# Help with this health-accounting case study

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Case study of a healthcare organization financial health:

Assume the following information
about projected cost and charges for a hospital in 2016:

·
Fixed Costs = \$10,000,000

·
Variable Cost per Inpatient Day =
\$200

·
Charge per Inpatient Day = \$1,000.

·
Initial Volume of 15,000 Inpatient Days

Review
Nowicki Chapter 6 and Gapenski Chapter 5. From what you have learned in
these chapters do the following:

1.
Define the contribution margin? What
is its economic meaning?

2.
What is the contribution margin of
this base case?

3.
Construct the hospital’s base case
projected Profit & Loss statement

4.
Break even analysis:

a.
What is the hospital’s breakeven
point in unit (volume)? Show your work.  Interpret
the result. (Suppose you need to explain to a health services manager)

b.
What is the hospital’s breakeven point
in dollar? Show your work. Interpret the result. (Suppose you need to explain
to a health services manager)

c.
Yes or No. Will the hospital get
profit if it operates in a volume higher than this breakeven point?

5.
What volume is required to provide a
profit of \$1 million? Show your work.

6.
What volume is required to provide a
profit of \$500,000? Show your work.

7.
Now assume this is a for-profit
hospital and the hospital must pay taxes at a 25% rate based on the profit.
What volume is required to provide an after-tax profit of \$300,000? Show your
work.

8.
Back to the base case. Now assume
that 20% of the hospital’s inpatient days come from a managed care plan that
wants a 25% discount from charges.

a.
Construct the P&L statement if
the hospital accepts the discount.

b.
Should the hospital agree to the
discounted proposal? Why?

9.
Back to the base case. Now assume this
hospital has a sole payer, an HMO, which proposes an annual capitation payment
of \$200 for each of its 75,000 members for the inpatient stays. Past experience
indicates the population served will average 0.2 inpatient days per year.

a.
What will be the total revenue on
this contract?

b.
What will be the expected annual
inpatient days?

c.
Construct the hospitals P&L
statement on this contract.

d.
What is the hospital’s breakeven
point (volume) on this contract? Show your work. Interpret the result. (Suppose
you need to explain to a health services manager)

e.
Yes or No. Will the hospital get
profit if it operates in a volume higher than this breakeven point?