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.
- Construct the base pro forma profit and loss statement on the capitation contract based on the number of visits for the clinic.
- 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?
- Construct the base pro forma profit and loss statement on the capitation contract based on the number of members for the clinic.
- What is clinic’s breakeven point under this capitation contract in the number of members?
- Should the clinic accept the contract terms?
- What elements of CVP analysis change when a clinic moves from a fee-for-service to a capitated environment?
- 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
Explanation & Answer
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Running Head: HEALTH CARE FINANCE ESSAY
Health Care Finance Essay
Name
Institution
Date
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HEALTH CARE FINANCE ESSAY
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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...
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