Healthcare Finance
Portfolio Project: Variance Analysis Project:
· Assignment: (400 points) o This is an individual, graded exercise. Collaboration and sharing of answers among students is not permitted. Students must provide formulas and calculations used to derive answers to the project questions.
Use the following data to calculate the variances in problems 1–5.
Standard Cost Profile
Lab Treatment SU #12
Expected Treatments = 1,000
| Quantity Quantity Unit Variable Average | Average | |||
| Resource Variable Fixed Cost Cost Fixed Cost | Total Cost | |||
| Labor 0.80 0.80 | $ 16.00 $ 12.80 $ 12.80 | $ 25.60 | ||
| Supplies 7.00 0 | 1.10 7.70 | 0 | 7.70 | |
|
Actual Month Cost Lab Treatment SU #12 Actual Treatments = 1,100
|
$ 20.50 $ | 12.80 | 33.30 | |
| Quantity Unit | Total | |||
| Resource Used Cost | Cost | |||
| Labor 1,600 $ 17.00 | $ 27,200 | |||
| Supplies 7,500 1.00 | 7,500 | |||
| $ 34,700 |
Calculate the following variances:
1. Efficiency Variance – Labor
2. Efficiency Variance – Supplies
3. Price Variance – Labor
4. Price Variance – Supplies
5. Volume Variance
6. You have been asked to explain the causes for a change in the charges for MS-DRG 445 from 2006 to 2011. Charge profiles are presented below:
Units Provided Charge/Unit Total Charge
2006 2011 2006 2011 2006 2011
Routine Care 10 7 $200 $400 $2,000 $2,800
Special Care 2 1 400 560 800 560
Pharmacy 1 1 95 125 95 125
Radiology 9 1 65 585 585 585
CT Scan 0 1 300 300 0 300
Lab 1 1 185 185 185 185 $3,665 $4,555
Compute price and efficiency variances for all departments.
Use the following data to calculate the variances in problems 7–10.
You have been asked by management to explain the variances in costs under your inpatient capitated contract. The following data is provided.
Budget Actual
Inpatient Costs $12,568,500 $16,618,350
Members 42,000 42,000
Admission Rate 0.070 0.095
Case Mix Index 0.90 0.85
Cost per Case (CMI = 1.0) $4,750 $4,900
7. What dollar amount of the total variance is attributed to Enrollment Variance?
8. What dollar effect did the increased admission rate have on cost?
9. 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?
10. Costs per case increased to $4,900 from a budgeted value of $4,750. This increased actual total costs by what amount?
Use the following data to calculate the variances in problems 11–13.
The following information has been prepared for a home health agency:
Budget Actual
Wage Rate per Hour $16.00 $17.00
Fixed Hours 320 320 Variable Hours per Relative
Value Unit (RVU) 1.0 1.1
Relative Value Units (RVUs) 1,000 1,200
Total Labor Hours 1,320 1,640
Labor Costs $21,120 $27,880
Cost per RVU $21.12 $23.23
Budgeted costs at actual volume would be $25,344 ($21.12 × 1,200), and the total variance to be explained is $2,536 Unfavorable ($27,880 – $25,344). Be sure to specify whether the variance is favorable or unfavorable.
11. What is the amount of variance that is attributed to the difference between the budgeted and actual wage rate per hour?
12. What is the amount of variance that is attributed to the change in labor productivity?
13. What is the amount of variance that can be attributed to the difference between budgeted and actual volume?
Use the following information for problems 14–16.
The administrator of Appomattox Nursing Home is very aware of needing to keep his cost down since he just negotiated a new arrangement with a large insurance company that will pay him a fixed amount per patient day. Listed below are budgeted and actual expenses for the previous month.
Actual patient days were 30,000 compared to budgeted patient days of 24,000.
| Budgeted Costs @ 24,000 Patient Days | Budgeted Cost Per Unit | Actual Costs @
30,000 Patient Days |
|
| Pharmacy Costs Variable | $100,000 | $4.167 | $140,000 |
| Misc. Supplies Costs Variable | $56,000 | $2.333 | $67,500 |
| Fixed Overhead Costs | $708,000 | $29.50 | $780,000 |
| Total | $864,0000 | $36.00 | $987,500 |
14. Determine the total variance associated with the planned and actual expenses.
15. Prepare a flexible budget of expense at 30,000 patient days.
16. Determine the “Spending Variance” which is defined as Actual costs less costs budgeted at actual volume.
Use the following information for problems 17–19.
A dermatology clinic expects to contract with an HMO for an estimated 80,000 enrollees.
The HMO expects 1 in 4 of its enrolled members to use the dermatology services per month.
At the end of the year, the dermatology clinic’s business manager looked at her monthly figures and saw that the number of enrolled members had increased by 5% over the budgeted amount, and that 1 in 3 of the total HMO members had used the dermatology services per month.
Actual and budgeted statistics are presented below. The total variance is $70,000 and is unfavorable:
| Budgeted | Actual | |
| Enrollees | 80,000 | 84,000 |
| Usage Rate | 0.25 | 0.3333 |
| Visits | 20,000 | 28,000 |
| Cost | $200,000 | $270,000 |
| Cost Per Visit | $10.00 | $9.643 |
17. Determine the enrollment variance for the month.
18. Determine the utilization variance for the month.
19. Determine the efficiency variance for the month.
APPENDIX A
| Total Points | Discussion Rubric |
| 10 | Excellent – a contribution that demonstrated sound critical thinking skills in analyzing, evaluating, and/or applying substance of the unit content and was submitted on time |
| 8 | Very Good – a contribution that fell slightly short of the excellent guidelines and may have either been submitted late or left a few points unaddressed from the discussion criteria |
| 6 | Good – a contribution that needed additional development in using sound critical thinking skills in analyzing, evaluating, and/or applying substance of the unit content. |
| 4 | Needing Improvement – a contribution that needed additional development in using sound critical thinking skills in analyzing, evaluating, and/or applying substance of the unit content. |
| 2 | Unsatisfactory – a contribution that did not reflect the use of sound critical thinking skills in analyzing, evaluating, and/or applying substance of the unit content. |
| 0 | Did not submit posts by close of the unit forum |
| Note to student
Please use this rubric to support your response and follow-up replies in the discussion forums. It is necessary to also understand the substance of the discussion question and your responses should reflect applying the learning content up to and including the unit of the discussion forum. Personal experience, workplace examples, and scriptural support are always encouraged to support your response. However, it is important to avoid any proprietary information from the workplace.
If your score is lower than expected, use the rubric as a guide to evaluate your responses for improvement efforts. If unsure as to what steps to take try: 1. Reading the discussion question thoroughly and repeatedly before replying 2. Including additional depth in your responses 3. Tightening your focus; be more concise 4. Working on application of content to your workplace or area of ministry 5. Making sure your response is compatible with a sound Christian Worldview |
Rubric for Evaluation of Unit Assignments and Portfolio Project
| Criterion | 0.0 – 0.33 Below Average | 0.34 – 0.67 Average
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0.68 – 1.00 Above Average |
| Communication
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| Originality
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| Critical Thinking
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| Integration
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| Christian Worldview
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Communication evaluates the proper attention to format, grammar, punctuation, and the student’s ability to develop thought in an organized structure that exhibits advance level work.
Originality evaluates the attention to proper citing and referencing of source materials and the student’s ability to summarize, paraphrase, and effectively quote the work of others, while developing original ideas and thoughts from researched material.
Critical thinking evaluates the exhibited understanding of the process for reasoning and the elements of thought as illustrated in the student’s written work.
Integration evaluates the appropriate inclusion of thoughts, ideas, and information from assigned reading in context with the topic, question, or task.
Christian worldview evaluates the appropriateness of referenced Scripture to the topic, question, or task.