Module 4: Introduction to the Capital Analysis Tool powered by Kaufman Hall
Key Model Input Parameters Continued
Add New Procedure
Projected Volume - This text field is for calculating incremental revenue and costs related to this project. If this procedure is not new, but you anticipate additional growth and revenue based on the capital acquisition, input only the incremental amount into the projected volume field. If the procedure is new to your department, place all projected revenue in the text field.
Charge for Procedure – This should be the normal charge for the procedure without discounts for different payers. Payer mix discounts will be taken into account later in the model.
Note: Because your project may add more than one procedure to your mix, you can add up to 9 additional procedures. Remember: Revenue shows up as a line item on the Income Statement and does impact cash flow and profitability.
Procedures Lost
This text field is for calculating revenue loss related to this project. This input screen is similar to the previous procedure screen, however this time you will input the volume and charge for procedures you will no longer perform, or the incremental loss of a procedure as a result of this capital project.
Note: Again, because your project may impact more than one procedure, there are 9 additional screens available to complete.
Add Payer and Assumptions
Reimbursement (% of charge) – Most healthcare institutions serve a variety of patients and types of plans (eg: Medicare, Medicaid, PPO’s, HMO’s, Traditional Fee For Service Insurance, etc.). In this input area you must put in the discount rate of the different payers that will impact the new procedure volume, or incremental procedure volume you forecasted, in the last data input screens. Most payers have pre-negotiated or set reimbursements for procedures. You must convert these payment levels to a percentage of your standard charge (e.g.: if standard charge is $1000/procedure, and payer X reimburses $800, the input should be 80%). Discounts from different payers will reduce net revenues.
Reimbursement Inflation Rate – This parameter captures increasing or decreasing reimbursements over time, and is used in the net revenue projections. This should be expressed in percentages and can be negative if reimbursements are decreasing. If you do not know, or can’t anticipate the inflation rate, talk to someone from your Strategic Planning department. They are responsible for looking at market trends. You need only to put an inflation rate in the first three years. Anything beyond that would be hard to project. If in doubt, put o% in the inflation rate fields.
Note: In the Capital Analysis Tool powered by Kaufman Hall you may input as many as 10 payers by clicking “add another payer” and completing the same information.
Projected Payer Mix
Depending on how many payers you’ve previously entered, you will now be asked to project the payer mix for both outpatient and inpatient populations, across all procedures. Taking into consideration payer mix, discount rates, and inflation, the model will use this data to help calculate revenue projections.
What if you don’t know your mix? If your department mix is relatively the same as your institution, ask your organization’s Finance department for this information. If your mix is different from the general institution, you can ask your Marketing department to assess what demographic population will the new projected business come from. This can help you to forecast your payer mix.
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