Description
Health Care Services Reimbursement
In 2013, the Gastroenterology Clinic of Pearland Medical Center had revenue totaling $14,550,400. The Gastroenterology Clinic costs data for a 12-month period from January 2013 through December 2013 were reported as follows:
Month, 2013 |
Number of Patient Visits |
Gastroenterology Clinic Costs, $ |
January |
6,755 |
945,700 |
February |
6,620 |
946,660 |
March |
5,834 |
880,934 |
April |
6,228 |
927,972 |
May |
7,554 |
944,250 |
June |
7,620 |
914,400 |
July |
7,136 |
949,088 |
August |
7,440 |
959,760 |
September |
6,453 |
942,138 |
October |
5,325 |
825,375 |
November |
5,588 |
854,964 |
December |
7,020 |
961,740 |
- Find the fixed and variable portion of costs using the high-low method.
- Calculate the contribution margin, the contribution margin ratio, and the per-visit revenue, costs, and operating income.
- Discuss the importance of computation of the contribution margin in evaluating the relationship of cost, volume, and profit.
- In deciding to continue (or to discontinue) a service, which revenues currently do not cover total cost. Which is more important in the short run, variable cost or fixed cost? In the long run (with more service volume)? Why?
Length: 3–4 pages, excluding title page and references.
SLP Assignment Expectations
Assessment and Grading: Your paper will be assessed based on the performance assessment rubric that is linked within the course. Review it before you begin working on the assignment.
Your submission should meet the guidelines on file format, in-text citations and references, scholarly sources, scholarly writing, and use of direct quotes noted under Module 1 Assignment Expectations.
Required Reading
Berenson, R. A., & Rich, E. C. (2010). U.S. approaches to physician payment: The deconstruction of primary care. Journal of General Internal Medicine, 25(6), 613-618.
Chang, K. & Said, A.A. (2014). The impact of outsourcing on hospital performance. International Journal of Management Accounting Research, suppl. Special Issue. Health Care Costs and Performance, 4(1), 7-26.
Hennig-Schmidt, H., Selten, R., & Wiesen, D. (2011). How payment systems affect physicians’ provision behavior - An experimental investigation. Journal of Health Economics, 30(4), 637-646.
Explanation & Answer
Attached.
Running head: PAYMENT AND HEALTHCARE
Payment and Healthcare
Name
Institutional Affiliation
1
PAYMENT AND HEALTHCARE
2
Payment and healthcare
The high low method is used to split a mixed cost into a fixed and variable component. It
takes two activities at the extreme levels from a set of data then used to calculate approximate
variables cost per unit and total fixed cost. It is equal to change in total cost divided by change in
the number of units. The formula for calculating variable value is Y 2- Y1/ X2- X1 where Y1 is
the total cost at the lowest level, Y2 is total cost at the highest level, X 1 is the number of months
at the lowest level, and X2 is the number of months at the highest level.
In the data for Gastroenterology Clinic, the highest number of patient visit X2 is 7620 and
lowest X1 is 5325 in a period of 12 months. The highest cost Y2 is $961,740 for the month of
December and the lowest Y1 is 825,375 for October. Variable component will be ($961,740$825,375)/ (7620- 5325) which is $136365/ 2295 = 59.42. The fixed component is acquired by
subtracting total variable cost from total cost where variable cost is Y2 and total cost is BX2
which is equal to Y1 subtract BX1, Y2- BX2 = Y1 - BX1. The BX2 is 7620 multiplied by
59.42 the subtracted from Y2 which is $961,740 ($961,740- 7620*59.42) = $961,740- 452,780.4
= 508,959.6, (...