Projected P&L Statement Analysis
Posted on March 28, 2009 - Filed Under Finance
Table 5.9 contains three projected P&L statements in this capitated environment. The three volume levels shown are the same as those contained in Table 5.6 for a fee-for-service environment. To begin, start with the middle column—the one that contains the expected 75,000 patient visits. The bottom line, $419,038, is the same as in the fee-for-service analysis, which reinforces the point that, at least superficially, the capitated contract is not inherentlybetter or worse than the fee-for-service contract.
Although the profit at 75,000 visits is the same, some of the values in the projected analyses and their economic meanings differ. For example, although total revenues are $7,500,000, it is a flat amount in Table 5.9, while it varies with volume in Table 5.6. The What would happen if the clinic experienced more visits thvariable cost rate is the same in both tables—$28.18 per visit. However, because each visit does not result in additional revenue, the revenue per visit is zero in Table 5.9 and the contribution margin is ?$28.18.an predicted? If the number of visits increases by 10 percent, or by 7,500 to 82,500, the right column in Table 5.9 shows that profit would decrease by $419,038 ? $207,688 = $211,350. This occurs because total revenues stay constant while costs increase at a rate of $28.18 for each additional visit. With 7,500 additional visits, the clinic’s costs increase by 7,500 × $28.18 = $211,350. Obviously this is quite in contrast to the significant increase in profit at this volume level that occurs in a fee-for-service environment (see Table 5.6).
Under capitation, a decrease in visits will improve the profitability of the clinic. When the number of visits decreases to 69,165, which is the breakeven point in a fee-for-service environment, profit in a capitated environment increases by $164,430 to $583,468. This increase is explained by the decrease in visits (5,835) multiplied by the contribution margin (?$28.18), which results in a $164,430 decrease in costs while revenues remain constant.
Taken From : HEALTHCARE FINANCE
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