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Break Even Point Analysis
Using the "Front Lines" case study, various Break Even points can be calculated with the given data provided. In order to calculate these Break Even Points for Total Fixed Costs, Average Net Revenue, and Average Variable Costs, the following equations will need to be used: As reimbursements increase, the Break Even Point for the various operations will ultimately also increase. There are currently major changes occurring within healthcare operations. The level and amount of reimbursements are thus being adjusted in response to the bulk of these changes. Here, the research suggests that "although CMS has not indicated that this change will be budget neutral, as there will be some payment redistribution based on the differences between ICD-9 and ICD-10, the shifts in reimbursement may not be as drastic as some organizations believe" (Smith, 2013). Some healthcare organizations will ultimately more affected by these changes than others. It is crucial to understand the level of impact such adjustments will have on reimbursement amounts, given the fact that reimbursements will then…
Break Even TFC= V x (ANR-AVC)
Break Even ANR= AVC + (TFC / V)
Break Even AVC= ANR-(TFC / V)
Exercise
Operation
Total
Average Payment
$2,000
Fixed Costs of Overhead
$360,000
Fixed Costs of Salaries
$540,000
Variable Medical Supplies Costs
Break Even Point for Operations
TFC / (ANR-AVC)
Exercise
Per Visit
Total
Annual
Variable Laundry
$25,000
Variable Lab
$18.75
$225,000
Variable Pharmacy
$360
Fixed Rent
$180,000
Fixed Janitorial
$30,000
Variable Billing
$11.67
$140,000
Fixed Staff Costs
$360,000
AVC and TFC
$62.50
$570,000
Number of Visits per Year
6,514
Average Net Revenue per Visit
$150
Break Even Point Operations
11,657
Profit
$450,000
Exercise 3
Operation
Total
Average Net Revenue Per Day
$172
Average Variable Cost Per Day
$132
References
Cost Volume Profit Analysis. Chapter 6.
Smith, Donna. (2013). Reimbursement impact of ICD-10: Should you be concerned? Healthcare Executive Insight. Web. http://healthcare-executive-insight.advanceweb.com/Features/Articles/Reimbursement-Impact-of-ICD-10-Should-You-Be-Concerned.aspx
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