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Budget Management Analysis

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Budget Management Analysis Write a paper no longer than 1500 words which includes a cost variance, in which you complete the following: • Compare five to seven expense results with budget expectations, and describe possible reasons for variance. (You may use sample budgets provided from your work or from the texts). • Recommend three benchmarking techniques and identify those that might improve budget accuracy in future forecasts. Justify your choices. Format your paper consistent with APA guidelines. Provide two academic references in addition to your texts. You have just taken a position as a financial analyst with the American Health Plan, a partially integrated delivery system, contracting with major employers for health care services. The financial and utilization data in Table 16–21 were presented to you regarding the previous completed year. Pg 372 CHAPTER 16 COST VARIANCE ANALYSIS Table 16–21 American Health Plan Budget Budgeted Actual Enrollees 10,000 11,000 Patient days per 600 550 1,000 enrollees Patient days 6,000 6,050 Visits per member 5.0 5.5 Visits 50,000 60,500 Cost per patient day $1,000 $1,100 Cost per visit $65 $62 Inpatient costs $6,000,000 $6,655,000 Outpatient costs $3,250,000 $3,751,000 Total costs $9,250,000 $10,406,000 Per member per $925 $946 year costs You have been asked to make some sense of this data and factor the total variance of $1,156,000 ($10,406,000 _ $9,250,000) into some subaccounts that suggest possible causes. Please review these data and calculate the following variances for both inpatient and outpatient categories: • Enrollment variance • Utilization variance • Efficiency variance (note that there is no case-mix intensity standard) SOLUTIONS AND ANSWERS 13. Table 16–24 provides the variances in the required categories. Summary pg 375 Table 16–24 American Health Plan Variances Inpatient Outpatient Total Enrollment $600,000 $325,000 $925,000 Utilization (550,000) 357,500 (192,500) Efficiency 605,000 (181,500) 423,500 Total $655,000 $501,000 $1,156,000 The calculations for the variances are the following: Enrollment: Inpatient _ 1,000 _ .600 _ $1,000 _ $600,000 (Unfavorable) Outpatient _ 1,000 _ 5.0 _ $65 _ $325,000 (Unfavorable) Utilization: Inpatient _ (.550 _ .600 ) _ 11,000 _ $1,000 _ _$550,000 (Favorable) Outpatient _ (5.5 _ 5.0 ) _ 11,000 _ $65 _ $357,500 (Unfavorable) Efficiency: Inpatient _ ($1,100 _ $1,000) _ 6,050 _ $605,000 (Unfavorable) Outpatient _ ($62 _ $65 ) _ 60,500 _ –$181,500 (Favorable) The data suggest that the vast majority of the variance was created by an increase in enrollment. Of the total $1,156,000 variance, $925,000 was the result of an increase in enrollment. This should not be a concern. There was, however, an increase in the price paid for inpatient care from $1,000 per day to $1,100 per day. It is not clear whether this is a result in the intensity of patients seen, or the use of more expensive hospitals. Inpatient utilization decreased significantly and created a favorable variance of $550,000. On the outpatient side, the situation was reversed. Outpatient utilization increased, resulting in an unfavorable variance of $357,500, whereas outpatient efficiency or prices paid actually declined, resulting in a favorable variance of _ $181,500. Textbook Cleverley, W. O. & Cameron, A. E. (2007). Essentials of Health Care Finance (6th edition). Sudbury, MA: Jones and Bartlett Publishers.

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