Practice Exercise 13iii: Contractual Allowance Your Units

Practice Exercise 13iii Contractual Allowance1your Units Gross Ch

Practice Exercise 13–III: Contractual Allowance 1. Your unit’s gross charges for the period to date amount to $200,000. 2. The uniform gross charge for each procedure in your unit is $100. 3. The unit receives revenue from four major payers. For purposes of this exercise, assume the revenue volume from each represents 25% of the total. (The equal proportion is unrealistic, but serves the purpose for this exercise.) 4. The following contractual payment arrangements are in effect for the current period. The percentage of the gross charge that is currently paid by each payer is as follows: Payer 1 = 90% Payer 2 = 80% Payer 3 = 70% Payer 4 = 50% Q: How many procedures has your unit recorded for the period to date? Solution: The unit has recorded 2,000 procedures ($200,000 divided by $100 apiece equals 2,000 procedures). Q: Of these, how many procedures are attributed to each payer? Solution: At 25% of the volume per payer, each payer accounts for 500 procedures (2,000 times 25% equals 500 procedures). Proof total: 500 procedures apiece times four payers equals 2,000 procedures. Q: How much is the net revenue per procedure for each payer, and how much is the contractual allowance per procedure for each payer? Solution: The computation is as follows: (Baker ) Assignment Exercise 13–3 As a follow-up to the previous Practice Exercise, new assumptions are as follows: 1. Your unit’s gross charges for the period to date amount to $200,000. 2. The uniform gross charge for each procedure in your unit is $100. 3. The unit receives revenue from four major payers. The number of procedures performed for the period totals 2,000. Of that total, the number of procedures per payer (stated as a percentage) is as follows: Payer 1 = 30% Payer 2 = 40% Payer 3 = 20% Payer 4 = 10% 4. The following contractual payment arrangements are in effect for the current period. The percentage of the gross charge that is currently paid by each payer is as follows: Payer 1 = 80% [Medicare] Payer 2 = 70% [Commercial managed care plans] Payer 3 = 50% [Medicaid] Payer 4 = 90% [Self-pay] Q: How many procedures are attributed to each payer? Q: How much is the net revenue per procedure for each payer, and how much is the contractual allowance per procedure for each payer? Q: How much is the total net revenue for each payer, and how much is the total contractual allowance for Assignment Exercise 13–4: Forecast Capacity Levels Review the information in Exhibit 13–1 below. The exhibit assumes three chairs and one 40-hour RN, for a realistic capacity level of seven patients infused per day. Exhibit 13–1 Capacity Level Checkpoints for an Outpatient Infusion Center Outpatient Infusion Center Capacity Level Checkpoints # infusion chairs ---------------------3 chairs # staff ---------------------1 RN # weekly operating hours ---------------------40 hours # of hours per patient infusion --------------average 2 hours (for purposes of this example) Work Flow Description For each infusion the nurse must perform the following steps (generalized for this purpose; actual protocol is more specific): 1. Obtain and review the patient’s chart 2. Obtain and prepare the appropriate drug for infusion 3. Interview the patient 4. Prepare the patient and commence the infusion 5. Monitor and record progress throughout the ongoing infusion 6. Observe the patient upon completion of the infusion 7. Complete charting Work Flow Comments It is impossible for one nurse to start patients’ infusions in all three chairs simultaneously. Thus the theoretical treatment sequence might be as follows: • Assume one half-hour for patient number one’s Steps 1 through 4. • Once patient number one is at Step 5, the nurse can begin the protocol for patient number two. • Assume another one half-hour for patient number two’s Steps 1 through 4. • Once patient number two is at Step 5, theoretically the nurse can begin the protocol for patient number three. This sequence should work, assuming all factors work smoothly; that is, the appropriate drugs in the proper amounts are at hand, the patients show up on time, and no one patient demands an unusual amount of the nurse’s attention. (For example, a new patient will require more attention.) Daily Infusion Center Capacity Level Assumption Patient scheduling is never entirely smooth, and patient reactions during infusions are never predictable. Therefore, we realistically assume the following: Chair #1 = 3 patients per day, Chair #2 = 2 patients per day, Chair #3 = 2 patients per day, for a daily total of 7 patients infused. Prepare another Infusion Center Capacity Level Forecast as follows: Assume the same three infusion chairs, but add another nurse for either four or six hours per day. How would this change the daily capacity level for number of patients infused per day? *Assignment Exercise 13–4 Prepare another Infusion Center Capacity Level Forecast as follows: Increase the number of infusion chairs to four, and add another nurse for either four or six hours per day. How would this change the daily capacity level for number of patients infused per day?

Paper For Above instruction

The analysis of contractual allowances is crucial in understanding the financial dynamics within healthcare units, especially open outpatient infusion centers. These allowances significantly influence a facility’s net revenue, which ultimately impacts overall financial health and sustainability. The provided exercises illuminate how these allowances are calculated and applied, offering practical insights into revenue management in healthcare settings.

The first scenario involves a healthcare unit with gross charges totaling $200,000 for a period, with a uniform gross charge of $100 per procedure. Based on this, the unit has recorded 2,000 procedures. Since revenue from four major payers, each representing 25% of the volume, is considered, each payer accounts for 500 procedures. This division is justified as the procedures are evenly distributed across payers, simplifying the complexity for instructional purposes.

Contractual payment arrangements vary across payers; for instance, Payer 1 pays 90% of the gross charge, Payer 2 pays 80%, Payer 3 pays 70%, and Payer 4 pays 50%. These percentages are applied to the gross charge of $100 per procedure to determine the amount reimbursed by each payer. The net revenue per procedure is calculated by multiplying the gross charge by the payer-specific percentage—in other words, Payer 1 will reimburse $90 per procedure, Payer 2 $80, Payer 3 $70, and Payer 4 $50. The contractual allowance per procedure, which is the difference between the gross charge and paid amount, thus varies: $10 for Payer 1, $20 for Payer 2, $30 for Payer 3, and $50 for Payer 4.

In the revised assumptions, the number of procedures remains the same at 2,000, but the distribution across payers changes. The procedures are distributed as 30%, 40%, 20%, and 10%, respectively, for Payers 1 through 4. Additionally, the contractual payment percentages differ: Payer 1 at 80%, Payer 2 at 70%, Payer 3 at 50%, and Payer 4 at 90%, which reflects different payer-reimbursement agreements. These variations influence the total net revenue and contractual allowances, which are calculated by multiplying the number of procedures attributed to each payer by the net revenue per procedure, providing a comprehensive view of revenue streams and allowances across payers.

The second significant aspect explores capacity planning in outpatient infusion centers, vital for optimizing resource allocation and patient throughput. The example assumes three infusion chairs and one nurse working 40 hours weekly, with an average infusion time of two hours per patient. The workflow of the nurse includes chart review, drug preparation, patient interviews, infusion administration, monitoring, and documentation, all of which influence patient throughput. Sequential steps are outlined to show how the infusion process limits daily capacity, with the theoretical maximum being seven patients per day given efficient management.

However, in actual practice, patient scheduling is imperfect due to various unpredictable factors, such as patient arrivals, reactions, or necessary attention. To accommodate these variations, the capacity forecast adjusts actual expectations downward, resulting in a realistic capacity of 7 patients daily across three chairs. Increasing staffing by adding another nurse for additional hours or expanding the number of chairs is projected to improve capacity: adding another nurse for four or six hours per day would increase the daily patient volume, as would increasing the chairs to four with an additional nurse. These capacity enhancements demonstrate how staffing and facilities expansion can influence outpatient service throughput, ultimately affecting revenue and operational efficiency.

References

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