Pearland Medical Center, homework help

timer Asked: Jun 3rd, 2017
account_balance_wallet $30

Question description

Pearland Medical Center owns a small satellite clinic, specializing in General Practice, located at nearby Pearland airport. General Practice Clinic’s sole payor is Air Health, a health care plan that covers the airport employee population. Air Health has been paying on a fee-for-service basis; however, recently, its covered population increased and it proposed a capitation contract for the next year with an annual capitation payment of $150 for each of its 20,000 covered members.

Previous experience indicates that the covered population will average 2 visits per year to General Practice Clinic. General Practice Clinic generates annually $1,150,000 fixed cost, which includes $550,000 in direct cost and $600,000 in allocated overhead. Each visit to General Practice Clinic generates $45 in variable costs.

  1. Construct the base pro forma profit and loss statement on the capitation contract based on the number of visits for the clinic.
  2. What is the clinic’s contribution margin on the contract? What is the clinic’s breakeven point under this capitation contract in the number of visits?
  3. Construct the base pro forma profit and loss statement on the capitation contract based on the number of members for the clinic.
  4. What is clinic’s breakeven point under this capitation contract in the number of members?
  5. Should the clinic accept the contract terms?
  6. What elements of CVP analysis change when a clinic moves from a fee-for-service to a capitated environment?
  7. How do provider incentives change when it moves from a fee-for-service to a capitated contract?

Length: 3 pages, excluding reference page.

2-3 references should be cited inside the essay NO PLAGIARISM

Reference page should include links so that I may check over the work cited

Tutor Answer

School: University of Virginia

Hello! here is the answer to this question. Please have a look at it and get back to me in case of anything. Thank you.


Health Care Finance Essay




Cost, Volume and Profit Analysis of a Proposed Capitation Contract
General Practice Clinic main has been approached by a proposal by their main payer, Air
Health concerning the medical plan offered by Air Health. Due to the increased population of Air
Health clients, the company is proposing a capitation contract with the clinic. Before accepting the
contract, General Practice Clinic must do a CVP analysis to determine whether the contract will
be a benefit to the clinic financially or not. Cost-Volume and profit analysis is used in determining
the relationship between the revenues, variable cost and fixed cost. From this analysis, it is possible
to identify the break-even point (Kelly,n.d; ACCA, 2017). This paper discusses the project
statement of income for General Practice Clinic under the capitation contract based on both the
number of visits and member numbers and determines the contribution margin and break-even
point in both scenarios in addition to providing a recommendation whether to accept or decline the
contract based on the CVP analysis.
CVP Analysis Based on Number of Visits...

flag Report DMCA

Good stuff. Would use again.

Similar Questions
Hot Questions
Related Tags

Brown University

1271 Tutors

California Institute of Technology

2131 Tutors

Carnegie Mellon University

982 Tutors

Columbia University

1256 Tutors

Dartmouth University

2113 Tutors

Emory University

2279 Tutors

Harvard University

599 Tutors

Massachusetts Institute of Technology

2319 Tutors

New York University

1645 Tutors

Notre Dam University

1911 Tutors

Oklahoma University

2122 Tutors

Pennsylvania State University

932 Tutors

Princeton University

1211 Tutors

Stanford University

983 Tutors

University of California

1282 Tutors

Oxford University

123 Tutors

Yale University

2325 Tutors