# Evaluating Financial Statements

Achieve exercises such as income sensitivity and breakeven analyses for providers with diverse payer mixes.

Assess the major reimbursement sources, such as Medicare, Medicaid, and commercial insurance that affect all providers.

Differentiate the various reimbursement methods, including prospective payment systems, cost reimbursement systems, discounted charges systems, flat-rate reimbursement systems, and capitation contracts.

Evaluate healthcare relationships expressed in financial and economic terms.

Analyze and compare capital investment opportunities based on an understanding of the basics of capital budgeting and capital structure decisions.

Your facility has the following payer mix: 40% commercial insurances

25% Medicare insurance

15% Medicaid insurance

15% liability insurance

5% all others including self-pay

Write a 3-4 page report that addresses the following requirements:

Assume that for the time in question you have 2000 cases in the proportions above. (What are the proportions of the total cases for each payer?)

The average Medicare rate for each case is $6200- use this as the baseline. Commercial insurances average 110% of Medicare, Medicaid averages 65% of Medicare, Liability insurers average 200% of Medicare and the others average 100% of Medicare rates. (What are the individual reimbursement rates for all 5 payers?)

- What are the expected rates of reimbursement for this time frame for each payer? What is your expected A/R?
- What rate should you charge for these services (assuming one charge rate for all payers)? (This gives you your total A/R.) Calculate the total charges for all cases based on this rate.
- What is the difference between the two A/R rates above? Can you collect it from the patient? What happens to the difference?
- Which of these costs are fixed? Which are variable? Direct or indirect?
- materials/supplies (gowns, drapes, bedsheets)
- Wages (nurses, technicians)
- Utility, building, usage exp (lights, heat, technology)
- Medications
- Licensing of facility
- Per diem staff
- Insurances (malpractice, business etc.)

- Calculate the contribution margin for one case (in $) with the following costs for this period, per case: a. materials/supplies: $2270 b. Wages: $2000 c. Utility, building, usage exp: $1125 d. Insurances (malpractice, business etc.): $175
- Using the above information, determine which is fixed and which cost is variable. Then calculate the breakeven volume of cases in units for this period.
- Suppose you want to make $150,000 profit between this period and next period to fund an expansion to the NICU, how many cases would you have to see? At what payer mix would this be optimal?