Question

it is problem 5.9 I need help in

variable cost rate of capitation payment of tes that the population $100,000? 5.9 Grandview Clinic has fixed costs of $2 million and an average variable $15 per visit. Its sole payer, an HMO, has proposed an annual capitation $150 for each of its 20,000 members. Past experience indicates that the served will average two visits per year. a. Construct the base case projected P&L statement on the contract. b. Sketch two CVP analysis graphs for the clinic-one with number of visits on X-axis, and one with number of members on the x-axis. Compare and contrast these graphs with the one in problem 5.6, part d. C. What is the clinic's per-visit contribution margin on the contract? How does this value compare with the value in problem 5.6, part b? d. What profit gain can be realized if the clinic can lower per-member utilization to 1.8 visits?

Answer 1

Construct the base case P&L statement on the contract.

Total Revenues	$3,000,000
Total Variable Costs	600,000
Total Contribution Margin	$2,400,000
Fixed Cost	2,000,000
Profit	$400,000

b. Sketch two CVP analysis graphs for the clinic—one with the number of visits on the x-axis and one with the number of members on the x-axis. Compare and contrast these with the graphs in Problem 5.3.d.

Revenues & Costs $4 million Total Cost Loss $3 million Revenues Profit $2 million Fixed Costs $1 million 66,667 Volume (# of visits)

The graphs in 5.3.d depict profit after the breakeven point as the volume of visits increased, which is the inverse of the capitation graph based on volume, as an increase in patient visits increases the amount spent per patient. However, as the number of members increases, profit increases when cost of visits can be kept low under the capitation model, which is not reflected in the 5.3.d scenario, as number of members doesn’t increase profit—it’s a null variable in the fee-for-service model.

c. What is the clinic’s contribution margin on the contract? How does this value compare with the value in Problem 5.3.b? The contribution margin on the contract in the base case is $2,400, which is solved for in a different way than in Problem 5.3.b, as the contribution margin on a capitation contract is simply the total cost of the contract less variable costs rather than a calculation of variable cost by volume.

d. What profit gain can be realized if the clinic can lower per member utilization to 1.8 visits?

An additional $60,000 can be obtained in profit for a total of $460,000 profit.

a. What is the group’s underlying cost structure?

Cost structure = Fixed Cost + Variable Cost * (Volume)

                       = $500,000 + $25 * 7500

                        = $687,5000.00

b. What are the group’s expected total costs?

               Total Cost = Fixed Cost + Total Variable Cost

                                 = $500,00 + $7,500 * $25

                                = $687,5000.00

c. What are the group’s estimated total costs at 5,000 procedures? At 10,000 procedures?

                             Total Cost = Fixed Cost + Total Variable Cost

                                               = $500,000 + $5000 * $25

                                               = $625,000.00

   At 10,000 procedures         = $500,00 + $10,000 * $25

                                      = $ 750,000

    

d. What is the average cost per procedure at 5,000, 7,500, and 10,000 procedures?

   1. Average Cost = Total Cost / Volume

                                       = $687,5000.00/5,000

                                       = $1,375.00

              2.                    = $687,5000.00/7,500 = $91,668

              3.                    = $687,5000.00/10,000 = $687,500