(FINAL ANSWER) HMGT 322 Week 8 Assignment : Case Study of Physician Practice Management/Relative Value Unit Analysis

In this assessment, you will evaluate the physicians’ practice financial condition based on the following Relative Value Unit (RVU) calculations and analysis:

  1. Average and Marginal Costs per RVU,
  2. Total Average Cost,
  3. Total Marginal Cost per CPT code, and
  4. Analyzing the information to assist the physicians in using these costs appropriately and making informed decisions. To complete this assignment, follow these steps:
  1. Review the article How Managerial Accountants Make Physician’s Practices More Profitable
  2. From this financial information, calculate the three RVU calculations:
  1. Average and Marginal Costs per RVU,
  2. Total Average Cost, and
  3. Total Marginal cost per CPT code.
  1. In proper APA format, write a 3-5 page paper (include a cover and reference page not included in page count). For each RVU calculation, in a paragraph:
    1. Calculate the costs,
    2. Show your calculations, and
    3. Write a conclusion about the physician practice’s financial condition and discuss how you can assist the physicians in using these costs in making informed decisions.

*Please use headings for each paragraph and category to decipher the discussion and organize the paragraphs.

Use the following assumptions:

Assume that during the FY2016 year, Lovely Life LLC historical costs were $750,000 when 11,000 RVUs were produced and $950,000 when 14,000 RVUs were produced.  The contract specifies that the number of RVUs per service CPT code are five (5).

High Total Fixed Costs $950,000
#RVUs high point 14,000
Low Total Fixed Costs $750,000
#RVUs low point 11,000
#RVUs per CPT 5
Projected #RVUs for the coming month 10,000

 

SOLUTION

Calculate the Variable (Marginal) Cost per RVU

Variable (Marginal) Cost per RVU:

(950, 000-750,000) ÷ (14,000-11,000) = 200,000/3000= 66.67 per RVU

Calculate Total Fixed Costs:

Marginal costs are the additional costs incurred when producing more units of a service or procedure. The marginal amount for a physician encounter or procedure is calculated by multiplying the variable cost of each RVU by the number of RVUs permitted per procedure. Depending on the authorized amount allowed for RVUs per procedure.

950,000−(66.67×14,000) = 950,000−933,333.33=16,666.67

 

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