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Break Even Point Evaluation Essay

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:

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

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…

Sources used in this document:
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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