Question

Problem 1

Tallahassee Clinic projected the following budget information for 2018:

Total FFS Visit Volume	90,000 visits
Payer Mix:
Blue Cross	40%
Celtic Insurance Company	60%
Reimbursement Rates:
Blue Cross	$25 per visit
Celtic Insurance Company	$20 per visit
Variable Costs – Resource Inputs:
Labor	48,000 total hours
Supplies	100,000 total units
Variable Costs – Input Prices:
Labor	$25 per hour
Supplies	$1.50 per unit
Fixed Costs (overhead, plant, and equipment)	$500,000

Construct Tallahassee Clinic’s static operating budget for 2018. (See Exhibit 8.3, page 283. Note that there are four components that need to be included: Volume Assumptions, Revenue Assumptions, Cost Assumptions, and the Pro Forma Profit and Loss or P&L projected Statement.)

EXHIBIT 8.3 PAGE 283:

1. Volume assumptions:

1. FFS                                                      36,000 visits
2. Capitated lives                                    30,000 members

Number of member-months              360,000

Expected utilization per

            Member-month                          0.15

Number of visits                                 54,000 visits

3. Total expected visits                           90,000 visits

2. Revenue Assumptions:

1. FFS                                                      $25 per visit

X 36,000 visits

$900,000

2. Capitated lives                                               3 PMPM

X 360,000 actual member months

$1,080,000

3. Total expected revenues                    $1,980,000

3. Cost Assumptions:

1. Variable costs:

Labor                                                   $1,200,000 (48,000 hrs at $25/hr)

Supplies                                              150,000 (100,000 units at $1.50/unit)

            Total variable costs                 $1,350,000

Variable cost per visit                         $ 15   ((1,350,000/90,000)

2. Fixed costs:

Overhead, plant, & equip                   $500,000

3. Total expected costs                           $1,850,000

4. Pro Forma Profit and Loss (P&L) Statement:

Revenues:

      FFS                                                      $900,000

      Capitated                                            1,080,000

                  Total                                        $1,980,000

Costs:       

      Variable:

                  FFS                                          $540,000

                  Capitated                                810,000

                              Total                            $1,350,000

Contribution Margin                                 $630,000

Fixed Costs                                                500,000

Projected profit                                        $130,000

Answer 1

Revenue Assumptions
Blue cross reimbursement	900000	(90000*0.4*25)
Celtic Insurance Co reimbursement	1080000	(90000*0.6*20)
Total Revenue	1980000

Cost Assumptions
Variable Expenses
Labour	1200000	(48000*25)
Supplies	150000	(100000*1.5)
Total Variable Expense	1350000
Fixed Costs	500000

Pro Forma Profit and Loss (P&L) Statement:

Revenue :

FFS 1980000

Costs :

Variable Costs 1350000

Contribution Margin 630000

Fixed Costs 500000

Projected Profit 130000