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Adelphi University
Robert B. Willumstad School of Business
HOSPITAL AND HEALTH CARE FINANCE
0206-776-001
Spring 2020
Team Project The Health Care Guys
In considering the financial requirements for starting a new hospital outpatient physical medicine and
rehabilitation service, use the attached cash and accrual spreadsheet formats to enter the information related
to the projections of activity, income/revenue and disbursements/expenses in the first and second years of
operation. Note that the cash projections should take into account the delay for first payments from the
third-party payers. The following provides information about assumptions for the plan.
By month twelve (12), the new operation should have at least 200 patients per month
Payer mix is Medicare 70%; Medicaid (Managed Care) 10%; Commercial Managed Care 20%;
and no self-pay (except co-payments of $20 per visit for Medicare and Commercial)
In the accrual basis schedules, the revenue (gross) for each third-party payer should be based on
charges (50 % mark up over actual payment) with a separate line for deducting contractual
allowances to calculate net revenue.
In the cash basis schedules, the receipts from Medicare and Commercial should be less the copays and the co-pays added on a separate line for each payer.
The co-pay payments are received at the time of the patients visit and so under receipts on the
cash schedule, the co-pay payments can be entered in the month when the unit of service is given
(the month the co-payment is received) – whereas the receipt (payment) from the third party payer
will be received and recorded within the cycle (time period) of payment.
Each patient receives an initial evaluation and prescription for services by the Physiatrist and an
evaluation by the Physical Therapist for 80% of the patients, the Occupational Therapist for 20%
and the for 20 % of the patients.
After the evaluations, the patients receive two (2) therapy sessions per week (physical therapy,
occupational therapy or speech-language pathology) for a maximum course of twenty (20) therapy
sessions per clinical discipline.
Patients end their course of treatment only at the end of a month so if the 20 therapy sessions
end within the month, continue the patients participation until discharged at the end of the
month.
Reimbursement rates (based on the unit of services visits and procedures) are:
o Physiatrist Evaluation Medicare $150; Medicaid $120; Commercial $170
o Physical Therapy, Occupational Therapy and Speech-Language Pathology
evaluations Medicare $120; Medicaid $100; Commercial $140
o Physical Therapy, Occupational Therapy and Speech-Language Pathology Treatment
Sessions (average) Medicare $90; Medicaid $60: Commercial $110
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Staffing will consist of:
o Administrator/Manager 1 FTE at $70,000 per annum
o Secretary 1FTE at $40,000 per annum
o Physiatrist (MD) works on a per diem basis at $120 per hour (time of one evaluation)
o Clerical (front desk, patient registration and other functions) 1FTE for up to 40 visits
per day at $35,000 per annum
o Clerical Billing 1FTE for up to 500 claims/bills – one claim for each procedure
(evaluation and therapy session) at $35,000 per annum
o Physical Therapist 1FTE for 8 visits per day at $75,000 per annum
o Occupational Therapist 1FTE for 8 visits per day at $65,000 per annum
o Speech-Language Pathologist 1 FTE for 8 visits per day at $70,000 per annum
o Consider factor of 25% for fringe benefits (for staff working at least .5 FTE) no fringe
benefits for per diem staff
o A core of full time permanent salaried staff is necessary over time and can be
supplemented by part time staff and per diem staff per diem staff should be listed
on separate lines in the Personnel Hours/FTEs and Personnel
Expenses/Disbursements sections of the Revenue/Expense and Cash Flow Statements
Non-Personnel Expenses will consist of:
o Space (3,000 square feet) is rented at $40 per square foot
o Clinical and is purchased for a total amount of
$500,000 in accrual schedules, depreciate the amount over a five (5) year useful life
on a straight-line basis; in the cash schedule, enter the full amount as a cash purchase
in the first month (generally this purchase takes place prior to operation so the
equipment/furnishings are present on day one).
o Clinical supplies equal $10 per visit
o Non-clinical supplies equal $2,000 covering each six (6) month period
o Malpractice Insurance premium equals $ 10,000 per annum
o General Liability Insurance premium equals $2,500 per annum
– For both insurances, allocate the annual amount through the twelvemonth period in the accrual schedule, and have two equal disbursements
(months one and six) in the cash schedule
o Consulting Fees equal $2,000 per annum
o Cleaning Housekeeping Service equals $20,000 per annum
o Computer Service (including web based electronic medical record and billing) equals
$25,000 per annum
o Repairs and Maintenance equal $20,000 per annum
o Utilities equal $12,000 per annum
o Phone Service equals $10,000 per annum
o Marketing/Advertising equals $15,000 per annum
o Dues and professional fees equal $5,000 per annum
o Administrative Overhead equals $50,000 per annum
o Add any other costs associated with the operation
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The operation will start with an opening balance of $500,000 or more, if necessary, for working
capital (start-up funds) and to offset the initial loss and cash shortfall. This amount can be
considered a in whole or partially a contribution and/or loan (with interest) if the entity is a not for
profit or considered an equity contribution by owners and/or loan if the entity is a for-profit
organization. This amount should be added in month one below the total revenue to calculate the
net revenue on the accrual schedule, and the same amount entered as the opening balance in
month one on the cash schedule.
On the cash schedule, the opening balance in month one calculated with the net receipts and
disbursements for the month provides the closing balance for the month. The closing balance for
month one then is the opening balance for month two. This principle showing the flow of cash
from fiscal period to period continues for all twelve months in year one and then carries over to
year two in the same format to demonstrate the cash position of the operation for each month
through the full two- year period.
Initial payment from third-party payers will be delayed until month 3 (covering payment for claims
of the first two months), month 4 will cover claims from month 3 and and then claims will be paid
on a 30-day basis.
Include an expense value for the overhead and support services from the hospital (use and
identify the hospital financial statements that the Team presented in the class session) the
support expenses above represent the incremental amount for allocation to the new service.
Identify the direct and indirect costs and the fixed and variable costs they can be used to
understand some of the options and develop the strategies for improving the financial profile of
the business plan.
The rates of payment/reimbursement given for the business plan approximate those issued by the
third-party payers. For a , the actual rates of
payment/reimbursement come from the Hospital Outpatient Prospective Payment System
(Ambulatory Payment Classifications) under Medicare, the Ambulatory Payment Groups under
Medicaid and the negotiated rates under Commercial Insurance Carriers.
The financial information can be modified as long as supportive explanations are given.
Be sure to keep all formulas on the spreadsheets.
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