The student, functioning as a Director of Finance Department in a hospital setting, was approached by Mr. Finkler, the Chief Executive Officer (CEO), whereby he expressed a concern about the variances in costs under inpatient capitated contract. The CEO requested a financial analysis that would help explain these variances. Taking into consideration the request expressed by Mr. Finkler and based on information presented in the financial data below, information obtained from credible outside sources, and your professional experience, prepare a business report to Mr. Finkler addressing the following questions. 1. What dollar amount of the total variance is attributed to enrollment variance? 2. What dollar effect did the increased admission rate have on cost? 3. The intensity of care delivered dropped from a budgeted case mix of 0.90 to an actual case mix of 0.85. What dollar effect did this have on actual costs? 4. Costs per case increased to $4,900 from a budgeted value of $4,750. By what amount did this increase the actual total costs? 5. Explain how capitation changes the way in which profit analysis is conducted in terms of utilizations (number of admissions) and in terms of membership (covered lives). Does each admission or patient stay increase both costs and revenues? Does each additional member contribute positively to profits? 6. If reimbursement is exclusively capitated, then the providers financial risk is minimized if all costs are fixed or variable? Financial Data for Director of Finance Department in a hospital setting Budget Actual Actual Inpatient Costs $12,568,500 16,618,350 $16,618,350 Members 42,000 42,000 42,000 Admission Rate 0.070 0.095 0.095 Case Mix Index 0.90 0.85 0.85 Cost per Case (CMI= 1.0) $4,750 $4,900 $4,900