Understanding Healthcare Financial Management

Understanding Healthcare Financial Management
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Understanding Healthcare Financial Management
Chapter 1: problem 5
Johnson family care Inc. uses straight-line method to calculate book depreciation at a tax rate of 40%.
New clinic equipment cost $1,100,000
Cost of installation $22,000
Useful life 10 years
Salvage value $75,000
The equipment falls into MACRS seven-year class
a) What Annual Depreciation Expense Will Be Reported On The Income Statement For The Center?
Depreciation expense = depreciable amount/useful life
The depreciable amount = cost of the asset – salvage value

The cost of the equipment $1,100,000 + $ 22,000 = $1,122,000
$1,122,000 – $75,000
10
= $104,700. 00
The annual depreciation expense reported on the income statement for the center is $104,700
b) What Annual Depreciation Expense Will Be Reported For Tax Purposes?
The equipment falls into MACRS seven-year class
The machines depreciable basis is $1,122,000 $(1,100,000 + 22,000)

c) Suppose The Equipment Is Sold At The End Of The Fourth Year For $400,00, What Impact Would This Have On Taxes Paid By The Center
Tax rate 40%
Equipment sale price $400,000.00
MACRS book value at year 4 $347,820.00
The equipment will be sold at a higher price than the value of the item at the end of year four. The discrepancy implies that the center took too much depreciation and the taxing body will have to recover the excess tax benefit using the tax rate used by the organization.

Therefore: $(400,000-347,820) = $52,180
40% of $52,180 is $20,872.00
Therefore, the IRA will recover $20,872 from the center.
Chapter 2: Problem 1
ABC COMPANY AVERAGE PRIMARY CARE VISITS PER YEAR
Age Band Male Female Male Female
20-29 285 325 2.10 3.18
30-39 96 100 2.60 3.52
40-49 53 57 3.28 3.93
50-59 36 36 4.14 4.43
60+ 7 5 4.98 5.04
Patient visit capacity for each physician per year = 3,000 patients
$180,000 paid to the physicians per year
Question: What primary care rate (PMPM) will families first propose to ABC Company?
The PMPM rate proposed by the families first organization to the ABC Company must take care of all the expenses incurred by the insurance company while serving the insured personnel. The gender, age, rate of visit per each age group and gender, the physician remunerations, the maximum patient capacity for each physician and the total number of the people served are important factors to consider while choosing the right PMPM RATE.
Age 20-29
Male 285×2.10 = 598.5
Female 325 ×3.18 = 1033.5
Age 30-39
Male 96×2.60 = 249.6
Female 100 × 3.52 = 352
Age 40-39
Male 53 × 3.28 = 173.84
Female 57 × 3.93 = 224.01
Age 50-59
Male 36 × 4.14 = 149.04
Female 36 × 4.43 = 159.48
Age 60 and above
Male 7 × 4.98 = 34.86
Female 5 × 5.04 = 25.2
Total visits = 598.5+1033.5+249.6+352+173.84+224.01+149.04+159.48+34.86+25.2
= 3000.03
Total ABC members = 285+325+96+100+53+57+36+36+7+5
= 1000
Visit capacity per physician per year = 3000
Compensation per primary care per year $180,000
The annual cost of primary care = (total visits ÷ visit capacity per physician) × compensation per primary care
(3000.03÷3000) × $180,000 = $ 180,001.8
Therefore, the annual cost of primary care is $ 180,002
Primary care cost per member per year is
$180,002 ÷ 1000 = $180.002 rounded off to $ 180
The primary care cost per member per month is calculated by dividing the primary cost of care per member per year by the number of moths in a year.
Therefore, PMPM = $180÷12 months
PMPM = $ 15
Chapter 3: Problem 1
Three methods of allocating rewards ($5,000 bonus)
Relative performance: a percentage greater than the state average of 80 percent
Benchmark performance: a percentage greater than the state goal of 90 percent
Improved performance: 10 percent improvement
Physician Jan-Jun Jul-Dec
A 60% 76%
B 70% 81%
C 80% 81%
D 90% 91%
a) For the July-Dec Period, What Would Be Each Physicians P4P If Rewards Were Allocated Based On Relative, Benchmark, and Improvement Performance
Relativity Benchmark Improvement
Physician A $0.00 $0.00 $5,000.00
Physician B $5,000.00 $0.00 $5,000.00
Physician C $5,000.00 $0.00 $0.00
Physician D $5,000.00 $5,000.00 $0.00
b) Which Method(S) Of Allocating Rewards Would You Recommend?
The best methods for allocating the bonuses will be the use of the benchmark and the improvement performance. The purpose of the P4P is to ensure that the organization meets the goal of increasing the number of patients taking the HbA1c test and the state in which the company is based there is already an eighty percent turnout. Therefore, the SPC should focus on ensuring that the physicians meet the 90 percent goal as set by the state medical association. The benchmark performance reward will encourage physicians to achieve this goal. Moreover, since the SPC seeks to increase preventing care for its diabetic patients, rewarding physicians who show an improvement in the number of patients served is an ideal way of measuring the performance of the organization and the level at which the firm is at in terms of organizational goal achievement.