manegerial accounting
NATHALIA NELSON
mgmt7022_banks5_casestudy2-3.xlsxAssumptions
| Assumptions: | |||
| Not all hospital spending occurs within my hospital | |||
| Each year, 1% Increase in premium revenue from CMS | |||
| Each year, 1% increase in Medicare payment rates to hospitals | |||
| Operating costs rise 3% per year (fixed & variable) | |||
| 2016 Membership - 10,000 | |||
| Plan expected to grow 2K members each year for next 5 years | |||
| If no deal, 10,000 members will still use the hospital as traditional Medicare | |||
| Revenues from CMS are risk adjusted, with a base premium payment of $850 at MRA score of 1.0 | |||
| Average MRA score for this population is .80 | |||
| Risk Contract will set Medical Services 'budget' at 85% of the Premium from CMS. | |||
| If the MER is below 85%, that will be a surplus to be shared between the plan and IDS. | |||
| If the MER exceeds 85%, that will be a deficit to be shared. | |||
| Risk Schedule: | |||
| Year 1 - 25% IDS; 75% Payer | |||
| Year 2 - 50% IDS; 50% Payer | |||
| Year 3 - 75% IDS; 25% Payer | |||
| Year 4 - 100% IDS; 0% Payer | |||
| Year 5 - 100% IDS; 0% Payer | |||
| The IDS can invest in IT to improve MRA of the population. Every $500,000 spent per year, you can raise average MRA score by 500 basis points (5 percentage points). | |||
| There is a one year lag between the score being raised and the realized revenue. | |||
| The IDS can invest in IT to reduce costs. Every $500,000 spent per year, we can reduce utilization by 5%. |
Risk ACO
| Year 0 (Current Year) | Year 1 | Year 2 | Year 3 | Year 4 | Year 5 | Assumptions: | |||||||||||
| Revenue | pmpm | Not all hospital spending occurs within my hospital | |||||||||||||||
| CMS Revenue | $ 680.00 | $ 686.80 | Each year, 1% Increase in premium revenue from CMS | ||||||||||||||
| Member Premium | Each year, 1% increase in Medicare payment rates to hospitals | ||||||||||||||||
| Revenue to be Allocated | $ 680.00 | $ 6,870,000.00 | Operating costs rise 3% per year (fixed & variable) | ||||||||||||||
| 2016 Membership - 10,000 | |||||||||||||||||
| Claims | Plan expected to grow 2K members each year for next 5 years | ||||||||||||||||
| Inpatient Claims | $ 240.00 | $ 2,400,000.00 | If no deal, 10,000 members will still use the hospital as traditional Medicare | ||||||||||||||
| Outpatient Claims | $ 125.00 | $ 1,250,000.00 | Revenues from CMS are risk adjusted, with a base premium payment of $850 at MRA score of 1.0 | ||||||||||||||
| Physician Claims | $ 140.00 | $ 1,400,000.00 | Average MRA score for this population is .80 | ||||||||||||||
| Ancillary Claims | $ 15.00 | $ 150,000.00 | Risk Contract will set Medical Services 'budget' at 85% of the Premium from CMS. | ||||||||||||||
| Part D (retail Rx) | $ 105.00 | $ 1,050,000.00 | If the MER is below 85%, that will be a surplus to be shared between the plan and IDS. | ||||||||||||||
| Total Medical Costs | $ 625.00 | $ 6,250,000.00 | If the MER exceeds 85%, that will be a deficit to be shared. | ||||||||||||||
| Risk Schedule: | |||||||||||||||||
| Actual MER | 91.91% | Year 1 - 25% IDS; 75% Payer | |||||||||||||||
| Year 2 - 50% IDS; 50% Payer | |||||||||||||||||
| Year 3 - 75% IDS; 25% Payer | |||||||||||||||||
| Svc Line | Cases | Days | Charges | Payments | Variable Costs | Fixed Costs | Year 4 - 100% IDS; 0% Payer | ||||||||||
| IP Total | 1585 | 7376 | $ 50,400,000.00 | $ 14,400,000.00 | $ 8,594,479.00 | $ 9,772,546.00 | Year 5 - 100% IDS; 0% Payer | ||||||||||
| OP Total | 30800 | $ 26,250,000.00 | $ 7,500,000.00 | $ 4,085,687.00 | $ 6,484,893.00 | The IDS can invest in IT to improve MRA of the population. Every $500,000 spent per year, you can raise average MRA score by 500 basis points (5 percentage points). | |||||||||||
| $ 76,650,000.00 | $ 21,900,000.00 | $ 12,680,166.00 | $ 16,257,439.00 | There is a one year lag between the score being raised and the realized revenue. | |||||||||||||
| *multiply by 3% | *multiply by 3% | The IDS can invest in IT to reduce costs. Every $500,000 spent per year, we can reduce utilization by 5%. | |||||||||||||||
| COST PER MEMBER | |||||||||||||||||
| MER | 91.91% | PMPM | $ 680.00 | $ 6,800,000.00 | |||||||||||||
| MRA | 0.8 | COST | |||||||||||||||
| Revenue | Variable Costs (3% Per Year) | Fixed Costs (3% per Year) | Total Costs | Investment People | Investment IT | MRA | Membership | Total Revenue | PMPM - PER MRA IMPROVING | WITH 1% Increase Only | With 1% Increase + MRA Improvement | $ 6,800,000.00 | Total Premium | ||||
| 2017 | $ 13,060,570.98 | $ 16,745,162.17 | $ 29,805,733.15 | $ 500,000.00 | $ 500,000.00 | 84% | 12000 | $ 8,653,680.00 | $ 714.00 | $ 686.80 | $ 721.14 | $ 6,250,000.00 | Total Cost | ||||
| 2018 | $ 13,452,388.11 | $ 17,247,517.04 | $ 30,699,905.14 | $ 500,000.00 | $ 500,000.00 | 88% | 14000 | $ 10,600,758.00 | $ 749.70 | $ 693.67 | $ 757.20 | $ 5,780,000.00 | 85% of Premium | ||||
| 2019 | $ 13,855,959.75 | $ 17,764,942.55 | $ 31,620,902.30 | $ 500,000.00 | $ 500,000.00 | 93% | 16000 | $ 12,720,909.60 | $ 787.19 | $ 700.60 | $ 795.06 | $ 1,562,500.00 | |||||
| 2020 | $ 14,271,638.55 | $ 18,297,890.82 | $ 32,569,529.37 | $ 500,000.00 | $ 500,000.00 | 97% | 18000 | $ 15,026,574.47 | $ 826.54 | $ 707.61 | $ 834.81 | ||||||
| 2021 | $ 14,699,787.70 | $ 18,846,827.55 | $ 33,546,615.25 | $ 500,000.00 | $ 500,000.00 | 102% | 20000 | $ 17,531,003.54 | $ 867.87 | $ 714.69 | $ 876.55 | ||||||
| Multiply By Membership Per Year | |||||||||||||||||
| Variable Costs | Fixed Costs | Total Costs | Total Revenue (85% of Premium) | Total Cost | |||||||||||||
| 2016 - Current Year | $ 12,680,166.00 | $ 16,257,439.00 | $ 28,937,605.00 | 0 | $ - 0 | 0.8 | 10,000 | $ 6,800,000.00 | $ 6,250,000.00 | ||||||||
| $ 14,400,000.00 | |||||||||||||||||
| $ 21,200,000.00 | |||||||||||||||||
Part A
| Plan Projections | Question 1 | Total Members | 10,000 | 12,000 | 14,000 | 16,000 | 18,000 | 20,000 | |||||||||||||||||
| Year 0 (Current Year) | Health Plan 5 Year Projection | Current Year | Year 1 | Year 2 | Year 3 | Year 4 | Year 5 | ||||||||||||||||||
| Revenue | pmpm | Total Members | 10,000 | 12,000 | 14,000 | 16,000 | 18,000 | 20,000 | |||||||||||||||||
| CMS Revenue | $ 680.00 | Total Revenue(Premium) - No Change, As Is - With 1% Increase Per Year | 81600000 | 82416000 | $ 83,240,160.00 | $ 84,072,561.60 | $ 84,913,287.22 | $ 85,762,420.09 | |||||||||||||||||
| Member Premium | Total Medical Costs | $6,250,000.00 | 75,000,000 | $ 75,000,000.00 | $ 75,000,000.00 | $ 75,000,000.00 | $ 75,000,000.00 | ||||||||||||||||||
| Revenue to be Allocated | $ 8,160.00 | MER | 0.0766 | 0.9100 | 0.9010 | 0.8921 | 0.8833 | 0.8745 | |||||||||||||||||
| Claims | |||||||||||||||||||||||||
| Inpatient Claims | $ 240.00 | Question 2 - Hospital 5 Year Projection | |||||||||||||||||||||||
| Outpatient Claims | $ 125.00 | SVC Line | Cases | Days | Charge | Payments | Variable Costs | Fixed Costs | |||||||||||||||||
| Physician Claims | $ 140.00 | IP | 1,585 | 7,376 | $ 50,400,000.00 | $ 14,400,000.00 | $ 8,594,479.00 | $ 9,772,546.00 | |||||||||||||||||
| Ancillary Claims | $ 15.00 | OP | 30,800 | $ 26,250,000.00 | $ 7,500,000.00 | $ 7,500,000.00 | $ 6,484,893.00 | ||||||||||||||||||
| Part D (retail Rx) | $ 105.00 | $ 76,650,000.00 | $ 21,900,000.00 | $ 16,094,479.00 | $ 16,257,439.00 | ||||||||||||||||||||
| Total Medical Costs | $ 625.00 | ||||||||||||||||||||||||
| Revenue | |||||||||||||||||||||||||
| Actual MER | 91.91% | Year 1 | $ 91,800,000.00 | $ 22,119,000.00 | $ 16,577,313.37 | $ 16,745,162.17 | $ 80,596,524.46 | ||||||||||||||||||
| Year 2 | $ 107,100,000.00 | 22,340,190 | $ 17,074,632.77 | $ 17,247,517.04 | $ 95,118,040.19 | ||||||||||||||||||||
| Year 3 | $ 122,400,000.00 | 22,563,592 | $ 17,586,871.75 | $ 17,764,942.55 | $ 109,611,777.60 | ||||||||||||||||||||
| Year 4 | $ 137,700,000.00 | 22,789,228 | $ 18,114,477.91 | $ 18,297,890.82 | $ 124,076,859.09 | ||||||||||||||||||||
| Year 5 | $ 153,000,000.00 | 23,017,120 | $ 18,657,912.24 | $ 18,846,827.55 | $ 138,512,380.31 | ||||||||||||||||||||
Part B
| Question 3- Show Plan Projections By First Reducing Utilization, Then Improving Revenue, Then a combination | ||||||
| Model 1 - Reduce Utilization | Current Year | Year 1 | Year 2 | Year 3 | Year 4 | Year 5 |
| Total Members | 10,000 | 12,000 | 14,000 | 16,000 | 18,000 | 20,000 |
| Total Revenue(Premium) - No Change, As Is - With 1% Increase Per Year | $ 81,600,000.00 | $ 82,416,000.00 | $ 83,240,160.00 | $ 84,072,561.60 | $ 84,913,287.22 | $ 85,762,420.09 |
| Total Medical Costs - 1% Increase Per Year, Plus 5% Reduction. (Total 4% Reduction) | $ 6,250,000.00 | $ 75,000,000.00 | $ 75,000,000.00 | $ 75,000,000.00 | $ 75,000,000.00 | $ 75,000,000.00 |
| Investment - IT | $ - 0 | $ 500,000.00 | $ 525,000.00 | $ 551,250.00 | $ 578,812.50 | $ 580,190.63 |
| Total Costs | $ 75,500,000.00 | $ 75,525,000.00 | $ 75,551,250.00 | $ 75,578,812.50 | $ 75,580,190.63 | |
| MER | 0.9161 | 0.9073 | 0.8986 | 0.8901 | 0.8813 | |
| Revenue | $ 75,350,000.00 | $ 7,416,000.00 | $ 8,240,160.00 | $ 9,072,561.60 | $ 9,913,287.22 | $ 10,762,420.09 |
| Model 2 - Improve Revenue | Current Year | Year 1 | Year 2 | Year 3 | Year 4 | Year 5 |
| Total Members | 10,000 | 12,000 | 14,000 | 16,000 | 18,000 | 20,000 |
| Total Revenue(Premium) - No Change, As Is - With 1% Increase Per Year | $ 81,600,000.00 | $ 82,416,000.00 | $ 83,240,160.00 | $ 84,072,561.60 | $ 84,913,287.22 | $ 85,762,420.09 |
| Total Medical Costs - 1% Increase Per Year | $ 6,800,000.00 | $ 6,868,000.00 | $ 6,936,680.00 | $ 7,006,046.80 | $ 7,076,107.27 | $ 7,146,868.34 |
| Investment - People | $ - 0 | $ 500,000.00 | $ 500,000.00 | $ 500,000.00 | $ 500,000.00 | $ 500,000.00 |
| Total Costs | $ 7,368,000.00 | $ 7,436,680.00 | $ 7,506,046.80 | $ 7,576,107.27 | $ 7,646,868.34 | |
| MRA Score | 0.8 | 0.84 | 0.882 | 0.9261 | 0.972405 | 1.02102525 |
| New Total Revenue W/MRA Improved Scores | $ 6,800,000.00 | $ - 0 | $ 69,921,734.40 | $ 7,356,349.14 | $ 7,429,912.63 | $ 7,504,211.76 |
| Model 3 - Improve Util&Rev | ||||||
| Current Year | Year 1 | Year 2 | Year 3 | Year 4 | Year 5 | |
| 5 Year Projection Plan - Hospital Internal Revenues & Expenses W/ACO Deal. | ||||||
| MRA Score | 0.8 | 0.84 | 0.882 | 0.9261 | 0.972405 | 1.02102525 |
| New Total Revenue W/MRA Improved Scores | $ 6,800,000.00 | $ 6,868,000.00 | $ 87,402,168.00 | $ 88,276,189.68 | $ 89,158,951.58 | $ 90,050,541.09 |
| IP Costs | $ (2,400,000.00) | $ (2,302,800.00) | $ (2,209,536.60) | $ (2,120,050.37) | $ (2,034,188.33) | $ (1,951,803.70) |
| OP Costs | $ (1,250,000.00) | $ (1,199,375.00) | $ (1,150,800.31) | $ (1,104,192.90) | $ (1,059,473.09) | $ (1,016,564.43) |
| Physician Claims | $ (1,400,000.00) | $ (1,414,000.00) | $ (1,428,140.00) | $ (1,442,421.40) | $ (1,456,845.61) | $ (1,471,414.07) |
| Ancillary Claims | $ (150,000.00) | $ (143,925.00) | $ (138,096.04) | $ (132,503.15) | $ (127,136.77) | $ (121,987.73) |
| Part D (retail Rx) | $ (1,050,000.00) | $ (1,060,500.00) | $ (1,071,105.00) | $ (1,081,816.05) | $ (1,092,634.21) | $ (1,103,560.55) |
| New Total Costs | $ (6,250,000.00) | $ (6,120,600.00) | $ (5,997,677.95) | $ (5,880,983.87) | $ (5,770,278.01) | $ (5,665,330.48) |
| NEW MER | $ (0.9191) | $ (0.8912) | $ (0.0686) | $ (0.0666) | $ (0.0647) | $ (0.0629) |
| Investment - People | $ - 0 | $ (500,000.00) | $ (500,000.00) | $ (500,000.00) | $ (500,000.00) | $ (500,000.00) |
| Investment - IT | $ - 0 | $ (500,000.00) | $ (500,000.00) | $ (500,000.00) | $ (500,000.00) | $ (500,000.00) |
| Variable Costs | $ (12,680,166.00) | $ (13,060,570.98) | $ (13,452,388.11) | $ (13,855,959.75) | $ (14,271,638.55) | $ (14,699,787.70) |
| Fixed Costs | $ (16,257,439.00) | $ (16,745,162.17) | $ (17,247,517.04) | $ (17,764,942.55) | $ (18,297,890.82) | $ (18,846,827.55) |
