WellExplained: Variance Analysis Case Study

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The subsequent two spreadsheets provide workload (expressed as relative weighted products (RWPs) for inpatient care), revenue, and expense data for Schumpert Medical Center covering their fiscal years 2010 and 2011. The data includes FY10 actual workload, revenues, and expenses; FY11 forecasted workload, revenues, and expenses; and FY11 year-to-date workload, revenues, and expenses. The Inpatient Product Lines worksheet provides further details on the types of services provided within each major service line. Using the available data, perform a variance analysis on Schumpert Medical Center and answer the following questions:
 
1. What was the hospital's original profit forecast (assume away any issues with depreciation, taxes, etc.)? Halfway through the fiscal year, what is the hospital's revised projection for FY11 profits?  
Answer:
2. Which inpatient service lines are overbudget? Which product lines are overbudget after accounting for workload increases?
Answer:
3. What actions would you take at the mid-year point if you were a fee-for-service hospital? In other words, where are the problem areas on which you would focus your attention, and who might provide ideas for "best practices" based on their performance?
Answer:
4. What actions would you take at the mid-year point if you were a capitated hospital? In this case, the revenue spreadsheet would be replaced with an overall budget of $50 million with which to operate (rather than being able to bill for each episode of patient care). Federal, state, county, and city hospitals normally operate under a capped budget. Additionally, many HMOs also operate under a fixed Per Member, Per Month (PMPM) capitated process.

Answer:

 

           
                 
 Schumpert Medical Center         
 Revenues Worksheet, Mid-Year Review         
           
 Inpatient              
 Inpatient Product LinePrice/RWPForecasted RWPs

For FY11
Projected IP Revenue

For FY11
Actual RWPs

(FY11 YTD)
Actual IP Revenue

(FY11 YTD)
         
 CIRC $      6,010.65724 $                 4,351,711421 $                2,530,676         
 DIGEST $      6,021.651,161 $                 6,988,125636 $                3,830,402         
 ENT $      6,001.65130 $                    780,21572 $                  433,948         
 GYN $      6,013.65219 $                 1,313,983116 $                  697,128         
 MENTAL HEALTH $         502.991,351 $                    679,539736 $                  369,949         
 NERVOUS $      6,103.65228 $                 1,391,632112 $                  682,744         
 NEWBORN $      7,014.71733 $                 5,141,782433 $                3,033,900         
 OB $      5,713.651,501 $                 8,576,189868 $                4,960,622         
 ORTHO $      6,084.18631 $                 3,839,118274 $                1,664,658         
 OTHER $      6,018.142,152 $               12,951,037800 $                4,813,961         
 RESP $      6,118.73677 $                 4,142,380197 $                1,202,960         
 Total Inpatient Earnings 9,506 $               50,155,7104,664 $              24,220,949         
                 
           
                 
 Schumpert Medical Center        
 Expenses Worksheet, Mid-Year Review        
          
 Inpatient               
 Inpatient Product LineBudget/RWP

(FY10)
 Actual RWPs

(FY10) 
IP Expenses

(FY10)
Forecasted RWPs

(FY11)
FY11 Budget

(FY10+6% Inflation)
FY11 Budget

(FY10+6% Inflation)
Actual IP Expenses

(FY11 YTD)
        
 CIRC $    5,475.81  $         3,778,309724 $ 4,202,3564,202,356#        
 DIGEST $    5,476.81  $         6,051,8751,161 $ 6,737,1886,737,188#        
 ENT $    5,477.81  $           679,248130 $    754,842754,842#        
 GYN $    5,478.81  $         1,139,592219 $ 1,268,9471,268,947#        
 MENTAL HEALTH $      498.78  $           641,9301,351 $    714,283714,283#        
 NERVOUS $    5,478.81  $         1,188,902228 $ 1,324,1191,324,119#        
 NEWBORN $    5,478.81  $         3,824,209733 $ 4,256,9264,256,926#        
 OB $    5,478.81  $         7,834,6981,501 $ 8,717,1158,717,115#        
 ORTHO $    5,478.81  $         3,292,765631 $ 3,664,5573,664,557#        
 OTHER $    5,478.81  $       11,231,5612,152###########12,497,823#        
 RESP $    5,478.81  $         3,533,832677 $ 3,931,7043,931,704#        
 Total Inpatient Expenses   $       43,196,9229,506###########48,069,860#        
                 
 Product LineMDC Description              
 CIRCDiseases and Disorders of the Circulatory System              
 DIGESTDiseases and Disorders of the Digestive System              
 ENTDiseases and Disorders of the Ear, Nose, Mouth, and Throat              
 GYNDiseases and Disorders of the Female Reproductive System              
 MHMental Diseases and Disorders              
 MHAlcohol/Drug Use and Alcohol/Drug Induced Organic Mental Disorders              
 NERVOUSDiseases and Disorders of the Nervous System              
 NEWBORNNewborns and Other Neonates with Conditions Originating in Perinatal Period              
 OBPregnancy, Childbirth, and the Puerperium              
 ORTHODiseases and Disorders of the Musculoskeletal System and Connective Tissue              
 OTHERUnknown              
 OTHERDiseases and Disorders of the Eye              
 OTHERDiseases and Disorders of the Hepatobiliary System and Pancreas              
 OTHERDiseases and Disorders of the Skin, Subcutaneous Tissue and Breast              
 OTHEREndocrine, Nutritional and Metabolic Diseases and Disorders              
 OTHERDiseases and Disorders of the Kidney and Urinary Tract              
 OTHERDiseases and Disorders of the Male Reproductive System              
 OTHERDiseases and Disorders of the Blood, Blood Forming Organs, Immunological Dis              
 OTHERMyeloproliferative Diseases and Disorders, Poorly Differentiated Neoplasm              
 OTHERInfectious and Parasitic Diseases, Systemic or Unspecified Sites              
 OTHERInjuries, Poisonings and Toxic Effects of Drugs              
 OTHERBurns              
 OTHERFactors Influencing Health Status and Other Contacts with Health Services              
 OTHERMultiple Significant Trauma              
 OTHERHuman Immunodeficiency Virus Infections              
 RESPDiseases and Disorders of the Respiratory System    
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