Capstone Project: Part 3 – Program Finances

Part 3: Program Finances

Factors that determine the financial feasibility of a health care program include the cost of the facility, equipment, staff salaries, patient out-of-pocket expenses, and insurance reimbursement. Referring to the concepts practiced in the collaborative assignment with your group last week, work on the following:

1. Determine how many physicians and supporting staff are needed to operate the clinic, applying the appropriate ratio of clinical and support staff per physician.

2. Determine the direct costs of the program. Direct costs in this case are patient expenses, and they increase as the number of patients increase. These include:

a. Physician and procedural support staff costs per patient/procedure

b. Gloves, sutures, gowns, equipment, lab supplies, other supplies

3. Determine the indirect costs of the program. Indirect costs are overhead costs that include but are not limited to:

a. General support staff and related costs

b. Electronic medical records

c. Insurance and taxes

d. Facility and administration

e. Employee benefits such as health and life insurance, retirement plans, and fringe benefits

4. Determine the equipment costs of the program. This includes items for the physician clinic that will be used for more than one year. This is in contrast to variable costs which occur per patient and include such items as gloves, syringes, needles, and gauze, and would include items such as:

a. Examination tables

b. Workstations

c. Desks and chairs in the waiting room

d. Other equipment of this nature

5. Determine reimbursement for clinic services based on HCPCS/CPT codes with geographical adjustment.

6. Determine net reimbursement after variable costs per patient.

7. Determine how many patients the clinic will need to see (a) on average per day and (b) annually to break even on expenses.

Note: Refer to the health financial instructions and sample calculations document to help you with this part of the project.


Table 1. Staffing and Salaries

Complete Table 1 by adding the staff positions including physician specialty, nurses and support staff, and the number of positions in your clinic. Multiply the number of positions by average salary for those positions to obtain total salaries.

Staff Position Number of Positions Average Salary Total Salaries
Primary Care Physician      
Support Staff      

Total Salary:


Table 2. Fringe Benefits Expense and Total Salary Expense

These expenses have been established by the hospital system at 25% of salaries and added to salaries for Total Salary Expense.

Factors Dollar Amount
Total Salaries  
Fringe Benefit Expense 25% of Salaries  

Total Salary Expense w/ Fringe Benefits:


Table 3. Overhead (Indirect) Costs and Total Fixed Practice Costs

Begin with total salaries including fringe benefits. Multiply that amount by 40% (0.40) and combine the 2 numbers for total fixed practice costs. These costs do not vary based on the number of patients.

Cost Factors Dollar Amount
Overhead Costs 40% of Total Salary Expense  
Total Salaries Expense  
Overhead Costs 40% of Total Salary Expense  

Total Overhead and Fixed Costs:


Table 4. Equipment Costs

These items will be used by the clinic for 5 years so the costs will be divided equally over 5 years (depreciation).

Cost Factors Dollar Amount
Total Equipment Cost  
Depreciated Equipment Cost (cost for year one)  

Total Clinic Costs (for year one including salaries, overhead, and equipment costs):


Table 5. RVU and Reimbursement Calculation

The cost of physician care varies in different locations, as do the cost of operating a practice and the rates of physician malpractice claims. In addition, each year Medicare adjusts the conversion rate either up or down.

Category RVU GCI Total RVU


· RVU:

· GCI:

· Total RVU:

Table 6. Variable Costs and Net Reimbursement

To complete Table 6, multiply reimbursement per visit by 10% (0.10) and subtract this number from reimbursement to obtain net reimbursement per patient.

Cost Factors Dollar Amount
Reimbursement per visit  
Variable cost per patient 10%  

Net Reimbursement per patient:


7. Breakeven Analysis

To calculate the number of patients needed to break even, divide total practice costs by net reimbursement. To calculate the number of patients per day, divide the total number of patients for an annual breakeven number by the number of days the practice is open. Enter text below.


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