Answer The Following Questions In Word Or Excel File

Answer The Following Questions In A Word Or Excel File Show All Work

Answer the following questions in a Word or Excel file. Show all work. Assume that a certain nursing home has two categories of payers. Medicaid pays $60.00 per day and private pay patients pay the established per diem, but approximately 10 percent of private pay charges are not collected. If 50 percent of the patients are Medicaid and 50 percent are private pay, what rate must be set to generate $150,000 in profit?

Variable costs are $45.00 per day and fixed costs are expected to be $1,000,000. Expected volume is 50,000 patient days. Using this data and assuming that the nursing home charges $100 per day, what would be the nursing home’s required volume (in patient days) in order to make $150,000 profit? Hint: The key in this homework is to break down the numbers in the problem passage: This hint is for question #1 Medicaid pays $60.00 The private payer has a per diem, but 10% is not collected so, what percentage does the private payer pay at a discounted rate? 50% of the patients are Medicaid, and 50% are private care: There are a total of 50,000 patients, how many are Medicaid and how many are Private pay?

The Variable cost is $45 The Fixed cost is $1,000,000 The desired (target) profit is $150,000 You have to solve for the rate-setting. There is a formula in chapter 14 that fixes this scenario. This hint is for Question #2 You have multiple payers Medicaid and Private You are to use the data from Question #1 to assist in solving this problem You are to solve for the volume. Breakeven analysis is also called cost volume profit analysis In the formula for this problem you first have to set the value for the variable e.g. V = variable cost = $45, F = Fixed Cost = $1,000,000, NI = Target cost (what is the target cost?).

Once you have identified each variable value, it will be easy to calculate the volume. There are variables that have 0 value because the problem does not have values for those variables. There is a formula in chapter 14 that fixes this scenario.

Paper For Above instruction

The problem given involves multiple components of healthcare financial management, specifically focused on pricing strategies, payer mix, and breakeven analysis in a nursing home setting. The overarching goal is to determine the appropriate billing rate per patient day and the required volume of patient days to achieve a desired profit margin, considering variable and fixed costs, as well as payer mix and collection rates.

Analysis of Payer Mix and Rate Setting for Profitability

The first task involves calculating the rate per patient day necessary to generate a profit of $150,000, considering the specific payer structure. The nursing home has two categories: Medicaid and private pay, with each accounting for 50% of the patient volume. Medicaid reimburses at $60 per day, while private pay charges are higher, but approximately 10% of private pay charges are uncollected, which implies that only 90% of the charged amount is actually received.

Given that 50% of the patients are Medicaid and 50% are private pay, and the total patient volume is 50,000 patient days, the number of Medicaid patients is 25,000 and private pay patients are also 25,000. The private pay effective collection rate is 90%, so the average effective collection per private pay patient is the per diem charge multiplied by 0.9. To determine this rate, we need to find the total revenue necessary to meet fixed costs, variable costs, and profit goals, then allocate this across the payer mix.

Calculating the Required Rate per Private Pay Patient Day

Assuming that the total revenue needed to cover costs and profit is R, the total revenue contribution from Medicaid is 25,000 days multiplied by $60, equaling $1,500,000. The revenue needed from private pay patients, after accounting for collection losses, can be represented as:

Let x be the private pay charge per day. Effective collection per private pay day is 0.9 * x.

Therefore, total revenue from private pay patients is 25,000 0.9 x.

To ensure profitability, the total revenue (Medicaid + private pay revenue) must cover total costs (fixed plus variable) plus target profit.

Total variable costs: 50,000 * $45 = $2,250,000.

Total fixed costs: $1,000,000.

Target profit: $150,000.

Therefore, total revenue R = variable costs + fixed costs + profit = $2,250,000 + $1,000,000 + $150,000 = $3,400,000.

Since Medicaid contributes $1,500,000, the private pay contribution must be:

R - Medicaid revenue = $3,400,000 - $1,500,000 = $1,900,000.

And private pay effective revenue: 25,000 0.9 x = $1,900,000.

Solving for x:

x = $1,900,000 / (25,000 * 0.9) = $1,900,000 / 22,500 ≈ $84.44.

Thus, the private pay rate should be approximately $84.44 per day to meet the profit goal.

Breakeven Volume Calculation for Target Profit

In the second scenario, with a charge of $100 per day and known costs, determining the required patient days to meet a $150,000 profit involves breakeven analysis. The formula involves fixed costs, variable costs, price per unit, and target profit:

Required volume, V = (Fixed costs + Target profit) / (Price per day - Variable cost per day).

Plugging in the numbers:

V = ($1,000,000 + $150,000) / ($100 - $45) = $1,150,000 / $55 ≈ 20,909 patient days.

This means approximately 20,909 patient days are required at a charge of $100 per day to achieve a $150,000 profit.

This calculation underscores the importance of pricing strategic decisions and patient volume management in healthcare financial sustainability.

Conclusion

Accurate rate setting and volume forecasting are crucial for financial health in healthcare facilities. By understanding payer mix, collection rates, variable and fixed costs, and applying break-even analysis, healthcare administrators can develop strategies to meet profit objectives while managing operational costs effectively. The analysis showcases how combined financial modeling techniques can guide decision-making in complex healthcare revenue environments, ultimately supporting sustainability and growth.

References

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