# Assignment Exercise

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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
*Assignment Exercise 13–4: Forecast Capacity Levels
Review the information in Exhibit 13–1 below. The exhibit assumes three chairs and one 40-hour RN, for a realistic capacity level of seven patients infused per day.
Exhibit 13–1   Capacity 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
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, Chair #3 = 2 patients per day, for a daily total of 7 patients infused.
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?
*Assignment Exercise 13–4
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 Comp
Revise Hospital 2’s projections by applying a cumulative inflation factor of 5% per year.
Review Tables 14–3 and the accompanying text below:
SOURCE OF FACTOR IN COLUMN C ABOVE: From the Compound Interest Look-Up Table “The Future Amount of \$1.00” (Appendix 12-B)
Table 14–3      Applying a Cumulative Inflation Factor
Year                                                Factors as shown at 10%
1                                                      1.100
2                                                      1.210
3                                                      1.331
4                                                      1.464
Table 14–3
(A)                    (B)                                           (C)                                            (D)
Year            Real Dollars          Cumulative Inflation Factor*                    Nominal Dollars**
1                 \$500,000                   (1.10)1 = 1.100                                         \$550,000
2                 \$500,000                   (1.10)2 = 1.210                                         \$605,000
3                 \$500,000                   (1.10)3 = 1.331                                         \$665,500
4                 \$500,000                   (1.10)4 = 1.464                                         \$732,050
*Assume an annual inflation rate of 10%. Thus 1.00 + 0.10 = the 1.10 factor in Column C.
**Column D “Nominal Dollars” equals Column B times Column C.
Note: As shown in Table 14–3.2, the factor for year 2 is 1.210; for year 3 is 1.331, and so on. We carry those factors to column C of Table 14–3.1. Now we multiply the \$500,000 in column B times the factor for each year to arrive at the cumulative inflated amount in column D. Thus \$500,000 times the year 2 factor of 1.210 equals \$605,000, and so on.
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
*Assignment Exercise 14–3
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. 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 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. (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).
Introduction to the Three Facilities
Sample General Hospital is an older 100-bed hospital. The new Outpatient Center, built last year, is across the street and the Golden Age Nursing Facility is down one block, on the corner. All three facilities are part of the Metropolis Health System. (Appendix 28-A contains some financial details about Sample Hospital.) The hospital is located in the midwestern sunbelt; there is occasional frost in the winter but no snow.
Grounds Maintenance Tasks That Should Be Performed at All Three Sites
• Mowing and edging
• Walk sweeping
• Raking leaves
• Blowing off parking lot
• Flower bed maintenance (where necessary)
• Hedge trimming and minor tree pruning (major tree trimming is performed by a contractor on an as-needed basis and thus should be disregarded)
Figure Ex-1 below provides a map that illustrates the layout of the grounds for each facility and their proximity to each other.
Grounds Maintenance Arrangements for the Three Facilities
The current grounds maintenance arrangements vary among the three facilities as follows:
1. Sample General Hospital uses its Maintenance department employees for grounds care. The hospital pays these employees \$15 per hour plus 15% employee benefits; it is estimated they spend 1,000 hours per year on grounds maintenance work. Another estimated 120 hours per year are spent on maintaining the lawn care equipment. The employees use a riding lawn mower, edger, and blower, all owned by the hospital. The hospital just bought a new mower for \$2,995 less a 10% discount. It is expected that the mower should last for five years.
2. 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. A friend sometimes helps, but when that happens Jason pays him out of his weekly \$100. It takes about 1.5 hours to mow, edge, and blow. Jason uses his dad’s riding mower and blower, but Jason recently bought his own edger. Jason also buys fertilizer for the grass twice a year.
3. The Nursing Facility contracts with a landscape service on a seasonally adjusted sliding scale. The landscape service is paid \$600 per month from April to October (mowing season); \$400 per month for February, March, and November; and \$200 per month for November, December, and January. The landscape service provides all their own equipment. They also provide fertilizer and provide annuals to plant in the flower beds every quarter.
Sample General Hospital Property Description
The grounds to be maintained are as follows:
• The front lawn is grass in two sections on either side of the front entrance. Each section is about 50′ by 60′.
• There is a hedge along the front of the building that is about 50′ on either side of the front entrance.
• There are two small matching flower beds on either side of the front entrance.
• Another strip of grass alongside of the building is 30′ by 100′.
• A third small strip of grass about 5′ by 25′ is by the Emergency entrance.
• The walkway dimensions are as follows: about 50′ of front walk; about 30′ of staff entrance walk, both of which are 5′ wide.
• The Emergency Department’s paved patient drop-off area is about 25′ by 30′.
• The parking lot surface is about 200′ by 250′. Along one side are overhanging trees that drop leaves and debris and are a constant sweeping problem. These are the only trees on the hospital site.
Outpatient Center Property Description
The grounds to be maintained are as follows:
• There is a strip of grass at the front of the building that is 12′ wide and 65′ long, split in the middle by a walkway 5′ wide.
• There is a strip of grass at the back of the building between the building and the parking lot that is 5′ wide and 50′ long
• All the rest of the property is paved.
Nursing Center Property Description
Golden Age Nursing Center occupies one whole block. The grounds have many large trees. Flowerbeds have been planted around the trees as well as along the front walk and entrance. There are also two secured patio areas at the side of the building, screened by hedges, and each has a small bed of annuals. Because of the unique design of the building, grounds maintenance requires considerable handwork such as edging with a weed eater.
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
*Assignment Exercise 13–4: Forecast Capacity Levels
Review the information in Exhibit 13–1 below. The exhibit assumes three chairs and one 40-hour RN, for a realistic capacity level of seven patients infused per day.
Exhibit 13–1   Capacity 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
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, Chair #3 = 2 patients per day, for a daily total of 7 patients infused.
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?
*Assignment Exercise 13–4
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 Comp
Revise Hospital 2’s projections by applying a cumulative inflation factor of 5% per year.
Review Tables 14–3 and the accompanying text below:
SOURCE OF FACTOR IN COLUMN C ABOVE: From the Compound Interest Look-Up Table “The Future Amount of \$1.00” (Appendix 12-B)
Table 14–3      Applying a Cumulative Inflation Factor
Year                                                Factors as shown at 10%
1                                                      1.100
2                                                      1.210
3                                                      1.331
4                                                      1.464
Table 14–3
(A)                    (B)                                           (C)                                            (D)
Year            Real Dollars          Cumulative Inflation Factor*                    Nominal Dollars**
1                 \$500,000                   (1.10)1 = 1.100                                         \$550,000
2                 \$500,000                   (1.10)2 = 1.210                                         \$605,000
3                 \$500,000                   (1.10)3 = 1.331                                         \$665,500
4                 \$500,000                   (1.10)4 = 1.464                                         \$732,050
*Assume an annual inflation rate of 10%. Thus 1.00 + 0.10 = the 1.10 factor in Column C.
**Column D “Nominal Dollars” equals Column B times Column C.
Note: As shown in Table 14–3.2, the factor for year 2 is 1.210; for year 3 is 1.331, and so on. We carry those factors to column C of Table 14–3.1. Now we multiply the \$500,000 in column B times the factor for each year to arrive at the cumulative inflated amount in column D. Thus \$500,000 times the year 2 factor of 1.210 equals \$605,000, and so on.
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
*Assignment Exercise 14–3
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. 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 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. (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).
Introduction to the Three Facilities
Sample General Hospital is an older 100-bed hospital. The new Outpatient Center, built last year, is across the street and the Golden Age Nursing Facility is down one block, on the corner. All three facilities are part of the Metropolis Health System. (Appendix 28-A contains some financial details about Sample Hospital.) The hospital is located in the midwestern sunbelt; there is occasional frost in the winter but no snow.
Grounds Maintenance Tasks That Should Be Performed at All Three Sites
• Mowing and edging
• Walk sweeping
• Raking leaves
• Blowing off parking lot
• Flower bed maintenance (where necessary)
• Hedge trimming and minor tree pruning (major tree trimming is performed by a contractor on an as-needed basis and thus should be disregarded)
Figure Ex-1 below provides a map that illustrates the layout of the grounds for each facility and their proximity to each other.
Grounds Maintenance Arrangements for the Three Facilities
The current grounds maintenance arrangements vary among the three facilities as follows:
1. Sample General Hospital uses its Maintenance department employees for grounds care. The hospital pays these employees \$15 per hour plus 15% employee benefits; it is estimated they spend 1,000 hours per year on grounds maintenance work. Another estimated 120 hours per year are spent on maintaining the lawn care equipment. The employees use a riding lawn mower, edger, and blower, all owned by the hospital. The hospital just bought a new mower for \$2,995 less a 10% discount. It is expected that the mower should last for five years.
2. 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. A friend sometimes helps, but when that happens Jason pays him out of his weekly \$100. It takes about 1.5 hours to mow, edge, and blow. Jason uses his dad’s riding mower and blower, but Jason recently bought his own edger. Jason also buys fertilizer for the grass twice a year.
3. The Nursing Facility contracts with a landscape service on a seasonally adjusted sliding scale. The landscape service is paid \$600 per month from April to October (mowing season); \$400 per month for February, March, and November; and \$200 per month for November, December, and January. The landscape service provides all their own equipment. They also provide fertilizer and provide annuals to plant in the flower beds every quarter.
Sample General Hospital Property Description
The grounds to be maintained are as follows:
• The front lawn is grass in two sections on either side of the front entrance. Each section is about 50′ by 60′.
• There is a hedge along the front of the building that is about 50′ on either side of the front entrance.
• There are two small matching flower beds on either side of the front entrance.
• Another strip of grass alongside of the building is 30′ by 100′.
• A third small strip of grass about 5′ by 25′ is by the Emergency entrance.
• The walkway dimensions are as follows: about 50′ of front walk; about 30′ of staff entrance walk, both of which are 5′ wide.
• The Emergency Department’s paved patient drop-off area is about 25′ by 30′.
• The parking lot surface is about 200′ by 250′. Along one side are overhanging trees that drop leaves and debris and are a constant sweeping problem. These are the only trees on the hospital site.
Outpatient Center Property Description
The grounds to be maintained are as follows:
• There is a strip of grass at the front of the building that is 12′ wide and 65′ long, split in the middle by a walkway 5′ wide.
• There is a strip of grass at the back of the building between the building and the parking lot that is 5′ wide and 50′ long
• All the rest of the property is paved.
Nursing Center Property Description
Golden Age Nursing Center occupies one whole block. The grounds have many large trees. Flowerbeds have been planted around the trees as well as along the front walk and entrance. There are also two secured patio areas at the side of the building, screened by hedges, and each has a small bed of annuals. Because of the unique design of the building, grounds maintenance requires considerable handwork such as edging with a weed eater.