Case 3 – Westside Hospital

The Westside Hospital radiology department is preparing a budget for the following year.  A major budget category is hand, foot, and forearm imaging.  Current year admissions for these imaging categories totaled 2,000, which breaks down as follows:

Procedure Time Required Volume Proportion Rate
Hand imaging 10 minutes 60% $100
Foot imaging 20 minutes 30% $300
Forearm imaging 30 minutes 10% $400

The radiology department head thinks there will be a 10% increase in volume for next year.  This additional volume is expected to have the same procedure mix as the current year.  Rates are not expected to change.

The controller projects the payer analysis to be 50% Medicare (reimbursement % of charges), 20% Medicaid (reimbursement % percent of charges), 20% managed care (% of charges), and 10% self-pay (full charges, but 20% of self-pay results in charity care).

These three procedures account for 20% of the radiology department’s current $1,225,000 labor, imaging materials, and overhead expenses, which can be broken down in the following manner:

Labor $425,000
Imaging materials $300,000
Overhead $500,000
Total $1,225,000

The department’s labor expenses are expected to increase 5% next year due to an anticipated across-the-board pay raise.  Imaging materials expenses are expected to increase 6%, primarily due to increase in precious metals costs.  The department’s overhead expenses are forecasted to remain constant for the next year.

In addition to their individual cost increases, all three expenses are expected to increase by 10% due to the overall volume increase.

Prepare a budget for the next year by completing the following steps:

(a) Calculate the current volume for each imaging procedure by multiplying the total volume of 2,000 by the proportion for each procedure.

(b) Increase the current volumes by 10% to get the project volume for each procedure.

(c) Multiply the projected volume for each procedure by the rates to get gross projected revenues.

(d) Use the reimbursement rates to convert gross projected revenues to net projected revenue.

(e) Divide the current expenses in each category by current volume in that category to calculate current expense per procedure.

(f) Forecast expenses per procedure using individual expense increase information.

(g) Multiply the forecasted per-procedure expenses by the projected volume to get total expenses for the procedure.

(h) Prepare a summary income statement for overall revenues and expenses.

Use the attached Excel Spreadsheet to create the budget.

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