HMT-220

Chapter 16 Dr. Zelman Budgeting Case Study

Dr. Zelman has a practice that supplies hospitalists to First Health Hospital. His physicians are paid for seeing the patients on both admission visits and follow up visits. His admitting visits take longer than his follow up visits, therefore he usually gets paid more for those. Below is his contracted payment rates based on type of patient and payer:

$135.50 for admitting visits from Commercial payers

$34.25 for follow up visits from Commercial payers

$85.00 for admitting visits from Medicare

$30.50 for follow up visits from Medicare

$40.00 for both admitting and follow up visits from Medicaid

In 2018, Dr. Zelman and the other physicians in his practice saw the numbers of patients shown in the chart below: Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Total Commercial: Admission visits 453 450 460 457 444 458 447 453 456 464 467 489 5,498 Follow up visits 1,420 1,389 1,412 1,270 1,354 1,378 1,401 1,318 1,367 1,397 1,403 1,467 16,576 Total Commercial Visits 1,873 1,839 1,872 1,727 1,798 1,836 1,848 1,771 1,823 1,861 1,870 1,956 22,074 Medicare: Admission visits 752 789 800 761 698 703 684 723 769 732 777 789 8,977 Follow up visits 1,905 2,015 2,066 2,021 1,999 2,145 2,059 2,141 2,168 2,045 2,073 2,246 24,883 Total Medicare Visits 2,657 2,804 2,866 2,782 2,697 2,848 2,743 2,864 2,937 2,777 2,850 3,035 33,860 Medicaid: Admission visits 104 98 98 110 113 99 121 128 119 118 129 131 1,368 Follow up visits 352 309 315 298 339 297 324 325 331 317 325 340 3,872 Total Medicaid Visits 456 407 413 408 452 396 445 453 450 435 454 471 5,240 Total Visits 4,986 5,050 5,151 4,917 4,947 5,080 5,036 5,088 5,210 5,073 5,174 5,462 61,174

In looking ahead to his budget for 2019, Dr. Zelman believes he will see experience the following trends:

A 7% increase in the number of admission and follow up Medicare patients seen

A 4% increase in the number of admission and follow up Medicaid patients seen

The number of commercial patients seen will not change

. The revenue per patient for all payer groups will remain the same. Expense Information Salaries Dr. Zelman made $315,000 in 2018. His physicians were paid as follows during 2018.

Physician 1- there are 6 of them- $210,000 each

Physician 2- there are 3- $220,000 each

Physician assistant (PA)- 1 who makes $115,000

Nurse practitioner (NP)- 1 who makes $110,000

Administrative director- 1 who makes $95,000

Office staff 1- 1 who makes $53,000

Office staff 2- 1 who makes $36, 000 In looking ahead to his budget for 2019, Dr. Zelman anticipates giving his employees a raise. He plans on the following:

The physicians will get a 7% raise

The PA and NP will get a 5% raise

The administrative director and office staff will all get a 3.5% raise

Dr. Zelman is not getting a raise.

He gets the profits! Operating expenses Administrative and general expenses for 2018 were $298,325. Dr. Zelman is concerned because he believes that malpractice expense will cause these expenses to increase by $75,000 for 2019. In addition, the remainder of the expenses are expected to go up by $27,000 for 2019.

REQUIRED: 1. In good format showing revenues less expenses, prepare the 2018 statements and then prepare the 2019 budget. 2. Based on the resulting budgeted 2019 operating margin (income), will Dr. Zelman need to rethink the raise percentages he is planning to give his employees in 2019? If so, why?