2024 – Week 3 HLTH420 IP Assignment due Sunday 5 15 16 w attachment included Your facility has the following payer mix

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

 

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?)

Instructions/Calculations for IP 3

 

Please include your calculations in your submission!  Otherwise, I cannot give you any partial credit if the final answer is incorrect.  

 

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

    

Payers (% of Medicare payment)	% of Cases	# of Cases 2000	Pay per Case	# of Cases x Pay	A/R per Payer
Commercial (110%)	40%	800	6,820.00	$6,820 * 800	5,456,000.00
Medicare (100%)	25%	500	6,200.00	$6,200 * 500	3,100,000.00
Medicaid (65%)	15%
Liability (200%)	15%
Self-pay/Other (100%)	5%
				Total A/R

 

 

1. 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.

    

   Please see the bold italicized wording–one charge rate for all payers and calculate total charges based on this rate.  You cannot charge different amounts to different payers.  There must be one charge rate applied to all.  Then, based on government reimbursement rates and contracts with managed care, you will receive different reimbursements from each payer.  Each one of these are represented as a percentage of Medicare reimbursement ($6200).  

    

   To answer this question, you need to come up with a single rate that you would charge for all payers.  While there is no single correct answer, your single charge rate should exceed the maximum amount that you are reimbursed, which happens to be Liability at 200% of Medicare reimbursement.  Your charge rate should exceed maximum reimbursement rate, as no payer is going to pay more than what you are charging.  Typically, you would see the charge exceed your maximum reimbursement by at least 20-25%.  So, you would multiply your maximum reimbursement by 120-125% to determine your charge rate.  Then, you need to multiply that charge rate by the total number of cases.  

2. What is the difference between the two A/R rates above? Or, what is the difference between your total charges and your total A/R?  Can you collect it from the patient? What happens to the difference?

    

   Charge/Case x 2000= “Other A/R”  or TTL Gross Charges

   TTL Gross Charges – Total A/R = Difference  

    

   This cannot be collected for any contractual payers (Medicare, Medicaid,

   Liability or Commercial).  These are written off as contractual allowances

    

3. Which of these costs are fixed? Which are variable? Direct or indirect? 

   1. materials/supplies (gowns, drapes, bedsheets)

   2. Wages (nurses, technicians)

   3. Utility, building, usage exp (lights, heat, technology)

   4. Medications

   5. Licensing of facility

   6. Per diem staff

   7. Insurances (malpractice, business etc.) 

      Variable:    Hourly (Per Diem) labor is variable, Salaried (Wages) are fixed , Direct Materials (variable with production), Other expenses that seem to vary with production. Utility costs are actually mixed but are variable for this assignment, 

      Fixed: Expenses that don’t vary with production like Salaried Wages, Insurance,

      Licensing

      Direct Costs: Costs that are related to specifically to the production of the product or service (supplies, labor, etc . . . )

      Indirect Costs: Costs not specifically related to producing the product or service (Licensing, etc . . .)

       

       

                           Cost                                      Fixed                      Variable               Direct             Indirect 

                           Materials/Supplies                                                            x                         x

                   

      Wages 

                                           

      Utility/Building 

                                           

      Medications 

                                           

      Licensing of Facility 

                                           

      Insurances 

                                           

      PerDiem Staff 

                                           

       

       

1. 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

    

   YOU NEED TO USE THE FOLLOWING FORMULA:

    

   Contribution Margin = Sales (Total A/R)—Total Variable Costs (Total VC)

    

   CM per Case (per unit) = Total Contribution Margin / Volume (2000)

    

   So, take the Total A/R and divide by 2000 (# of cases), then subtract the variable costs per case.  That will equal your CM per Case

    

2. Using the above information, determine which is fixed and which cost is variable. Then calculate the breakeven volumeof cases in units for this period.

    

   Breakeven volume is the number of cases that must be generated to cover your fixed costs (breakeven point).  Use the following formula: 

    

   Breakeven Volume = Total Fixed Costs / Contribution Margin per unit

    

   *Also, remember when calculating B/E volume you must use the contribution margin per unit NOT the charge per unit 

    

3. 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?

    

   You need to use the following formula to calculate:

    

    

   Profit = (volume x contribution margin per unit) – fixed costs

    

   For example only—don’t use these numbers for your answer . . . 

    

   $1000 = ( X (cases) x $10 (CM per unit)) – $20 (fixed cost/per unit)

   $1000 + $20= ( X (cases) x $10 (CM per unit)) – $20 (fixed cost/per unit) + $20

    

   $1020 = X (cases) x $10 (CM per unit)

   $1020/$10 = X (cases)

    

   102 Cases required to generate $1000.00 in profit