Running head: FINANCIAL EXERCISE 2 1
Financial Exercise Two
Heather McKee
Liberty University
NURS 523
FINANCIAL EXERCISE 2 2
Financial Exercise Two
1. Mr. Ritchie Richman has offered to give The Long Term Care Center $100,000 today or
$300,000 when he dies. If the nursing home earns 14% on its investments, and it expects
Mr. Richman to live for 12 years, which alternative should it take? (Should it receive
Mr. Richman’s gift now or later?) Discuss in narrative and include your calculations
and citations as well.
There are many factors that can play into this equation. One thing that is not
answered in this question is whether or not the long term care center consistently receives
14% on its investments. Is this a stationary number and a consistent number within the
organization? Also does the total cost that it takes to take care of Mr. Richman factor into
this equation as well? Those daily living costs for an elderly individual can be anywhere
from $38,000 per year up to a catastrophic $72,000 per year. Long term care in the home
is far less expensive than a facility care (Daskalakis, 2012). Since most individuals lack
the planning expertise to plan for the time when they will need long term care, this has
become one of the most daunting tasks for the government and will continue to be in the
future (Daskalakis, 2012).
For Mr. Richman the long term care center would be smarter to take the $300,000
at the time of his death:
100,000 (initial investment) x 14% (earns on investments) = 14,000
14,000 (amount they receive from investment) x 12 years = 168,000 total
The long term care center should take the $300,000 after he dies. Again this does not
include the cost that it will take to give Mr.Richman the care he will receive during his
time at the center. Those details would help to make a more educated decision about
which amount to take and when.
FINANCIAL EXERCISE 2 2
2. You are the manager of a primary care clinic. You are currently negotiating a capitated
rate with a managed care organization (MCO). Your charges for patient visits are
currently $125 to see a physician and $90 to see a nurse practitioner (NP). You have the
following expectations regarding average utilization by members of the MCO:
1.5 Physician visits per member per year
2.0 NP visits per member per year
In order to provide care for the MCO members, you will need additional physicians and
nurse practitioners. Suppose you expect the following number of visits from this
employee group:
1,200 patient visits per physician per year
2,000 patient visits per NP per year
Suppose further that the annual salaries, including benefits, are:
$175,000 annual compensation per physician
$95,000 annual compensation per NP
Calculate the capitation rate that would be needed to cover just the cost of the
additional physicians and NPs.
3.5 visits per year= $380/year for each member
3200 annual visits total/ 3.5 visits per member= 914 members total
914 members x $380 per year for each member = $347,320 total revenue from members
NP & physican combined salary is $270,000/ year
$347,320-$270,000= $77320 left over after paying salary.
So if you add an additional NP and physican:
$270000-$77320= $192680 additional salary to pay
$347320+ $192680=$540000
$540000/12=$45,000 per year for each member
$45,000/914= $49.23 new capitation rate
FINANCIAL EXERCISE 2 2
3. Prepare a revenue budget for Saunders Home Health Agency in table format below.
Blue Cross members can be charged only $60 for a nurse visit by the agency, even though
the agency normally charges $75.
Aetna Insurance Company has agreed to pay 80% of the agency’s normal charge.
Medicaid regulations call for it to pay the cost of care.
Important: The cost of care for each visit for this clinic is $45.
Suppose further that Medicare has a fee schedule that calls for it to pay $50 for this type
of patient.
The agency gives a $50 discount to poor, uninsured patients, charging them only $25.
Saunders expects 40 Blue Cross, 15 Aetna, 20 Medicaid, 50 Medicare, 25 uninsured, and
20 self-pay visits.
Of the self-pay patients, three quarters pay the full charge, but one quarter never pay any
part of the bill. This is also important to note.
Prepare a revenue budget for Saunders Home Health Agency. Will Saunders have a profit
or a loss?
Saunders Home Health Agency
Patient Visit Charge by Payer
Gross
Revenue
Discounts
and
Contractual
Allowances
Net
Revenue
40 Blue Cross patients
$75 × 40 = __$3000___gross revenue
$75 − $60 = _$15__allowance/patient
$15 × 40 patients = $600__ allowance
$3000 $600 $2400
15 Aetna patients
$75 × 15 = __$1125__ gross revenue
$75 × 20% = _$15__allowance/patient
$15 × 15 patients = _$225__ allowance
$1125 $225 $900
20 Medicaid visits $900 0 $900
50 Medicare patients $2500 0 $2500
25 Charity self-pay ($50 discount) $625 0 $625
5 Bad-debt self-pay patients 0 $125 0
15 Other self-pay patients $375 0 $375
Total $8525 $950 $7700
Less bad-debt expense $950
Net revenue less bad debts $6750
Write out the number of visits ___170_visits × $45 cost/visit = $___7650__ cost.
The $_6750__ net revenue less bad debts is greater than the $__7650__ cost.
According to the table above the net revenue is less than the cost of all the visits for the agency.
The agency will have a loss instead of a gain according to this table.
