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Q1. Capitated contract is a healthcare plan that allows the payment of a flat fee for each patient
covered. A managed care organization pays a fixed amount for its members to the providers of
emergency medical services regardless of the number of times the patient is offered the services
(Sandahl et al, 2013).The service provider agreement with the HMO allows the sharing of
deficits and the surplus. Efficient utilization of emergency services may result in a surplus that
the service provider will share with the health plan.
Fixed cost is a cost that doesn’t increase or decrease with any change in amount of services
offered. The expenses have to be paid by an organization independent of any business activity. A
decrease in the volume of services offered produces disproportionately higher decrease in profits
while an increase in volume of services provides the emergency medical service providers with
more profits after the organization achieves the breakeven point.
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Line item budgeting involves grouping of individual financial statements by departments or by
cost centers. It offers the EMS providers a step-by-step approach to budgeting. The providers can
make specific decisions like changing funding levels of various programs to provide money to
more important programs (Schall et al, 2012). The main issue with the budgeting method is the
temptation to rush into unnecessar...