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Complete Service Billing Case Solution

Solution Id Length Case Author Case Publisher
1292 822 Words (6 Pages) Elizabeth M.A. Grasby, David House Ivey Publishing : 9B14N008
This solution includes: A Word File A Word File and An Excel File An Excel File

Before moving forward to the financial model itself, it is vital to state some relevant assumptions and back them up with strong theoretical and practical arguments.

Following questions are answered in this case study solution

  1. Assumptions

  2. Revenue Projections

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Case Analysis for Complete Service Billing Case Solution

The following table summarizes the key assumptions of the financial model along with their justification.

Variable

Assumption

Justification

Number of physicians

30

As per case data

Hourly rate for Physicians

$4

As per Case Data

Hourly Rate Charged from Patients

$8

At least 50% margin is required to absorb the huge fixed costs incurred in salaries. Therefor, $8 per hour charge for revenue purpose is reasonable.   

Per procedure rate for Physicians

$1

As per Case Data

Per Procedure Rate Charged to Patients

$1.75

In this case, the average number of procedures for certain customers might be greater than 2 (the assumed value in the case); therefore, it is better to increase the margin to $0.75.

Total Number of Owners

2

As per Case Data

Total Number of Data Entry Operators

5

As far as the number of doctors is concerned, 5 data entry operators seem fine as each operator will be engaged for 6 doctors which seem reasonable.  

Fixed Operating Expenses 

 

As per Case Data

Annual Salary of Data Entry Operator

$10000

 

Owners Compensation

$0, $30000, $50000

As per Case Data

 

 

 

Start Up Costs Assumptions

The startup assumptions are same for both the revenue models. The following table lists out the assumptions for startup costs (both capital and expenditure costs).

Start Up Contributions

It is assumed that two owners will devote an equal amount of $25000 in the business. Apart from that, $7000 will also be required in the form of a commercial loan. 

 

 

Amount

Totals

Loan Rate

Term in Months

Monthly Payments

Owner's Cash Injection

 

38.46%

                                 20,000

 

 

 

Outside Investors

 

48.08%

                                 25,000

 

 

 

Additional Loans or Debt

 

 

 

 

 

 

 

Commercial Loan

13.46%

                                   7,000

9.00%

                          60.00

$145.31

 

Commercial Mortgage

0.00%

                                          -  

9.00%

                       240.00

$0.00

 

 

100.00%

 $                             52,000

 

 

$145.31

Salaries

The salaries of physicians will be different for both revenue models. In the per hour compensation model, it is assumed that 20 full-time doctors and 10 part time doctors will be working. However, this difference only arises in the legal structure of the position. The per hour rate of all employees will be the same. Hence, the monthly salary of the doctors can be found out by applying the following formula:

Total monthly Salary = Number of Doctors * Monthly shifts * Total Hours in the shift * Per Hour Rate 

Total monthly Salary = 30 * 15 * 8 * 4 = $14400

Total Annual Salary = $14400 * 12 = $172800

The monthly salary for the second revenue model can be computed by applying the following formula. 

Total Monthly Salary = Number of Doctors * Number of Shifts * Average Patient Seen in Each Shift * Average Codes per Patients 

Total monthly Salary = 30 * 15 * 20 * 2 * 1 = $18000

Total Annual Salary = $18000 * 12 = $216000

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