Hilton Health System

Hilton has been approached by BlueCross BlueShield (BCBS) to establish rural health clinic for its managed care plan. BCBS wants a five year contract and will pay them capitation rate per member per month. The first years capitation rate will be negotiated and thereafter Hilton will receive a 2% annual increase in the capitation rate.

In evaluating this proposal, the following assumptions have been generated:

		Percent Change Year Over Year in Primary Drivers (see Hints)
Primary Drivers	Y1	Y2	Y3	Y4	Y5
Members	20,000	5.0%	5.0%	5.0%	5.0%
Visits per 1,000	2,030	-3.0%	0.0%	0.0%	0.0%
RVU's per Visit	1.75	-1.5%	-1.5%	0.0%	0.0%
Procedures Per 1,000	200	3.0%	3.0%	3.0%	0.0%
RVU's Per Procedure	10.00	-1.0%	-1.0%	-1.0%	0.0%
Variable Cost per RVU	$24.00	2.5%	2.5%	2.5%	2.5%
Fixed Costs	$500,000	1.5%	1.5%	1.5%	1.5%
Capitation Rate	tbd	2.0%	2.0%	2.0%	2.0%

Initial Desired Profit Margin Y1	5.0%
Discount Rate for NPV: Problem 2	9.0%

Clinic Cost: FFE	$1,500,000
Depreciation Life	5 years
Depreciation Methold	Straight Line

1) Construct a 5 year Budget in template below

				Year over Year Changes For Drivers
			Primary Drivers	Y2	Y3	Y4	Y5
			Members
			Visits per 1,000
			RVU's per Visit
			Procedures Per 1,000
			RVU's Per Procedure
			Variable Cost per visit
			Fixed Costs
			Capitation Rate
Metrics			Y1	Y2	Y3	Y4	Y5
Members
Per 1,000 Members
Member Months
Visits
Visits per 1,000
Visits
RVU's per visit
Visit RVU's
Procedures
Procdures per 1,000
Procedures
RVU's per Procedure
Procedure RVU's
Total RVU's
			Y1	Y2	Y3	Y4	Y5
Costs
Variable Cost Per RVU
Fixed Costs
Depreciation
			Y1	Y2	Y3	Y4	Y5
Revenue
Capitation Rate
Desired Profit Margin
			Y1	Y2	Y3	Y4	Y5
Revenue
less Variabile Costs
Contribution Margin			-	-	-	-	-
Fixed Costs
Depreciation
Profit/(Loss)			$0	$0	$0	$0	$0
			Y1	Y2	Y3	Y4	Y5
Derived Profit Margin
			Y1	Y2	Y3	Y4	Y5
$RVU Rate Equivalency* (Revenue divided by total RVU)