Profit Analysis in a Capitated Environment (2)
Posted on June 23, 2009 - Filed Under Finance
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 of 75,000 visits), with an underlying cost structure of $28.18 per visit in variable costs and $4,967,462 in fixed costs. For its actuarial information, Atlanta’s managers
estimate that the Alliance will have a covered population of 18,750 members with an expected utilization rate of four visits per member per year. Thus, the total number of visits expected is 18,750 × 4 = 75,000. Although this appears to be the same 75,000 visits as in the fee-for-service environment, significant
difference exists in the implications of this volume. Because there is no direct linkage between total revenues and volume, utilization above that expected will bring increased costs with no corresponding increase in revenues.
The revenues expected from this contract, $7,500,000, exceed the expected costs of serving this population, which are 75,000 visits multiplied by $94.41 per visit, or $7,080,750. Thus, this contract is expected to generate a profit of $419,250, which, not surprisingly, is the same as the original base
case fee-for-service result (except for a rounding difference). (See Table 5.4.)
Taken From : HEALTHCARE FINANCE
Comments
4 Responses to “Profit Analysis in a Capitated Environment (2)”
Leave a Reply
[…] thing that many find interesting about the cabin theme decor home plan is simply exudes warmth year round. Dark color of the smooth and soft material in simple design was very much […]
[…] Serve others When you live authentically, you may find that you develop a sense of each other. When you correct for you, the purpose of life […]
[…] the component can be replaced. If components must be sent to the office, you must know who is responsible for shipping charges, because they tend to be quite expensive. If not needed, you must know about […]
[…] Stop beating yourself up. Self-deprecation is a lot of stress, anxiety and depression. Each time you beat up on yourself, you will erode […]