Session 12: Marginal Cost & Revenue

What is budgeting?

an organization's plan for how it will accomplish its operational goals and objectives by earning revenue and spending funds during a specified time period

Retrospective

evaluating past financial decisions

Concurrent

overseeing daily financial operations

Prospective

planning long-term financial direction and deciding future strategy

What is revenue cycle management?

the process of managing reimbursements from patients and third party payers

cost allocation

determining the total cost of producing a particular healthcare service

cost centers

organizational unit that incur cost but don't directly generate revenues
- HR Staff
- Billers
- Accounting dep
- Housekeeping and janitorial services

profit center

organizational unit that generate both revenue and cost
- Medical care
- Physician billed time

Direct Costs

traced to a particular product/ service, directly offers care to patients
- supplies, salaries

Indirect costs

overhead
- utilities
- HR staff

Full costs

total of all direct and indirect costs

Fixed cost

stays the same regardless if changes in volume (rent, utilities)

Variable cost

changes as volume changes (supplies and hourly wages)

semi-variable costs

part fixed, part variable. depends on patient voume

Marginal value

increase in total benefit caused by purchasing 1 more unit

Marginal revenue

increase in total revenue caused by producing 1 more unit

What is break-even analysis?

where total cost = total revenue

Above break even point

profit

Below break even point

loss

Operating budget

budget that shows an organizations revenue, expense and profit or loss

Profit

Revenue - Expenses

Capitation

type of physician reimbursement that provides an upfront fixed amount per patient regardless of service use

Balance Sheet

A financial statement that reports assets, liabilities, and owner's equity

assets

things you own

liabilities

things you owe

Equity

Assets - Liabilities

Zero-based budgeting method

- all line items start at zero
- justify each revenue or expense item based on expected services volume and cost