# Healthcare Finance and Budgeting

HEALTHCARE FINANCE AND BUDGETING

Portfolio Project: Variance Analysis Project:

· Assignment: (400 points) o This is an individual, graded exercise. Collaboration and sharing of answers among students is not permitted. Students must provide formulas and calculations used to derive answers to the project questions.

Use the following data to calculate the variances in problems 1–5.

Standard Cost Profile

Lab Treatment SU #12

Expected Treatments = 1,000

 Quantity Quantity Unit Variable Average Average Resource Variable Fixed Cost Cost Fixed Cost Total Cost Labor 0.80 0.80 \$ 16.00 \$ 12.80 \$ 12.80 \$ 25.60 Supplies 7.00 0 1.10 7.70 0 7.70 Actual Month Cost Lab Treatment SU #12 Actual Treatments = 1,100 \$ 20.50 \$ 12.80 33.30 Quantity Unit Total Resource Used Cost Cost Labor 1,600 \$ 17.00 \$ 27,200 Supplies 7,500 1.00 7,500 \$ 34,700

Calculate the following variances:

1. Efficiency Variance – Labor

2. Efficiency Variance – Supplies

3. Price Variance – Labor

4. Price Variance – Supplies

5. Volume Variance

6. You have been asked to explain the causes for a change in the charges for MS-DRG 445 from 2006 to 2011. Charge profiles are presented below:

Units Provided Charge/Unit Total Charge

2006 2011 2006 2011 2006 2011

Routine Care 10 7 \$200 \$400 \$2,000 \$2,800

Special Care 2 1 400 560 800 560

Pharmacy 1 1 95 125 95 125

Radiology 9 1 65 585 585 585

CT Scan 0 1 300 300 0 300

Lab 1 1 185 185 185 185 \$3,665 \$4,555

Compute price and efficiency variances for all departments.

Use the following data to calculate the variances in problems 7–10.

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

Budget Actual

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

Members 42,000 42,000

Case Mix Index 0.90 0.85

Cost per Case (CMI = 1.0) \$4,750 \$4,900

7. What dollar amount of the total variance is attributed to Enrollment Variance?

8. What dollar effect did the increased admission rate have on cost?

9. 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?

10. Costs per case increased to \$4,900 from a budgeted value of \$4,750. This increased actual total costs by what amount?

Use the following data to calculate the variances in problems 11–13.

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.

11. What is the amount of variance that is attributed to the difference between the budgeted and actual wage rate per hour?

12. What is the amount of variance that is attributed to the change in labor productivity?

13. What is the amount of variance that can be attributed to the difference between budgeted and actual volume?

Use the following information for problems 14–16.

The administrator of Appomattox Nursing Home is very aware of needing to keep his cost down since he just negotiated a new arrangement with a large insurance company that will pay him a fixed amount per patient day. Listed below are budgeted and actual expenses for the previous month.

Actual patient days were 30,000 compared to budgeted patient days of 24,000.

 Budgeted Costs @ 24,000 Patient Days Budgeted Cost Per Unit Actual Costs @ 30,000 Patient Days Pharmacy Costs Variable \$100,000 \$4.167 \$140,000 Misc. Supplies Costs Variable \$56,000 \$2.333 \$67,500 Fixed Overhead Costs \$708,000 \$29.50 \$780,000 Total \$864,0000 \$36.00 \$987,500

14. Determine the total variance associated with the planned and actual expenses.

15. Prepare a flexible budget of expense at 30,000 patient days.

16. Determine the “Spending Variance” which is defined as Actual costs less costs budgeted at actual volume.

Use the following information for problems 17–19.

A dermatology clinic expects to contract with an HMO for an estimated 80,000 enrollees.

The HMO expects 1 in 4 of its enrolled members to use the dermatology services per month.

At the end of the year, the dermatology clinic’s business manager looked at her monthly figures and saw that the number of enrolled members had increased by 5% over the budgeted amount, and that 1 in 3 of the total HMO members had used the dermatology services per month.

Actual and budgeted statistics are presented below. The total variance is \$70,000 and is unfavorable:

 Budgeted Actual Enrollees 80,000 84,000 Usage Rate 0.25 0.3333 Visits 20,000 28,000 Cost \$200,000 \$270,000 Cost Per Visit \$10.00 \$9.643

17. Determine the enrollment variance for the month.

18. Determine the utilization variance for the month.

19. Determine the efficiency variance for the month.

Rubric for Evaluation of Unit Assignments and Portfolio Project

 Criterion 0.0 – 0.33 Below Average 0.34 – 0.67 Average 0.68 – 1.00 Above Average Communication Originality Critical Thinking Integration Christian Worldview

Communication evaluates the proper attention to format, grammar, punctuation, and the student’s ability to develop thought in an organized structure that exhibits advance level work.

Originality evaluates the attention to proper citing and referencing of source materials and the student’s ability to summarize, paraphrase, and effectively quote the work of others, while developing original ideas and thoughts from researched material.

Critical thinking evaluates the exhibited understanding of the process for reasoning and the elements of thought as illustrated in the student’s written work.

Integration evaluates the appropriate inclusion of thoughts, ideas, and information from assigned reading in context with the topic, question, or task.

Christian worldview evaluates the appropriateness of referenced Scripture to the topic, question, or task.

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