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## Week 4 Homework

For this week’s homework, you need to respond to questions and problems outlined below.

Respond to the following three problems. Show your work for any calculations performed. Each accurate and complete response is worth 20 points.

Problem 1. Formulate your answer based on the information below. The intensity of care delivered dropped from a budgeted case mix of 0.90 to an actual case mix of 0.85. What dollar effect did this have on actual costs?

You have been asked by management to explain the variances in costs under your inpatient capitated contract. The following data is provided. Use the following data to calculate the variances.

Budget                                Actual

Inpatient Costs                  \$12,568,500                    \$16,618,350

Members                              42,000                              42,000

Admission Rate                   0.070                                0.095

Case Mix Index                      0.90                                 0.85

Cost per Case (CMI = 1.0)    \$4,750

\$4,900

Problem 2. Based on the information below, what rate must be set to generate the required \$80,000 in profit in the preceding example?

You have been asked to establish a pricing structure for radiology on a per-procedure basis. Present budgetary data is presented below:

Budgeted

Procedures               10,000

Budgeted Cost        \$400,000

Desired Profit           \$80,000

It is estimated that Medicare patients comprise 40 percent of total radiology volume and will pay on average \$38.00 per procedure. Approximately 10 percent of the patients are cost payers. The remaining charge payers are summarized below:

Payer                        Volume%                    Discount%

Blue Cross                 20                                   4

Unity PPO                 15                                  10

Kaiser                        10                                  10

Self Pay                     5                                    40

50%

Problem 3.  What is the amount of variance that is attributed to the difference between the budgeted and actual wage rate per hour? Use the following data to calculate the variances.

The following information has been prepared for a home health agency.

Budget                            Actual

Wage Rate per Hour                             \$16.00                            \$17.00

Fixed Hours                                            320                                   320

Variable Hours per Relative
Value Unit (RVU)                                   1.0                                    1.1

Relative Value Units (RVUs)               1,000                              1,200

Total Labor Hours                                  1,320                             1,640

Labor Costs                                         \$21,120                         \$27,880

Cost per RVU                                     \$21.12                            \$23.23

Budgeted costs at actual volume would be \$25,344 (\$21.12 × 1,200), and the total variance to be explained is \$2,536 Unfavorable (\$27,880 – \$25,344). Be sure to specify whether the variance is favorable or unfavorable.

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