View the step-by-step solution to:

I want to confirm that my analysis is correct. Thank you. The notes that were cut off are as follows:

I want to confirm that my analysis is correct. I have attached the problem and my analysis as two separate attachments. Thank you.
The notes that were cut off are as follows:
The Dental Practice will be paid on the basis of covered lives.
Capitation is the amount of money paid by the HMO to the Dental Practice per covered life.
Utilization is the percentage of covered patients that will go to the Dental Practice for treatment. For instance, if the utilization is 40% and the covered lives are 10, then the Dental Practice can expect to treat 4 patients even though it will receive the money for the 10 patients.
The data given for the Dental Practice reflects the distribution of patients. For instance, if 4 people walked in from the 20-30 age group, we can expect one patient to come for an operative procedure, one for prosth, two for perio, and nobody for endo.
The HMO patients should be delineated from self-pay patients.

HMO CONTRACT ANALYSIS
You are the owner of a group practice of three dentists and two
hygienists.  Recently, a representative from US DentalCare (a large
managed care company) called you and asked you whether you would like to
participate in a managed care dental plan.  The representative explains
to you that most people in the plan are between 20 and 50 years old and
gives you some figures about projected utilization (see item 1) and
reimbursement.  You tell the representative that you will get back to
him after you do an analysis of this proposal.  You download some
utilization data from your practice management system (see item 2) and
start your analysis.
To arrive at the answer you have to answer the following questions (use
a spreadsheet for the analysis).  Submit the answer to your instructor
before the end of the week.
Questions
Based on the results of your analysis, should you accept the offer of US
DentalCare?  Explain.
If you could not accept the offer based on the current capitated payment
from US DentalCare, what weighted average capitated payment would enable
you to break-even?  Conversely, if you could accept the offer of US
DentalCare, how far should the weighted average capitated payment fall
before you start losing money?
ITEM 1:    Data from US DentalCare
Age Group
Covered Lives
Utilization
Quarterly Capitated Payments
20-30 years
1112
46%
$60.08
30-40 years
1666
53%
$78.93
40-50 years
1177
37%
$94.16
Totals
3955
 
 
ITEM 2:   Data from your practice (average number of all procedures on
a daily basis)
Age Group
Perio
Operative
Prosth.
Endo
20-30
2
1
1
0
31-40
4
6
3
1
41-50
6
9
2
3
Average charge per procedure
$152.29
$270.92
$232.99
$121.85
Average cost per procedure
$85.57
$110.69
$104.12
$116.95
 
Notes
The Dental Practice will be paid on the basis of covered lives.
Capitation is the amount of money paid by the HMO to the Dental Practice
per covered life.
Utilization is the percentage of covered patients that will see go to
the Dental practice for treatment.  For instance, if the utilization is
40% and the covered lives are 10, then the Dental practice can expect to
treat 4 patients even though it will get money for 10 patients.
The data given for the Dental Practice reflects the distribution of
patients.  For instance, if 4 people walked in from the 20-30 age
group, we can expect one patient to come for operative procedure, one
for prosth, two for perio and nobody for endo.
The HMO patients should be delineated from self-pay patients.

From my analysis, I determined that the Dental Practice should not
accept the offer
from US Dental Care.
Below is my analysis:
Age Group Covered Lives Capitated Payment Average Payment
20 – 30 years 46% of 1112 = 512 $66,808.96 130.49 per patient
30 – 40 years 53% of 1666 = 883 131, 497.38 148.92
per patient
40 - 50 years 37% of 1177 = 436 110,826.32 254.19
per patient
Total Covered Lives 1490 $309,142.66
Weighted Average Payment $309, 142.66 / 1490 = $207.48
I used the 1,490 as the number of patients that the Dental Practice
would treat.
I took the number of covered lives per age group and distributed them
according to treatment.
Age Group Perio Op Prosth Endo Total Patients/Age Group
20 – 30 256 128 128 0 512
31 – 40 252 379 189 63 883
41 – 50 131 196 44 65 436
Total Patients
Per Proc 639 703 361 128 1490
Based upon the price per procedure that the Dental Practice charged, it
would
Have received the following:
639 x 152.29 = $ 97,313.31 Perio
703 x 270.92 = $190,456.76 Oper
361 x 232.99 = $ 84,109.39 Prosth
128 x 121.85 = $ 15,596.80 Endo
Total $387,476.26
According to the Dental Practice, its costs are as follows:
639 x 85.87 = $54,870.93 Perio
703 x 110.69 = 77,815.07 Oper
361 x 104.12 = 37,587.32 Prosth
128 x 116.95 = 14,969.60 Endo
Total = $185,242.92
Consequently, if the Dental Practice accepted the offer, it would
experience a loss.
Gross Revenue $309, 142.66
Less Expenses 185,242.92
Less Opportunity
Cost of Forgone
Profit 202,233.34 (Difference $387,476.26 – 185,242.92)
Loss (78,333.60)
The weighted average capitated payment that would enable the Dental
Practice to break –even is $260.05 ($387,476.26 / 1490).

Recently Asked Questions

Why Join Course Hero?

Course Hero has all the homework and study help you need to succeed! We’ve got course-specific notes, study guides, and practice tests along with expert tutors.

-

Educational Resources
  • -

    Study Documents

    Find the best study resources around, tagged to your specific courses. Share your own to gain free Course Hero access.

    Browse Documents
  • -

    Question & Answers

    Get one-on-one homework help from our expert tutors—available online 24/7. Ask your own questions or browse existing Q&A threads. Satisfaction guaranteed!

    Ask a Question