Purchase Solution

Financial Decision Management (Health Care)

Not what you're looking for?

Ask Custom Question

A physician, Dr. Thought, is considering the possibility of joining a new Individual Practice Association (IPA) in order to increase her volume of care and her income.
Currently, the physician has the following practice statistics:

Patient population 3,500
Annual visits 5,750
Average revenue per visit $97.50
Office and equipment costs (annual, fixed) $75,000
Staff costs (annual salaries, fixed) $85,000
Malpractice costs (annual, fixed) $70,000
Variable costs per visit (drugs, supplies, etc.) $23.75

Dr. Thought believes that 18% of her current patients would join the IPA if she signs on. And, half of these (i.e. 9%) would join even if Dr. Thought does not sign on and thus would leave her practice if she does not join the IPA. Dr. Thought, however, realizes these estimates (the 18% and 9%) are guesses and that perhaps 30% would sign on or 15% or 7%.

Dr. Thought also guesses that, besides the "switchovers" from her current practice, she may get 700 new patients through the IPA. Again, this is an uncertain guess. The cost structure of her practice would remain as it is now if new patients are added. With current staffing, who are salaried, she could deliver 7,000 visits per year. However, for visits beyond 7,000 per year, she will have to pay $21.00 per hour overtime pay for staff support (each visit average 30 minutes). This would be in addition to the normal $23.75 variable cost per visit in her practice.

The IPA is offering two different payment mechanisms for her to choose from. The first is a discounted fee-for-service arrangement. Under this arrangement, they are willing to pay a flat rate of $47 per visit. The second payment mechanism is a capitated arrangement. Under this payment system, Dr. Thought would receive $112 per year per new patient who signs up. This payment would cover all primary care services provided by Dr. Thought. Dr. Thought believes that the new patients will average 2 visits per year.

You are hired by Dr. Thought to analyze this decision for her. Please prepare a 3-5 page memo (double spaced) that clearly considers this financial decision. Make your memo integrated, clear and logical, but be sure to consider the following specific questions raised by Dr. Thought:

1. Given all of my assumptions, how much is my income under the two payment options?
2. Given that I expect the 700 new IPA patients and the 18% switchovers, how high would the IPA patient utilization have to be before I start to make more money with payment option 1 rather than option 2?
3. "Given all my assumptions, and the fact that I spend 30 minutes on average to see a patient, how much will I be making (or losing) per added hour of work if I join the IPA?" (Calculate for both payment options.)
4. "Assuming that my assumptions are correct, and I join the IPA under option 2, what do I have to charge my fee-for-service patients if I want to earn $265,000 per year?"
5. "How sensitive are your estimates of net income to changes in my assumptions?" (Perhaps you should do a sensitivity analysis to determine how the financial findings vary depending on the value of each of the key assumptions.)
6. "What do you think I should do?"

*The file can also be viewed in the attached .htm and .doc files

Attachments
Purchase this Solution
Solution Summary

This posting discusses financial decision making in health care context. It shows income under different payment options.

Solution Preview

I have done most of the work in worksheet. Build the writeup based on excel sheet. I am ...

Purchase this Solution
Free BrainMass Quizzes
Cost Concepts: Analyzing Costs in Managerial Accounting

This quiz gives students the opportunity to assess their knowledge of cost concepts used in managerial accounting such as opportunity costs, marginal costs, relevant costs and the benefits and relationships that derive from them.

Marketing Research and Forecasting

The following quiz will assess your ability to identify steps in the marketing research process. Understanding this information will provide fundamental knowledge related to marketing research.

Learning Lean

This quiz will help you understand the basic concepts of Lean.

Social Media: Pinterest

This quiz introduces basic concepts of Pinterest social media

SWOT

This quiz will test your understanding of the SWOT analysis, including terms, concepts, uses, advantages, and process.

View More Free Quizzes
Related BrainMass Solutions

  • Effects of Financial Management

    In this way the efforts of health care management are influenced by the financial management of the organization.

  • Health Care Accreditations

    However, financial investors may also consider recognition like the Malcolm Baldridge award, as such a recognition focuses on performance throughout the organization, in areas beyond patient care, such as financial management and revenues (National

  • Strategic Planning Development and Implementation Process

    • What benefits does a strategic management process bring to a health care organization? • How does strategic management affect organizational decision making and financial performance?

  • the difference between accounting and finance

    The stress in finance is on decision making. 2. What is the difference between financial accounting and managerial accounting?

  • health care information systems

    J, (2009), Health Care Information Systems: A Practical Approach for Health Care Management, E2, John Wiley and Sons, 2009 The introduction is: There are two varieties of health care information systems.

  • Three Major Concerns of Medical Care.

    Additionally, the need for an electronic system was probably linked to demands for increased accountability and also efficiency of management (both in terms of patient management and financial management) which is important for bringing down the cost

  • Discuss the value of ratio analysis in decision making for heath care organizations.

    The solution discusses the value of ratio analysis in decision making for health care organizations.

  • Operations Management for Accountability

    ' in regard to decision-making on tests and treatments; and finally the legislation is capable of informing patients about their health and medical conditions while also facilitating their self-management with input from providers.

  • Healthcare affairs for Affordable Care Act

    569010 Healthcare affairs for Affordable Care Act Based on the decision of individual states to fund Medicaid to different levels, how does this policy national wide health care?

  • Financial Management in Public Service Organizations

    Policy decisions, taxpayers, investments, internal decision making, planning, budgeting, monitoring, and accountability all play a role in financial management.

View More Related Solutions