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Need Answers to Questions 1 to 7 Part 3: Program Finances 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. The clinic will be staffed with a small team to efficiently manage patient care and operations. For a clinic focused on Diabetes Management Training, the following staffing plan is proposed: 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/procedure b. 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 costs b. Electronic medical records c. Insurance and taxes d. Facility and administration e. 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 tables b. Workstations c. Desks and chairs in the waiting room d. 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 2 $195,000 $390’000 Nurse 4 $85,000 $340’000 Support Staff 2 $35,000 $70’000 Total Salary: $800’000 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 $800’000 Fringe Benefit Expense 25% of Salaries $200’000 Total Salary Expense w/ Fringe Benefits: $1000’000 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 $1000,000 Overhead Costs 40% of Total Salary Expense $400,000 Total Overhead and Fixed Costs: $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 Depreciated Equipment Cost (cost for year one) $45,000 Total Clinic Costs (for year one including salaries, overhead, and equipment costs): Total Clinic Costs (Year One): – Salaries and Benefits: $1,000,000 – Overhead Costs: $400,000 – Equipment Costs (Depreciated): $45,000 Total Clinic Costs: $1,445,000 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 Total lRVU 0.07 Totals · RVU: 2.02 · GCI: 34.89 · Total RVU: 70.35 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 $70.35 Variable cost per patient 10% $7.04 Net Reimbursement per patient: $63.31 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. The breakeven point tells us how many patients the clinic must see to cover all its costs. – Example: Total Practice Costs = $1,445,000 (including salaries, overhead, and equipment costs) – Number of Patients to Break Even = $1,445,000 / $63.31 ≈ 22,825 patients per year Assuming the clinic operates 5 days a week for 50 weeks a year (250 days): – Patients per Day to Break Even = 22,825 / 250 ≈ 91 patients per day

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