Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

4.9 Last year, Old Dominion Health System opened its second Program of All-Inclusive Care for the Elderly (PACE) Center in Richmond, Virginia, with a service

image text in transcribedimage text in transcribedimage text in transcribed

4.9 Last year, Old Dominion Health System opened its second Program of All-Inclusive Care for the Elderly (PACE) Center in Richmond, Virginia, with a service area covering the majority of central Virginia. However, after two months of operation, management at Old Dominion is concerned that the Richmond PACE Center will not be able to meet the demand of its large service area. Forecasts indicate that the center will be at full capacity by year end and that another PACE Center in the Richmond metropolitan area is necessary to meet community demand. Based on a preliminary analysis, management has narrowed down the potential site locations to five zip codes: 23231, 23005, 23803, 23225, and 23227. The executive director of PACE has determined the factors to be considered in establishing a new PACE Center, including demand factors such as elderly population density and poverty levels. Given that a PACE Center should be easily accessible to community-based providers, hospitals, nursing facilities, and other complementary services, travel and distance factors were also included. This data are displayed in Table EX 4.9. Table EX 4.9 Zip Codes under consideration Factor 23231 23005 23803 23225 23227 Relative Scoring Elderly Population Density 2,817 1,858 5,307 5,366 4,328 6 Elderly Population under 285 128 806 593 330 10 Poverty Elderly population with Two 45 10 117 70 48 12 ADLS & Self-Care Eligible Proximity to Current PACE 12.8 22.1 31.5 8.9 Center (miles) Mean Gasoline Prices 1.93 1.95 1.87 1.91 1.91 1 ($/gallon regular unleaded) Proximity to Closest 9.9 11.2 24.1 1.7 2.6 2 Hospital (miles) Proximity to Closest 1.9 1.8 4 3.2 1. 1 4 Interstate Highway (miles) a. Calculate the weight of each factor, and then determine the new location for a PACE Center based on the composite factor scores. Assume that the most desirable outcome is the largest value for the elderly population demographic factors, and the smallest value for proximity factors and gasoline prices. Assume that for the location selected in part (a), management must determine if a new PACE Center is financially feasible. Initial fixed costs for this location include $500,000 for investment in new equipment, $500,000 for transportation, and $75,000 for an annual building lease. Annual salary expense for full-time staff is estimated at $700,930. The cost for part-time staff members, including physical therapists, chaplains, and dietitians, is semivariable. This expense is $80,724 until enrollment in the PACE Center exceeds sixty members, at which time the cost will increase to $141,924. Variable costs are estimated at $3,500 per member per month and include costs for medical services, home care aides, medications, van drivers, gas, and food. Combined Medicaid/Medicare revenue is estimated at $5,000 per member per month. The PACE Center is considered to be at full capacity with one hundred forty members. b. Construct a table that calculates the total costs, revenues, and profits for a new PACE Center for enrollment levels of twenty to one hundred forty members, in increments of twenty. c. What is the break-even enrollment level for the first year of operation? Assume that in year 2 of the PACE Center's operations, fixed costs will be $75,000 for a building lease, $80,000 in miscellaneous equipment maintenance, and $714,950 in full-time salaries (adjusted for inflation). The semivariable costs for part-time staff should also be adjusted for a 2 percent inflation rate. As coordination of care improves, the cost per member per month is expected to decrease by $200, and the combined Medicaid/Medicare per member per month rate is expected to fall to $4,500. d. Construct a new table that calculates the total costs, revenues, and profits for the PACE Center in year 2 for enrollment levels of twenty to one hundred forty members, in increments of twenty. e. What is the break-even enrollment level for the second year of operation? f. Based on this analysis, would you support opening a PACE Center in the selected location? Why? What other data may be helpful in making this decision? 4.9 Last year, Old Dominion Health System opened its second Program of All-Inclusive Care for the Elderly (PACE) Center in Richmond, Virginia, with a service area covering the majority of central Virginia. However, after two months of operation, management at Old Dominion is concerned that the Richmond PACE Center will not be able to meet the demand of its large service area. Forecasts indicate that the center will be at full capacity by year end and that another PACE Center in the Richmond metropolitan area is necessary to meet community demand. Based on a preliminary analysis, management has narrowed down the potential site locations to five zip codes: 23231, 23005, 23803, 23225, and 23227. The executive director of PACE has determined the factors to be considered in establishing a new PACE Center, including demand factors such as elderly population density and poverty levels. Given that a PACE Center should be easily accessible to community-based providers, hospitals, nursing facilities, and other complementary services, travel and distance factors were also included. This data are displayed in Table EX 4.9. Table EX 4.9 Zip Codes under consideration Factor 23231 23005 23803 23225 23227 Relative Scoring Elderly Population Density 2,817 1,858 5,307 5,366 4,328 6 Elderly Population under 285 128 806 593 330 10 Poverty Elderly population with Two 45 10 117 70 48 12 ADLS & Self-Care Eligible Proximity to Current PACE 12.8 22.1 31.5 8.9 Center (miles) Mean Gasoline Prices 1.93 1.95 1.87 1.91 1.91 1 ($/gallon regular unleaded) Proximity to Closest 9.9 11.2 24.1 1.7 2.6 2 Hospital (miles) Proximity to Closest 1.9 1.8 4 3.2 1. 1 4 Interstate Highway (miles) a. Calculate the weight of each factor, and then determine the new location for a PACE Center based on the composite factor scores. Assume that the most desirable outcome is the largest value for the elderly population demographic factors, and the smallest value for proximity factors and gasoline prices. Assume that for the location selected in part (a), management must determine if a new PACE Center is financially feasible. Initial fixed costs for this location include $500,000 for investment in new equipment, $500,000 for transportation, and $75,000 for an annual building lease. Annual salary expense for full-time staff is estimated at $700,930. The cost for part-time staff members, including physical therapists, chaplains, and dietitians, is semivariable. This expense is $80,724 until enrollment in the PACE Center exceeds sixty members, at which time the cost will increase to $141,924. Variable costs are estimated at $3,500 per member per month and include costs for medical services, home care aides, medications, van drivers, gas, and food. Combined Medicaid/Medicare revenue is estimated at $5,000 per member per month. The PACE Center is considered to be at full capacity with one hundred forty members. b. Construct a table that calculates the total costs, revenues, and profits for a new PACE Center for enrollment levels of twenty to one hundred forty members, in increments of twenty. c. What is the break-even enrollment level for the first year of operation? Assume that in year 2 of the PACE Center's operations, fixed costs will be $75,000 for a building lease, $80,000 in miscellaneous equipment maintenance, and $714,950 in full-time salaries (adjusted for inflation). The semivariable costs for part-time staff should also be adjusted for a 2 percent inflation rate. As coordination of care improves, the cost per member per month is expected to decrease by $200, and the combined Medicaid/Medicare per member per month rate is expected to fall to $4,500. d. Construct a new table that calculates the total costs, revenues, and profits for the PACE Center in year 2 for enrollment levels of twenty to one hundred forty members, in increments of twenty. e. What is the break-even enrollment level for the second year of operation? f. Based on this analysis, would you support opening a PACE Center in the selected location? Why? What other data may be helpful in making this decision

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Integrated Audit Practice Case

Authors: David S. Kerr, Randal J. Elder, Alvin A. Arens

5th Edition

0912503351, 9780912503356

More Books

Students also viewed these Accounting questions