Scenario You work in health administration in a hospital system

Scenario You work in health administration in a hospital system in Phoenix, Arizona. The board of directors and CEO of the system have a goal to better address health care needs of the community that can be addressed through physician outpatient services. Task With your group, you are to develop a proposal to establish an outpatient clinic treating a medical condition. The clinic will consist of one or two physicians and the appropriate ratio of clinical (nurses) and support staff per each physician. Conduct your own research to establish the appropriate numbers of clinical and support staff and cite your sources. Background Information and Assumptions As the clinic is run by a large health care organization, many costs will be paid, and the clinic will be charged as provided. Indirect costs will be charged to the clinic at 40% of total salary expense. Indirect expenses include, but are not limited to, general support staff and related costs, electronic medical records, insurance, taxes, floor space, facility, and administration. It is estimated that these indirect costs can be as high as 60% of the total costs of a hospital service. The clinic will collect fees and reimbursements from the services it provides and will pay the hospital system 40% of its total salary expense (Becker’s, 2011). These costs do not vary based on the number of patients served. Direct costs include the cost of the physician or surgeon and procedure-specific staff, along with the supplies required for the particular procedure. Direct costs are incurred for each patient – gloves, sutures, gowns, and other items. These are expenses for each patient and therefore increase as the number of patients increases (Becker’s). This project will assume 10% of the reimbursement amount. Equipment costs of the program include items for the physician clinic that will be used for more than one year. This is in contrast to variable costs which occur per patient and include such items as gloves, syringes, needles, and gauze, and would include items such as: · Examination tables · Workstations · Desks and chairs in the waiting room · Other equipment of this nature Medicare uses several methods to reimburse physician care. This assignment will use adjusted relative value units (RVU). Medicare provides for each code, · the number of RVU for work (providing care to the patient), · the practice (operating the practice where the patient is treated), · and malpractice (should the physician or practice be sued by a patient). The HCPCS/CRT code provides a 5-digit number. Using this number in the Physician Fee Schedule Look-Up Tool (see Capstone Project Formulas and Examples) provides the number of RVU for work, practice, and malpractice. Use the Physician Fee Schedule Look-Up Tool and selecting geographical cost index (GCI) of the area of the hospital clinic is selected. This collaborative assignment is located in Phoenix, and when you search, you will see one GCI result for the entire state of Arizona. The concept is that the cost of physician care varies in different locations, as does the cost of operating a practice and the rates of physician malpractice claims. Then this adjusted number of RVU is multiplied by $34.89, called the conversion rate. Each year, Medicare adjusts the conversion rate either up or down. Assignment Instructions Factors that determine the financial feasibility of a health care program include the cost of the facility, equipment, staff salaries, patient out-of-pocket expenses, and insurance reimbursement. 1. Select 1 of the healthcare needs from the list provided below. · Aortic Valve Replacement · Wellness Check-up · Leg Veins · Knee injection · Diabetes Management Training (30-minute physician visit) 2. Staff the outpatient service, starting with a small clinic with a maximum of 2 physicians. Determine the number of staff per physician including clinical (nurses) and support staff based on your own research. Cite your sources. 3. Establish the cost of the clinic based on the following: a. Annual salaries of the physician based on specialty, nurses or clinical staff, and support staff. Use internet searches to establish average salaries for these positions. b. Fringe benefit expenses established by the hospital system at 25% of salaries and added to salaries for Total Salary Expense. c. Overhead cost expenses established by the hospital at 40% of Total Salary Expense. d. Equipment costs of the program. 4. Reimbursement for the service based on HCPCS/CPT codes with geographical adjustment. Look up the HCPCS/CPT Code from HCPCS Code Lookup or CMS.gov Physician Fee Overview. Refer to the Capstone Project Formulas and Examples document for help with cost and reimbursement calculations. Table 1. Staffing and Salaries Diabetes Management Training (30-minute physician visit) Complete Table 1 by adding the staff positions including physician specialty, nurses and support staff, and the number of positions in your clinic. Multiply the number of positions by average salary for those positions to obtain total salaries. Staff Position Number of Positions Average Salary Total Salaries Primary Care Physician 2 $195,000 $390,000 Nurse 4 $85,000 $340,000 Support Staff 2 $35,000 $70,000 Total Salary: $800,0000 Staff Composition and Average Salaries: Primary Care Physicians (2): Physicians will conduct the 30-minute visits. The average primary care physician salary in Phoenix, AZ is $195,000/year. (Zip Recruiter, 2024). Nurses (Clinical Staff, 4): Registered nurses will help with patient care and education. Registered nurses in the Department of Primary Care in Phoenix, Arizona is $85,000/year. (Incredible Health, 2024). Support Staff (2): Support staff will handle administrative tasks, scheduling, and patient intake. The average salary of medical support (reception) staff is $35,000 per year in Phoenix. (Indeed, 2024). Table 2. Fringe Benefits Expense and Total Salary Expense These expenses have been established by the hospital system at 25% of salaries and added to salaries for Total Salary Expense. Cost Factors Dollar Amount Total Salaries $800,000 Fringe Benefit Expense 25% of Salaries 25%* $800,000 = $200,000 Total Salary Expense w/ Fringe Benefits $800,000 + $200,000 = $1,000,000 Table 3. Overhead (Indirect) Costs and Total Fixed Practice Costs Begin with total salaries including fringe benefits. Multiply that amount by 40% (0.40) and combine the 2 numbers for total fixed practice costs. These costs do not vary based on the number of patients. Cost Factors Dollar Amount Total Salaries Expense $800,000 Overhead Costs 40% of Total Salary Expense $1,000,000 * 0.40 = $400.000 Total Overhead and Fixed Costs: $1,000,000 + $400,000 = $1,400,000 Table 4. Equipment Costs These items will be used by the clinic for 5 years so the costs will be divided equally over 5 years (depreciation). Cost Factors Dollar Amount Total Equipment Cost $225,000(Examination Tables, Workstations, Desks, Chair, medical equipment) Depreciated Equipment Cost (cost for year one) $225,000 / 5 = $45,00,000 per year Total Clinic Costs (for year one including salaries, overhead, and equipment costs): Salaries and Benefits: $800,000 Overhead: $420,000 Equipment Costs: $45,000 Total Clinic Costs: $1,400,000 + $400,000 + $45,000 = $1,845,000 Table 5. RVU and Reimbursement Calculation The cost of physician care varies in different locations, as do the cost of operating a practice and the rates of physician malpractice claims. In addition, each year Medicare adjusts the conversion rate either up or down. Category RVU GCI Total RVU Work 1.42 1.00 1.42 Practice 0.53 1.00 0.53 Malpractice 0.07 1.00 0.07 Totals: · RVU: 2.02 · GCI: 3.00 · Total RVU: 2.02 HCPCS Code Example: · For a typical 30-minute diabetes management visit, HCPCS Code 99213 might be used. Table 6. Variable Costs and Net Reimbursement To complete Table 5, multiply reimbursement per visit by 10% (0.10) and subtract this number from reimbursement to obtain net reimbursement per patient. Cost Factors Dollar Amount Reimbursement per visit 2.02 * $34.89 = $70.35 Variable cost per patient 10% 10% of $70.35 = $7.04 Net Reimbursement per patient: $70.35 – $7.04 = $63.31 Table 7. Breakeven Analysis To calculate the number of patients needed to break even, divide total practice costs by net reimbursement. To calculate the number of patients per day, divide the total number of patients for an annual breakeven number by the number of days the practice is open. Enter text below. Breakeven Calculation: Total Practice Costs: $1,490,000 Net Reimbursement per Patient: $63.31 Number of Patients to Break Even: 23,515 patients Breakeven Number of Patients: $1,490,000 / $63.31 ≈ 23,515 Number of Patients per Day: 94 Assumption: Clinic operates 5 days a week, 50 weeks a year (250 days) Patients per Day: 23,515 / 250 ≈ 94 patients/day The proposed outpatient clinic for Diabetes Management Training will require significant investment and staffing. With two physicians, four nurses, and two support staff, the clinic’s total cost for the first year is approximately $1,490,000. To break even, the clinic needs to see around 94 patients per day based on the reimbursement rate of $70.35 per visit. References Becker’s Hospital Review (2011) – Provides insights on financial feasibility and cost structures in healthcare. U.S. Bureau of Labor Statistics (2024) – Data on average salaries for healthcare positions. BLS Occupational Outlook Handbook Medicare Physician Fee Schedule – RVU values and conversion rates for calculating reimbursement. CMS Physician Fee Schedule Lookup Incredible Health. (2024). Average Primary Care Nurse Salary in Arizona. https://www.incrediblehealth.com/salaries/s/primary-care-nurse/az#:~:text=Arizona%20nursing%20salaries%20vary%20from%20region%20to,and%2040%2C120%20registered%20nurses%20are%20currently%20employed. Indeed. (2024). Medical receptionist salary in Phoenix, AZ. https://www.indeed.com/career/medical-receptionist/salaries/Phoenix–AZ Mathur, S. (2021, March 3). Medical Equipment for Setting up Diabetes Care Centre. https://www.primedeq.com/blog/medical-equipment-for-setting-up-diabetes-care-centre/ Ryzhkov, A. (2024, August 19). How Cost Efficient Is It To Start A Diabetic Clinic? (Read more at: https://finmodelslabcom/blogs/startup-costs/diabetic-clinic-startup-costs) https://finmodelslab.com/blogs/startup-costs/diabetic-clinic-startup-costs Zip Recruiter. (2024, August 16). Primary Care Physician Salary in Arizona. https://www.ziprecruiter.com/Salaries/Primary-Care-Physician-Salary–in-Arizona#:~:text=Pay:%20$200K%20to%20$300,All%20Primary%20Care%20Physician%20Jobs Capstone Project: Part 3 – Program Finances This week, progress to Part 3 of your Capstone Project, in which you work on financial costing and feasibility for your program. Rely on the research and reading you have done on hospital staffing, salaries, direct and indirect costs, and insurance reimbursement to support your work. The purpose of this piece of the project is to determine the financial feasibility of the program and to learn whether any adjustments should be made to the strategic plan to improve the financial status of the program. Review and complete Part 3 – Program Finances. Refer to Capstone Project Formulas and Examples for instructions, resources, and examples to help you complete the project. Factors that determine the financial feasibility of a health care program include the cost of the facility, equipment, staff salaries, patient out-of-pocket expenses, and insurance reimbursement. Referring to the concepts practiced in the collaborative assignment with your group last week, work on the following: 1. Determine how many physicians and supporting staff are needed to operate the clinic, applying the appropriate ratio of clinical and support staff per physician. 2. Determine the direct costs of the program. Direct costs in this case are patient expenses, and they increase as the number of patients increase. These include:a. Physician and procedural support staff costs per patient/procedureb. Gloves, sutures, gowns, equipment, lab supplies, other supplies 3. Determine the indirect costs of the program. Indirect costs are overhead costs that include but are not limited to:a. General support staff and related costsb. Electronic medical recordsc. Insurance and taxesd. Facility and administratione. Employee benefits such as health and life insurance, retirement plans, and fringe benefits 4. Determine the equipment costs of the program. This includes items for the physician clinic that will be used for more than one year. This is in contrast to variable costs which occur per patient and include such items as gloves, syringes, needles, and gauze, and would include items such as:a. Examination tablesb. Workstationsc. Desks and chairs in the waiting roomd. Other equipment of this nature 5. Determine reimbursement for clinic services based on HCPCS/CPT codes with geographical adjustment.6. Determine net reimbursement after variable costs per patient.7. Determine how many patients the clinic will need to see (a) on average per day and (b) annually to break even on expenses. Note: Refer to the health financial instructions and sample calculations document to help you with this part of the project. Table 1. Staffing and Salaries Complete Table 1 by adding the staff positions including physician specialty, nurses and support staff, and the number of positions in your clinic. Multiply the number of positions by average salary for those positions to obtain total salaries. Staff Position Number of Positions Average Salary Total Salaries Primary Care Physician Nurse Support Staff Total Salary: Table 2. Fringe Benefits Expense and Total Salary Expense These expenses have been established by the hospital system at 25% of salaries and added to salaries for Total Salary Expense. Factors Dollar Amount Total Salaries Fringe Benefit Expense 25% of Salaries Total Salary Expense w/ Fringe Benefits: Table 3. Overhead (Indirect) Costs and Total Fixed Practice Costs Begin with total salaries including fringe benefits. Multiply that amount by 40% (0.40) and combine the 2 numbers for total fixed practice costs. These costs do not vary based on the number of patients. Cost Factors Dollar Amount Total Salaries Expense Overhead Costs 40% of Total Salary Expense Total Overhead and Fixed Costs: Table 4. Equipment Costs These items will be used by the clinic for 5 years so the costs will be divided equally over 5 years (depreciation). Cost Factors Dollar Amount Total Equipment Cost Depreciated Equipment Cost (cost for year one) Total Clinic Costs (for year one including salaries, overhead, and equipment costs): Table 5. RVU and Reimbursement Calculation The cost of physician care varies in different locations, as do the cost of operating a practice and the rates of physician malpractice claims. In addition, each year Medicare adjusts the conversion rate either up or down. Category RVU GCI Total RVU Totals • RVU:• GCI:• Total RVU: Table 6. Variable Costs and Net Reimbursement To complete Table 6, multiply reimbursement per visit by 10% (0.10) and subtract this number from reimbursement to obtain net reimbursement per patient. Cost Factors Dollar Amount Reimbursement per visit Variable cost per patient 10% Net Reimbursement per patient: 7. Breakeven Analysis To calculate the number of patients needed to break even, divide total practice costs by net reimbursement. To calculate the number of patients per day, divide the total number of patients for an annual breakeven number by the number of days the practice is open. Enter text below.

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