Healthcare Finance

4.2 You are considering starting a walk-in clinic. Your financial projections for the first year of operations are as follows: Number of visits Wages and benefits Rent Depreciation $ 10,000 $220,000 5,000 $ 30,000 Utilities Medical supplies Administrative supplies $ 2,500 $50,000 $ 10,000 Assume that all costs are fixed except supplies costs, which are variable.

a. What is the clinics underlying cost structure?

b. What are the clinics expected total costs?

c. What are the clinics estimated total costs at 7,500 visits? At 12,500 visits?

d. What is the average cost per visit at 7,500, 10,000, and 12,500 visits?

The following data pertain to problems 4.6 through 4.8.

Assume that the hospital uses the direct method for cost allocation. Furthermore, the cost driver for General Administration and Financial Services is patient services revenue, while the cost driver for Facilities is space usage.

a. What are the appropriate allocation rates?

b. Allocate the hospitals overhead costs to the patient services departments.

4.7

Assume that the hospital uses the direct method for cost allocation. Furthermore, salary is the cost driver for General Administration, housekeeping labor hours is the cost driver for Facilities, and patient services revenue is the cost driver for Financial Services. (The majority of the costs of the Facilities Department are devoted to housekeeping services.)

a. What are the appropriate allocation rates?

b. Allocate the hospitals overhead costs to the patient services departments.

c. Compare the dollar allocations with those obtained in problem 4.6. Explain the differences.

d. Which of the two cost-driver schemes is better? Explain your answer.

5.2

1. What is the fee schedule for these services, assuming that the goal is to cover only variable and direct fixed costs?

1. Assume that the Audiology Department is allocated $100,000 in total overhead by the clinic, and the department director has allocated $50,000 of this amount to the three services listed earlier. What is the fee schedule, assuming that these overhead costs must be covered in addition to the variable and direct fixed costs? (To answer this question, assume that the allocation of the $50,000 in overhead costs to each of the three services is made on the basis of the number of visits.)

1. Assume that these three services must make a combined profit of $25,000. Now, what is the fee schedule? (To answer this question, assume that the profit requirement is allocated to each of the three services in the same way as overhead costs.)

5.7

The hospital expects to have a patient load of 15,000 inpatient days next year.

a. Construct the hospitals base case projected P&L statement.

b. What is the hospitals breakeven point (in number of inpatient days)?

c. What volume is required to provide a profit of $1,000,000? A profit of $500,000?

d. Now, assume that 20 percent of the hospitals inpatient days come from a managed care plan that requests a 25 percent discount from charges. Should the hospital agree to the discount proposal? Assume that the managed care plan will contract with a different provider if the hospital does not agree to the discount (i.e., the hospital will lose the inpatient days associated with the contract).

.2 The Audiology Department at Randall Clinic offers many services to the clinic's patients. The three most common, along with cost and utilization data, are as follows: St. Benedict's Hospital has three support departments and four patient services departments. The direct costs to each support department are: Selected data for the three support and four patient services departments are as follows: 7 General Hospital, a not-for-profit acute care facility, has the following cost structure for its inpatient services