A Graphical View in Terms of Membership (2)
Posted on June 29, 2009 - Filed Under Finance | 1 Comment
The analysis based on number of members reveals that there are two elements to controlling total variable costs under capitation: the underlying variable cost of the service ($28.18 per visit) and the number of visits per member (four). The two-variable nature of the variable cost rate makes cost control more difficult under capitation. In a […]
Read More..>>A Graphical View in Terms of Membership
Posted on June 26, 2009 - Filed Under Finance | 3 Comments
Figure 5.5 is like Alice, of Alice in Wonderland, peering through the looking glass and finding that everything is backwards. The key to this problem is that the horizontal axis does not measure the volume to which revenues are related—that is, the horizontal axis in Figure 5.5 has number of visits on the horizontal axis, […]
Read More..>>Profit Analysis in a Capitated Environment (2)
Posted on June 23, 2009 - Filed Under Finance | 4 Comments
How might Atlanta’s managers evaluate whether or not the $7,500,000 revenue attached to the contract is adequate? To do the analysis, they need two critical pieces of information: cost information and actuarial (utilization) information. The clinic already has the cost accounting information—the full cost per visit is expected to be $94.41 (at a volume […]
Read More..>>Profit Analysis in a Capitated Environment
Posted on June 20, 2009 - Filed Under Finance | 5 Comments
As a review of profit analysis, consider how the analysis is changed when a provider operates in a capitated environment. In addition to solidifying concepts presented in previous sections, this section provides insights into the basic differences between fee-for-service reimbursement and capitation.
Read More..>>A Graphical View in Terms of Utilization (2)
Posted on June 17, 2009 - Filed Under Finance | 2 Comments
A second critical point about Figure 5.5 is the difference between the flat revenue and the flat fixed-cost base. Atlanta has a spread of $7,500,000 ? $4,967,462 = $2,532,538 to work with in the management of the healthcare of this population for the period of the contract. If total variable costs equal $2,532,538, the clinic […]
Read More..>>A Graphical View in Terms of Utilization
Posted on June 14, 2009 - Filed Under Finance | 2 Comments
Figure 5.5 contains a graphical CVP analysis for the capitation contract that is constructed similar to the fee-for-service graphs shown in Figures 5.3 and 5.4 in that the horizontal axis shows the number of visits, while the vertical axis shows dollars of revenues and costs. Also shown is the same underlying cost structure of $4,967,462 […]
Read More..>>Marginal Analysis: Short-Term Versus Long-Term Implications (2)
Posted on June 11, 2009 - Filed Under Finance | 1 Comment
However, Atlanta’s managers cannot ignore the long-termimplications associated with accepting the proposal. These are not addressed in detail here, but clearly the clinic cannot survive this scenario in the long run because the clinic’s revenues are not covering the full costs of providing services. In the
meantime, bleeding $580,962 of losses in 2005 may be better […]
Marginal Analysis: Short-Term Versus Long-Term Implications
Posted on June 8, 2009 - Filed Under Finance | 1 Comment
The Atlanta/Peachtree illustration points out how the contribution margin can be used in managerial decision making. To help see this, the analysis needs to be viewed from a different perspective. Suppose the clinic is forecasting a volume of 50,000 visits for 2005, and Peachtree HMO offers to provide the
clinic 25,000 additional visits at $60 revenue […]
