Assignment Exercises

Assignment Exercises 13-3 and 13-4 on pages 487 through 488

Assignment Exercises 14-2, 14-3, and 14-4 on pages 489 through 490

Assignment Exercise 13–3

As a follow-up to the previous Practice Exercise, new assumptions are as follows:

• 1. Your unit’s gross charges for the period to date amount to $200,000.
• 2. The uniform gross charge for each procedure in your unit is $100.
• 3. The unit receives revenue from four major payers. The number of procedures performed for the period totals 2,000. Of that total, the number of procedures per payer (stated as a percentage) is as follows: Payer 1 = 30%Payer 2 = 40%Payer 3 = 20%Payer 4 = 10%
• 4. The following contractual payment arrangements are in effect for the current period. The percentage of the gross charge that is currently paid by each payer is as follows: Payer 1 = 80% [Medicare]Payer 2 = 70% [Commercial managed care plans]Payer 3 = 50% [Medicaid]Payer 4 = 90% [Self-pay]
• Q: How many procedures are attributed to each payer?
• Q: How much is the net revenue per procedure for each payer, and how much is the contractual allowance per procedure for each payer?
• Q: How much is the total net revenue for each payer, and how much is the total contractual allowance for each payer?

Assignment Exercise 13–4.1: Forecast Capacity Levels

Review the information inExhibit 13–1. The exhibit assumes three chairs and one 40-hour RN, for a realistic capacity level of seven patients infused per day.

Exhibit 13–1 illustrates the array of elements that should be taken into account when computing maximum capacity levels. This computation is important because your forecast should take maximum capacity into account. (Alternative assumptions can also be made, of course. See the sensitivity analysis discussion in a following chapter.)

SUMMARY

In summary, the ultimate accuracy of a forecast rests on the strength of its assumptions.

Exhibit 13–1Capacity Level Checkpoints for an Outpatient Infusion Center

Outpatient Infusion Center Capacity Level Checkpoints

# infusion chairs ---------------------3 chairs # staff ---------------------1 RN # weekly operating hours ---------------------40 hours # of hours per patient infusion ---------------------average 2 hours (for purposes of this example)

Work Flow Description

For each infusion the nurse must perform the following steps (generalized for this purpose; actual protocol is more specific):

• 1. Obtain and review the patient’s chart
• 2. Obtain and prepare the appropriate drug for infusion
• 3. Interview the patient
• 4. Prepare the patient and commence the infusion
• 5. Monitor and record progress throughout the ongoing infusion
• 6. Observe the patient upon completion of the infusion
• 7. Complete charting

Work Flow Comments

It is impossible for one nurse to start patients’ infusions in all three chairs simultaneously. Thus the theoretical treatment sequence might be as follows:

• • Assume one half-hour for patient number one’s Steps 1 through 4.
• • Once patient number one is at Step 5, the nurse can begin the protocol for patient number two.
• • Assume another one half-hour for patient number two’s Steps 1 through 4.
• • Once patient number two is at Step 5, theoretically the nurse can begin the protocol for patient number three.

This sequence should work, assuming all factors work smoothly; that is, the appropriate drugs in the proper amounts are at hand, the patients show up on time, and no one patient demands an unusual amount of the nurse’s attention. (For example, a new patient will require more attention.)

Daily Infusion Center Capacity Level Assumption

Patient scheduling is never entirely smooth, and patient reactions during infusions are never predictable. Therefore, we realistically assume the following: Chair #1 = 3 patients per day, Chair #2 = 2 patients per day, and Chair #3 = 2 patients per day, for a daily total of 7 patients infused.

Assignment Exercise 13–4.2

Required

Prepare another Infusion Center Capacity Level Forecast as follows:

Assume the same three infusion chairs, but add another nurse for either four or six hours per day. How would this change the daily capacity level for number of patients infused per day?

Required

Prepare another Infusion Center Capacity Level Forecast as follows:

Increase the number of infusion chairs to four, and add another nurse for either four or six hours per day. How would this change the daily capacity level for number of patients infused per day?

Assignment Exercise 14–2: Cumulative Inflation Factor for Comparable Data

ReviewTable 14–3 and the accompanying text.

Table 14–3Applying a Cumulative Inflation Factor

Table 14–3.1

SOURCE OF FACTOR IN COLUMN C ABOVE: From the Compound Interest Look-Up Table “The Future Amount of $1.00” (Appendix 12-B)
Year	Factors as shown at 10%
1	1.100
2	1.210
3	1.331
4	1.464

Inflation Factors

Inflation means “an increase in the volume of money and credit relative to available goods and services resulting in a continuing rise in the general price level.”¹ An inflation factor is used to compute the effect of inflation.

Let’s assume that hospital 1’s General Services expenses for Year 1 were $800,000, versus $900,000 for Year 2. We can assume that these amounts reflect actual dollars expended in each year. But let us also now assume that inflation caused these expenses to rise by 5% in Year 2. If the Chief Financial Officer (CFO) decides to take such inflation into account, a government source will be available to provide the appropriate inflation rate. (The 5% in our example is for illustration only and does not reflect an actual rate.)

The inflation factor for this example is expressed as a factor of 1.05 (1.00 plus 5% [expressed as .05] equals 1.05). The CFO might apply the inflation factor to year 1 in order to give it a spending power basis 165166equivalent to that of year 2. (Applying an inflation factor for a two-year comparison is not usually the case, but let us assume the CFO has a good reason for doing so in this case.) The computation would thus be $800,000 year 1 expense times the 1.05 inflation factor equals an inflation-adjusted year 1 expense figure of $840,000.

However, if the CFO wants to apply an inflation factor to a whole series of years, he or she must account for the cumulative effect over time. An example appears inTable l4–3. We assume a base of $500,000 and an annual inflation rate of 10%. The inflation factor for the first year is 10%, converted to 1.10, just as in the previous example, and $500,000 multiplied by 1.10 equals $550,000 in nominal dollars.

Beyond the first year, however, we must determine the cumulative inflation factor. For this purpose we turn to the Compound Interest Table. It shows “The Future Amount of $1.00,” and appears inAppendix B of the chapter about time value of money. “The Future Amount of $1.00” table has years down the left side (vertical) and percentages across the top (horizontal). We find the 10% column and read down it for years one, two, three, and so on.

Assumptions

Two hospitals report their annual projected revenue for five years to the local newspaper for a story on the area’s future economic outlook. However, Hospital 1 has applied a cumulative inflation factor of 5% per year while Hospital 2 has not applied any inflation factor. Thus the information is not properly comparable.

Projected Revenue Year 1 Year 2 Year 3 Year 4 Year 5 Hospital 1 $20,000,000 $22,500,000 $27,500,000 $27,500,000 $30,000,000 Hospital 2 $20,000,000 $21,000,000 $25,000,000 $24,000,000 $26,000,000

Required

Revise Hospital 2’s projections by applying a cumulative inflation factor of 5% per year.

Assignment Exercise 14–3

The head of your department is a prominent researcher. A health research foundation has asked him travel to London to give an important speech at a conference. He will then travel to Paris to tour a research facility before returning home. Although his travel expenses are being funded by the foundation, he will still need to take along some personal money. Consequently, he asks you to figure the exchange rates for $500 and for $1,000 in both pounds and euros. He explains that he is trying to judge the spending power of U.S. dollars when converted to the other currencies so he can decide how much personal money to take on the trip.

Required

Locate the current exchange rates for pounds and euros and compute the currency conversion for $500 and for $1,000.

Assignment Exercise 14–4: The Discovery

The Chief Financial Officer at Sample General Hospital has just discovered that the hospital’s Chief of the Medical Staff’s son Jason, a student at the local community college, is paid $100 per week year-round for grounds maintenance at the hospital’s Outpatient Center.

The CFO, no fan of the Chief of Medical Staff, now wants you to prepare a report that compares the relative costs of lawn care at each of three locations: the hospital itself, the outpatient center, and the hospital-affiliated nursing home down the block.

Required

Review the available information for grounds maintenance at the three facilities. Decide how to convert this information into comparable data. Then prepare a report, based on your assumptions, that presents comparable costs of grounds care. Also provide your assessment of what the best future course of action should be.