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Background Information and Assumptions
As the clinic is run by a large healthcare 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 the 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 for the services it provides and will pay the hospital system 40% of its total salary expense (Becker, 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 RVUs 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 select the geographical cost index (GCI) of the area of the hospital clinic. 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 healthcare program include the cost of the facility, equipment, staff salaries, patient out-of-pocket expenses, and insurance reimbursement.
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)
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.
Establish the cost of the clinic based on the following:
The physician’s annual salaries are based on specialty, nurses or clinical staff, and support staff. Use internet searches to establish average salaries for these positions.
Fringe benefit expenses are established by the hospital system at 25% of salaries and added to salaries for Total Salary expenses.
Overhead cost expenses established by the hospital at 40% of Total Salary Expense.
Equipment costs of the program.
Reimbursement for the service based on HCPCS/CPT codes with geographical adjustment. Look up the HCPCS/CPT Code from HCPCS Code Lookup **(https://hcpcs.codes)** or gov Physician Fee Overview **(https://www.cms.gov/medicare/physician-fee-schedule/search/overview)**. Refer to the Capstone Project Formulas and Examples document for help with cost and reimbursement calculations.