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Health Administaration

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 prepare 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.

Cost Worksheet
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.

Cost 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 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

Variable cost per patient 10%

Net Reimbursement per patient:
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.

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