Proportions of total cases for each payer

Commercial insurances

Medicare insurance

Medicaid insurance

Liability insurance

All others including self pay

Individual reimbursement rates for all payers

Commercial insurances

Medicare insurance

Medicaid insurance

Liability insurers

Others

Expected Rates of reimbursement for each payer

Commercial insurances

Medicare insurance

Medicaid insurance

Liability insurance

All others including self pay

Expected Accounts Receivables (A/R)

What Rate to charge services (assuming a uniform Charge rate)

Total charge for all cases

Difference between the two A/R rates

Commercial insurances

Medicare insurance

Medicaid insurance

Liability insurance

0

Others

As is evident from the above calculations, the reimbursement rates are way above what would be collected from any given case even if a uniform charge was applied to all cases (Blocher, Stout&Cokins, 2010). Nevertheless, the physician can actually collect the difference from the client because of co pays and coinsurance programs.

Classification of costs

It should be noted that the class to which any cost belongs depends on the nature of the specific business (Blocher, Stout & Cokins, 2010). Nevertheless, the list below may attempt to classify the various costs either into fixed or variable costs respectively.

Fixed costs

• Licensing of facility
• Insurance
• Wages
• Utility, building, usage exp (lights, heat, technology).

Variable costs

• Materials/supplies
• Per diem staff

Direct

• Medications

Indirect

All the other costs are indirect.

Contribution Margin

Determination of fixed and variable costs

Fixed costs

Both Wages \$ 2,000 and insurances of \$ 175 are fixed costs while materials/supplies of \$2,270 and utility, building usage exp of \$ 1,125 are variable costs.

Breakeven Point

Number of units for desired Profit Level

An optimum payer mix

Assuming that everything else remains the same i.e.:

Q=1231 units, Fixed Costs (Total) =\$ 4,500,000, Variable Cost per Unit=\$ 3395, Expected Profit=\$ 150,000

We can calculate the desired unit selling Price.

The physician must charge at least \$7,050.57

This means that it is only Liability insures who can meet this condition.

References

Blocher, E.J., Stout, D.E., &Cokins, G. (2010). Cost Management: A Strategic Emphasis (5th        edn.). New York: McGraw-Hill/Irwin.

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