Break Even Point Evaluation

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

Fixed Costs Total

$1,200,000

Break-Even Point for Days

30,000

TFC / (ANR-AVC)

Full Capacity

48,180

Occuacy Break Even Percentage

62.30%

New Days

32,000

Break Even ANR

$169.50

AVC+TFC / Days

Exercise 4

Operation

Total

Average Net Revenue Yearly

$300

Average Variable Costs

$150

Total Fixed Costs

$900,000

Break Even Enrollees

6,000

TFC / (ANR-AVC)

New Enrollment

5,800

Break Even AVC

$144.83

ANR-TFC / Enrollees

The various costs of reimbursements tend to have dramatic impacts on the Break Even Point. 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 ultimately impact the bottom line and the Break Even Point for various costs and operations. Essentially, "the most accurate way to evaluate differences between the MS-DRG calculations in ICD-9 and ICD-10 is to actually code the discharge record in ICD-9 and ICD-10 using the medical record and compare the resultant DRGs. Once the differences in MS-DRG, relative weight, and reimbursement are identified, then the mitigation, if there is any, can be determined" (Smith, 2013). Yet, this is an incredibly labor intensive practice that can increase the time spent in coding practices. Still, this is a necessary process that will help the evaluation of costs and operating practices.