Assignment instructions: Complete the following 2 problems using Excel. This exercise is worth 20 points.
1. Prepare a revenue budget for Saunders Home Health Agency. Blue Cross members can be charged only $60 for a nurse visit by the agency, even though the agency normally charges $75. Aetna Insurance Company has agreed to pay 80% of the agency’s normal charge. Medicaid regulations call for it to pay the cost of care, and that the cost of each visit is $45. Suppose further that Medicare has a fee schedule that calls for it to pay $50 for this type of patient. The agency gives a $50 discount to poor uninsured patients, charging them only $25. Saunders expects 40 Blue Cross, 15 Aetna, 20 Medicaid, 50 Medicare, 25 uninsured, and 20 self-pay visits. Of the self-pay patients, three quarters pay the full charge, but one quarter never pay any part of the bill. Prepare a revenue budget for Saunders Home Health Agency. Will Saunders have a profit or a loss?
2. Assume that you are the manager of a clinic. You are currently renegotiating a capitated rate with a managed care organization (MCO). Your charges for patient visits are currently $125 to see an MD and $90 to see a nurse practitioner (NP). You have the following expectations regarding average utilization by members of the MCO:
1.5 MD visits per member per year
2.0 RN visits per member per year
In order to provide care for the MCO members, you will need additional physicians and nurse practitioners. Suppose that you expect the following number of visits from this employee group:
1,200 patient visits per MD per year
2,000 patient visits per RN-NP per year
Suppose further that the annual salaries, including benefits, are:
Annual compensation $175,000 per MD
Annual compensation $95,000 per RN-NP
Fixed costs are estimated as $2 per member, per month.
1. Calculate the capitation rate that would be needed to cover only the cost of the additional MDs and NPs.
2. Determine the capitation rate per member in effect under the current contract.
3. Calculate the average costs PMPM.
4. Assuming the clinic has patients from other revenue sources (beyond this one MCO), should the provider accept a newly negotiated rate of $28 per member, per month from the MCO? Please state why or why not.