bid of $250 per employee per month.

If All Care accepts this bid and contracts with Sure Teeth, will All Care earn a profit or loss for the year?

How much? What premium per employee per month does All Care need to break even?

If All Care wants to earn $120,000 in profit for the year, what is the required premium per employee per month?

What concerns might exist for All Care that is not captured in this analysis?

Question #2: Fast Care is a health care franchise that functions as a primary family health clinic, seeing unscheduled patients 24 hours per day. A corporate office management engineering study has shown that the clinic was experiencing some dips in volume in the mid-afternoon hours. To increase volume, efficiency, and revenues, the clinic administrator contracted with the area high schools to provide after-school physicals for the sports teams. The initial agreement was that Fast Care would charge the market average which is $150 per visit. Fixed costs were $50,000 and variable costs were $55 per physical. Although this strategy proved somewhat successful, the gross profit margin lagged behind the corporate expectations. To improve its margin, the clinic is considering increasing the visit price to $175. Fast Care projects that this price increase will cause the high schools to send their athletes to other providers which could cause a 33% decrease in volume. Last year, Fast Care performed 1,500 visits. If the program closes down entirely, all $50,000 in fixed costs would be saved.

Assuming that this price increase would decrease the number of patients by 33%, what should Fast Care do?

What price would Fast Care have to charge to make up for the loss of patients?

What if only 40% of the fixed costs are avoidable? What decision should Fast Care make in that case?

Question #3: The Heights OBGYN offers bone densitometry scans in the office. The clinic volume is expanding, and Sarabeth Collier, the clinic manager, is considering dropping the bone densitometry service and converting the space to an operating room to allow for more outpatient visits. Consider the following information (see chart below): What is the contribution margin for the bone scan service per year? Should this service continue as opposed to converting it to visit room space? Why or why not? How many office visits would it take to replace the income from the bone scan service?

Question #4: Crystal Lake Memory Care in Winona, Texas has 250 residents. The administrator, Ken Stone, is concerned about balancing the ratio of its private pay to non-private pay patients. Non-private pay sources reimburse an average of $155 per day versus private pay residents who pay 90% of full daily charges. Stone estimates that the variable cost per resident per day is $80 for supplies, food, and contracted services, and annual fixed costs total $10 million.

What is the daily contribution margin of each non-private pay resident?

If 25% of the residents are non-private pay, what will Crystal Lake charge the private-pay patients to break even?

What if non-private pay payors cover 50% of the residents? What will Crystal Lake need to charge the private-pay patients to break even?

The investors insist that the facility earn $1 million in annual profits. How much must Stone raise the per day charge for the private pay residents in 25% of the residents are non-private pay?

Number of scans per year 510

Reimbursement per bone scan $77

Supply cost per scan $22

Wages for part-time scan technician $19,000

Reimbursement per office visit $90

Supply cost per office visit $30

Expected increase in outpatient volume if additional office space is available 500

Answer 1

Q1
Particulars	Amt $/%
Revenue from premium per employee	$                250
cost of providing care per employee=120000/500=	$                240
Profit per employee care	$                  10
Earning for providing care for 500employees /month=	$            5,000
So All care will earn profit and it will be $5000/month
Total cost of care for 500 employees/families per month=	120000
So BEP Premium per employee per month =120000/500=	$          240.00
When the earning required is $120000 , the total revenue
Required =$120000 (earning)+$120000(expense)=	240000
So Required Premium/Employee/Month=240000/500=	$                480
The above analysis does not capture the break up of cost
in Fixed and variable categories. That would help in detailed
analysis with the changes in no of employees if requiredd.

Q2
Ananlysis of After school visits
Particulras	Scenario with exisiting Fee	Scenario with Increased fee Fee	Remarks
Number of visits	1500	1,005	33% reduction at higher price
Visit Price	$                150	$                          175
Revenue from Visit	$        225,000	$                  175,875
Less variable cost @ 55 /visit	$          82,500	$                     55,275
Total Contribution	$        142,500	$                  120,600
Less Fixed cost	$          50,000	$                     50,000
Total Earning	$          92,500	$                     70,600
So , it is better not to increase the fees as margin is higher with existing fees
Price required to make up the loss of patient =225000/1005=		$                          224

Q3.
Earning from Scan
No of scan /year	510
Revenue /Scan	$                  77
Supply Cost /Scan	$                  22
Contribution/scan	$                  55
Total contribution /year	$         28,050
Less Wages for part time technician	$          19,000
Earning from Scan	$             9,050
Earning from Visist room space
Increase in outpatient volume	500
Revenue per outpatient visit	$                  90
Supply cost per visit	$                  30
Contribution margin /visit	$                  60
Total contribution from outpatient increase	$          30,000
So the bone scan service should be replaced with
outdoor visist space as earning will be higher.
Contribution margin /visit	60
Total earning from Scan	$             9,050
So no of outpatent visit required to match scan earning=9050/60=	150.83