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# Healthcare Finance: Reimbursement rates, contribution margin

Your healthcare facility has the below insurance payer ratios:

40% commercial
25% Medicare (averages \$6,200 per case) <-- BASELINE
15% Medicaid
15% liability
5% all others including self-pay

You have 2,000 cases in the above proportions. How many cases in each insurance category?

Averages:
Commercial =110% of Medicare
Medicaid =65% of Medicare
Liability insurers =200% of Medicare
Others average 100% of Medicare rates.
Compute the average reimbursement rates for each payer type.

What are the expected rates of reimbursement for this time frame for each payer? What is your expected accounts receivable?
What is the rate that you should charge for these services (using one charge rate for all payers)?
Find the total charges for all cases based on this rate.

What is the difference between the two accounts receivable rates? Will you be able to collected this from the patient? What happens to the difference?

Indicate which are fixed or variable costs, direct or indirect costs:

materials/supplies (gowns, drapes, bedsheets)
Wages (nurses, technicians)
Utilities, occupancy costs (building)
Medications
Licensing of facility
Per diem staff

Identify the contribution margin for one case assuming: a. materials/supplies: \$2270 b. Wages: \$2000 c. Utility, building, usage exp: \$1125 d. Insurances (malpractice, business etc.): \$175
Which costs are fixed and which costs are variable? Identify the breakeven volume of cases in units.
If you wanted to make \$150,000 profit to fund an NICU development, how many cases would you have to see? Determine the payer mix that would make this optimal.

#### Solution Preview

What are the expected rates of reimbursement for this time frame for each payer? What is your expected A/R? What rate should you charge for these services (assuming one charge rate for all payers)?(this gives you your total A/R.) Calculate the total charges for all cases based on this rate. What is the difference between the two A/R rates above? Can you collect it from the patient? What happens to the difference?

See computations in Excel.

The difference is the average versus the patient-category reimbursemnet rate. You cannot collect the difference as the amount of reimbursement is limited to the contract rate and this varies by type of ...

#### Solution Summary

The solution maps out a logical way to view the payers and the impact on breakeven.

\$2.19