Question

Assumptions Average Charge: $120 Year 1   Year 2   Year 3   Year 4 Year 5 Contractual Adjustmen...

Assumptions Average Charge: $120 Year 1   Year 2   Year 3   Year 4 Year 5
Contractual Adjustmen is 30%
Expenses increase by 5% in a year
Initial capital for equipment supplies and contingency plan is : $275,000
Proforma Format
Revenue:
Gross Revenue [# of patient visits X average charge]
Contractual Adjustment [.30 X average charge
Net revenue [gross revenue - contractual adjustment]

Patient visits: Year 1 = 7000 (assume they will increase by 10% each year),

Homework Answers

Answer #1
1st year 2nd year 3rd year 4th year 5th year
A Average charge (as expenses are increasing 5% in every year so we assume correspondingly charges also increase by 5% in each year) 120 126 132 138 145
B Number of patients ( Number of patients are increase by 10% in each year) 7,000 7,700 8,470 9,317 10,248
C GROSS REVENUE (patient visit*average charge) A*B 840,000 970,200 1,118,040 1,285,746 1,485,960
D Contractual adjustment. (30% of average charge) C*30% 252,000 291,060 335,412 385,724 445,788
E NET REVENUE (C-D) 588,000 679,140 782,628 900,022 1,040,172
*Calculation is done upto the nearest $.

In this question the capital initial equipment and contingency plan assumed as capital expenditure hence not included in above calculation, if we treat this expenditure as revenue expenditure than the net revenue of 1st year would be less than $275,000.

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