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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 |
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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
-
Assumptions
-
Revenue Projections
Case Analysis for Complete Service Billing
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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