Please fill in all blanks and answer all questions with formulas. Thank you.

Chapter 7 UNDERSTANDING HEALTHCARE FINANCIAL MANAGEMENT, 6th ed Problem 7.1 Assume that the mangers of Fort Winston Hospital are setting the price on a new outpatient service. Here are the relevant data: Variable cost per visit Annual direct fixed costs Annual overhead allocation Expected annual utilization (visits) Target profit Part a 5.00 500,000 50,000 10,000 $ 100,000 $ $ $ Part b 10.00 500,000 50,000 10,000 $ 100,000 $ $ $ Part c $ 5.00 $ 1,000,000 ### ### ### Part d $ 10.00 $ 1,000,000 $ 50,000 10,000 $ 100,000 Price @ Breakeven Price @ $100,000 Target profit The breakeven formula is: (Price Volume) (VC rate Volume) Fixed costs = Profit Algebraically this breaks down to: Price = ((Profit+Fixed costs)/Volume) + Variable cost per visit a. What per visit price must be set for the service to break even? What per visit price must be set for the service to earn an annual profit of $100,000? Note: To brea contribution margin must equal fixed costs and fixed costs include both direct and indirect costs. Fill in blue shaded area above and use Excel formula for calculatio b. Repeat part a, but assume that the variable cost per visit is $10. Fill in blue shaded area above and use Excel formula for calculations. c. Repeat part a, but assume that direct fixed costs are $1,000,000. Fill in blue shaded area above and use Excel formula for calculations. d. Repeat part a assume both $10 in variable cost and $1,000,000 in direct fixed costs. Fill in blue shaded area above and use Excel formula for calculations. MANAGEMENT, 6th ed al profit of $100,000? Note: To break even the total nd use Excel formula for calculations. ations. ations. l formula for calculations. Chapter 7 Problem 7.3 Allied Laboratories is combining some of its most common tests into one price packages. One such package will contain three tests that have the following variable c Disposable syringe Blood vial Forms Reagents Sterile bandage Breakage/losses Test A 3.00 0.50 0.15 0.80 $ 0.10 $ 0.05 $ $ $ Test B 3.00 0.50 0.15 0.60 $ 0.10 $ 0.05 $ $ $ Test C ### ### ### 1.20 ### ### When the tests are combined, only one syringe, form, and sterile bandage will be used. Furthermore, only one charge for breakage/losses will apply. Two blood vials required, and reagent costs will remain the same (reagents from all three tests are required) a. As a starting point, what is the price of the combined test assuming marginal cost pricing? In the blue shaded area calculate the Price using an Excel formula. PRICE b. Assume that Allied wants a contribution margin of $10 per test. What price must be set to achieve this goal? HINT: Price - VC = CM. In the blue shaded area calc Price using an Excel formula. PRICE c. Allied estimates that 2,000 of the combined tests will be conducted during the year. The annual allocation of direct fixed and overhead costs totals $40,000. What p be set to cover full costs? What price must be set to produce a profit of $20,000 on the combined test? In the blue shaded area calculate the Price using an Excel form Profit PRICE (full cost) $ PRICE ($20,000 profit) $ 20,000 sts that have the following variable costs: age/losses will apply. Two blood vials are he Price using an Excel formula. C = CM. In the blue shaded area calculate the verhead costs totals $40,000. What price must alculate the Price using an Excel formula. Chapter 7 Problem 7.4 Assume that Valley Forge Hospital has only the following three payer groups: Number of admissions 1,000 4,000 8,000 Commercial PennCare Medicare Hospital Fixed costs = $ Average Variable Cost Revenue per per Admission Admission $ 5,000 $ 3,000 $ 4,500 $ 4,000 $ 7,000 $ 2,500 38,000,000 a. What is the hospital's net income? Fill in the blue shaded areas in the table below using Excel formulas. Valley Forge Profit & Loss Statement Total Revenue Total Variable Cost Contribution Margin Fixed Costs Net Income (Loss) b. Assume that half of the 100,000 covered lives in the commercial payer group will be moved into a capitated plan. All utilization and cost data remain the same. Wh will the hospital have to charge to retain its Part a net income? Fill in the blue shaded areas in the table below using Excel formulas. Number of admissions 500 500 4,000 8,000 Commercial FFS Capitated PennCare Medicare Hospital Fixed costs = $ Average Variable Cost Revenue per per Admission Admission $ 5,000 $ 3,000 $ $ 3,000 $ 4,500 $ 4,000 $ 7,000 $ 2,500 38,000,000 Commercial Revenue pre-split 50% reduction for capitation Capitated lives Annual Member Rate PMPM Other than creating a new line and splitting the number of adm between the commercial and newly created capitated line, noth changed. Thus, the 100,000 lives in the capitated plan must pro the commerical revenue Verify your calculation with the P&L below. You should get the same net income as in part a. Valley Forge Profit & Loss Statement Total FFS Revenue Total Capit. Revenue Total Variable Cost Contribution Margin Fixed Costs Net Income (Loss) c. What overall net income would be produced if the admission rate of the capitated group were reduced from the commercial level by 10 percent? Fill in the blue sh the table below using Excel formulas. Commercial FFS Capitated PennCare Number of admissions 500 4,000 Average Variable Cost Revenue per per Admission Admission $ 5,000 $ 3,000 $ $ 3,000 $ 4,500 $ 4,000 Medicare Hospital Fixed costs = 8,000 $ 38,000,000 Valley Forge Profit & Loss Statement Total FFS Revenue Total Capit. Revenue Total Variable Cost Contribution Margin Fixed Costs Net Income (Loss) d. We are not doing $ 7,000 $ 2,500 d cost data remain the same. What PMPM rate . and splitting the number of admissions equally ewly created capitated line, nothing has s in the capitated plan must provide for half of by 10 percent? Fill in the blue shaded areas in Chapter 7 Problem 7.6 Assume that a primary care physician practice performs only physical examinations. The details of which are as follows: RVUs Level I Exam Level II Exam Level III Exam Total Practice Costs = $ Annual Number of Exams 10 $ 2,400 20 $ 800 30 $ 400 500,000 a. Using RVU methodology, what is the estimated cost per type of examination? Fill in the blue shaded areas in the table below using Excel formulas. RVUs Level I Exam Level II Exam Level III Exam Total RVUs Total Practice Cost Cost Per RVU b. We are not doing Annual Number of Exams Total RVUs 10 $ 2,400 20 $ 800 30 $ 400 Cost per Exam Excel formulas. Chapter 7 Problem 7.7 Consider the following data for a clinical laboratory: Activity Receive specimen Set up equipment Run test Record results Transmit results Total cost $ $ $ $ $ $ Annual Cost 10,000 25,000 100,000 10,000 5,000 150,000 Cost Driver # of tests # of minutes per test # of minutes per test # of minutes per test # of minutes per test Test A 2,000 5 1 2 3 Test B 1,500 ### 5 ### ### Test C 1,000 10 10 2 3 Test D 500 10 20 4 3 a. Using ABC techniques, determine the allocation rate for each activity. Fill in the blue shaded areas in the table below using Excel formulas. HINT: Don't forget th when you have a cost driver like the one here that is per test you have to multiply the minutes by the total number of tests. Activity Receive specimen Set up equipment Run test Record results Transmit results Total cost $ $ $ $ $ $ Annual Cost 10,000 25,000 100,000 10,000 5,000 150,000 Total Units Allocation Rate per test per minute per minute per minute per minute b. Now, using this allocation rate, estimate the total cost of performing each test. Fill in the blue shaded areas in the table below using Excel formulas. Activity Cost Driver Allocation Rate Test A Consump. Test B Cost Consump. Receive specimen # of tests 1 ### Set up equipment # of minutes per test 5 ### Run test # of minutes per test 1 5 Record results Transmit results # of minutes per test # of minutes per test 2 3 ### ### Cost c. Verify that the total annual cost aggregated from the individual test costs equal the total annual costs of $150,000. Fill in the blue shaded areas in the table below u Excel formulas. Cost Test A Test B Test C Test D Total Cost Volume Total g Excel formulas. HINT: Don't forget that ow using Excel formulas. Test C Consump. Test D Cost Consump. 1 $ 1.00 10 $ 10.00 10 $ 20.00 2 3 $ $ 4.00 3.00 he blue shaded areas in the table below using Cost Cost per Service