Reference no: EM131301011

Financial Management of Healthcare Organizations

Text-book: Healthcare Finance: An Introduction to Accounting and Financial Management

This weeks readings:

• Cost Behavior & Profit Analysis
• Cost Allocation
• Pricing & Service Decisions
• Planning & Budgeting

Analyzing Bay Pines Medical Center's Financial Statement

After gaining an understanding of the components of a financial statement, analyzing and applying what the components represent, in terms of future planning, are the most important aspects of working in healthcare finance. Consider the following data and make your best analysis of per member per month (PMPM) rates, considering reductions in utilization or pricing.

Bay Pines Medical Center estimates that a capitated population of 50,000 would have the following base case utilization and total cost characteristics:

Service Category	Inpatient Days per 1,000 Enrollees	Average Cost per Day
General	150	$1,500
Surgical	125	$1,800
Psychiatric	70	$700
Alcohol/Drug Abuse	38	$500
Maternity	42	$1,500
Total	425	$1,367

In addition to medical costs, Bay Pines allocates 10 percent of the total premium for administration/reserves.

Tasks:

On the basis of your data analysis, respond to the following:

• What is the PMPM rate that Bay Pines must set to cover medical costs plus administrative expenses?

• What would be the rate if a utilization management program were to reduce utilization within each patient service category by 10 percent? And by 20 percent?

• Consider the initial base case utilization assumption. What rate would be set if the average cost on each service were reduced by 10 percent?

• Assume that both utilization and cost reductions were made. What would the premium be?