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Wentworth Medical Services Case Study

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Payment is based on services rendered in a fee for service environment. The analytics associated with this payment model are that at some point after fixed and variable costs (the variable cost per service rendered), the break even point is reached. This is based on the utilization of the services. The higher the utilization, the higher the profit. In this model, there are certain variables which include fixed costs, variable costs and the projected payment for the services. Therefore, it can be determined at what point profit will be reached. This scenario changes in the capitated environment. The variables remain the same.The fixed cost is known as well as the variable cost. The difference is the need to estimate the utilization of the population. In this case, the entity is paid a "lump sum" for services no matter how many are rendered. This can be for an entire population or for a particular group of services. The profitability analysis reverses, as stated in our text it is "like being Alice peering through looking glass and finding that everything is …show more content…

Therefore, it is important to understand fixed and variable costs. The other factors to consider are: -How many members were in the health plans last year? -What was their utilization history? -What will it cost you to meet that demand of resource utilization? (Grubb, 2013). From a cost analysis standpoint, the critical factors are fixed costs, variable costs and projected utilization. This is for both the fee for service and capitation models. However, under capitation, additional critical factors need to be considered, including historical utilization and number of members serviced in the capitated group.

References:

Gapenski, L. C. (2012). Healthcare finance: An introduction to accounting and financial management (5th ed.). Chicago, IL: Health Administration

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