CASCADES MENTAL HEALTH CLINIC VARIANCE ANALYSIS 7 CASCADES MENTAL HEALTH Clinic
ID: 368580 • Letter: C
Question
CASCADES MENTAL HEALTH CLINIC VARIANCE ANALYSIS 7 CASCADES MENTAL HEALTH Clinic is a not-for profit, multidisci- plinary mental health provider that offers both inpatient and outpatient services on a full-risk (capitated) basis to members of managed care plans. Its clinical staff consists primarily of psychiatrists, psychologists, psychiatrie nurses, social workers, and chemical dependency counsel- ors. Currently, Cascades has major contracts with two large managed care organizations in its service area: Pacific Care and Seattle Health- plans. Each of these organizations has both commercial and Medicare health maintenance organization (HMO) contracts with Cascades. Thus, in total, there are four separate product lines Cascades is partially funded by state and local government. The agreement with the funding agencies is that funds received are to be used to cover overhead and capital expenses. Furthermore, expenses for drugs and other medical and administrative supplies are billed separately to the HMOs at cost. Thus, overhcad and supplies expenses are not part of this budget, which means that the analysis focuses on clinical labor expenses. If the assumption is made that other payment mechanisms cover overhead, capital expenses, and supplies at cost, then Cascades' profitability is solely a function of its ability to create revenues that exceed labor costs. Thus, its operating budget focuses orn enrollment, per member premiums, utilization, and labor costs. Exhibit 7.1 lists the assumptions used to prepare Cascades' 2013 operating budget. Note that the four product lines are expected to provide a total of 4,551,000 member-months of revenue during 2013. Also, note that each product line has a different per member per month O HAP, 2014. Reproduction without permission is peohibited Copying and distribution of this POF is prohibited without writhen permission or permission, please contact Copyright Clearance Center at www.oopyright.comExplanation / Answer
Answer 1:- The aggregate profit (total) variance for the whole business in 2013 is -$329,366. This is 79% less than the forecasted profit, $419,379. The business should be very worried by such an enormous variance. Both PC Medicare and SH Medicare were ineffective in controlling Medicare reimbursements, enduring over a 200% variance in what they had initially predicted. PC’s Commercial patients are nearest to meeting the budget’s estimation with a -26% variance. This is much better than SH’s -132% variance. Clearly, both of these providers underperformed in 2013, demonstrating that the budgeting process must be revamped in the forthcoming years.
Answer 2:- Profit Analysis:
Seattle Health’s revenue variance reflects greater amounts than expected, which assists the association in recognizing their prospective earnings potential in acquiring by means of their managed care. PC’s Commercial region suffered in regards to forecasted profits, which could be a precursor for subsequent budgeting proceedings. Both Medicare product lines produced supplementary profits than were previously anticipated, which is valuable in a field where Medicare reimbursements typically and increasingly come at a hefty cost to organizations every year. Total profits are 2% higher than planned, exhibiting sufficient profit predictions for 2013.
Expense Analysis:
Both payers encountered higher than expected service dues for all product lines. Seattle Health’s enrollees cost Cascades’ a colossal 135% more than Pacific Health’s members, which is quite significant. The total cost variance shows -13%, which aids Cascades in realizing their cost planning desperately needs to be upgraded before 2014.
Answer 4:- Pacific Care’s enrollment was a major financial hit to Cascades budget as there are 9% less enrollees than anticipated. Pacific Care has an impressive 2,526,028 more enrollees than Cascades, which stresses the importance of focusing on the accuracy of impending enrollment projections rather than focusing on Seattle Health. Medicare admittance increased by 20% from the forecasted enrollment. This may be relevant to Cascades when examining the pattern in which where their enrollees are derived from is revealed.
Medicare’s and the static budget’s premium rates do not vary from one another, which emphasizes the similarly higher than predicted rates known in the commercial product lines of both payers. Larger rates benefit Cascades; however, adequate utilities must be coordinated to guarantee that temporary higher rates do not negate longstanding reimbursement arrangements.
Answer 5:- Regarding volume, Pacific Care’s Commercial line outperforms all of the other product lines with only a -6% variance. Seattle Health’s Commercial line performed the worst with a -63% variance, which should be a major concern to the organization. Pacific Care’s Commercial line may elicit more advertisements than the other product lines, which entices more enrollees. Seattle Health’s Commercial line is likely losing several members to Pacific Health’s Commercial line. The aggregate volume variance for all the product lines is -15%, which is not good.
In terms of management, Pacific Care’s Commercial line outperforms all of the product lines with a 4% variance. This is the only product line with a positive percentage. Seattle Health’s Medicare line performed the worst with a -1,173% variance. This should be extremely worrisome to the organization. All of the product lines aside from Pacific Care’s Commercial line performed extremely poorly. Pacific Care’s management could be performing better due to their larger enrollee size. Due to their larger enrollee pool, managers are likely to be more attracted to working for this association because it ensures job security in a way. More managers are needed to oversee more enrollees. The aggregate management variance for all product lines is 58%, which is not bad.
Answer 6:- The cost volume variances of all product lines are encouraging in 2013, indicating volume decreases are likely not the source of their meager financial performance. Regarding projections, Seattle Health’s volume is the most unstable while Medicare’s volume variance is, on average, 26% lower than forecasted. In order to accomplish a more positive production volume variance in 2014, Cascades should concentrate on more efficient ways to predetermine volumes for the entirety of the product lines.
Enrollment for all except Pacific Care’s Commercial line did not cost Cascades as much as expected. Pacific Care’s above average enrollment cost variance is a serious matter for the institution due to the respective size of those enrolled with them in comparison to those enlisted with Seattle Health. Medicare also did not cost Cascades as much as expected. However, a -20% cost variance must be reduced regardless in order to plan more effectively in 2014.
Answer :- Management variance was extremely unpredictable in 2013 with Medicare experiencing huge negative percentages while the Commercial management variance was significantly higher than the forecasted computations. The largest issue seems to be Seattle Health’s -1,173% variance. Deficient appropriation of human resources could be the reason for such a massive variance. Pacific Care’s staffing variance presents relatively troublesome outcomes, which are, on average, 4% above predicted calculations. All product lines except Seattle Health acquired fewer costs than anticipated. However, their commercial outpatient variance ought to be alarming to the region’s management team.
Answer:- Following Cascades known deficits and profits obtained in 2013, they must thoroughly assess the most imperative issues in order to allocate resources more productively in 2014. The institution should closely examine which administration lines are expected to create the most advantages for every component as well as emphasize the significance of those administration lines while managing the less fruitful ones more firmly. Fixating on product lines that yield the largest return may assist the association in utilizing funds and resources in order to leverage all profits possibly necessary to compensate for dwindling profits in ill-performing product lines. Administration must determine which administration lines contain nonessential expenses such as extra specialists. This process could provide additional insight in the interest of all administration lines, benefiting financial planning proceedings. Predicted volumes seem to be less centered on the fact that Pacific Care accommodates the bulk of enrollees. This permits an improved comprehension of the main cause of the volume variances in their product lines, which will aid in configuring the budget for 2014.
Other recommendations include reducing the enrollee pool size in order to decrease the enrollment variance. Some employees should be laid off, especially if they do not play vital roles. Increasing advertisements for additional commercial contracts would be beneficial. Management needs to pay close attention to how and where Cascades’ funds are being used. Forecasts need to be more precise in order to enhance feedback to labor costs and utilization rates that are greater than anticipated. Finally, Cascades must validate that each service is mandatory and effective, ensuring that no patient is readmitted for the same issue. This will assist in lowering utilization rates.
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