The president of Gentiva Health Services is considering increasing her number of Medicare patients served next year. However, to do so she must begin to use RNs for client visits, which Medicare reimburses at $45 per visit. An RN costs $35 per hour versus the current cost of $15 for an LPN or nurse’s aide. The president believes she can increase her patient visits by 15% by accepting Medicare patients. She is also aware that if she increases her Medicare patients, the company’s administrative costs will increase by approximately $10,000 per year because of the claims file complexity.
Use the following websites to gather data:
Use the following volumes for your calculations:
Volume for the year:
- Flexible budget: 6,000 visits
- Static budget: 5,945 visits
- Actual budget: 5,889 visits
Prepare a two-page report that addresses the following:
- How many more visits will the company generate if it accepts Medicare patients?
- What would be the estimated profit or loss associated with the Medicare service line?
- Would you recommend that Gentiva Health Services increase its number of Medicare patients served? Why or why not?
second part of the assignment is: Business Plan
Review the quarterly report and develop a business plan for the organization for its upcoming financial year. Be sure to include the following in your organized business plan:
- Organization segment
- Marketing segment
- Financial segment
- Projected cash flow statement
- Projected income statement
- Projected balance sheet
Feel free to take liberties with information needed that is not available in the report.
You may find the quarterly report at http://finance.yahoo.com/news/gentiva-health-servi…
Include all required tasks for this assignment in a Word document. Include references
Expert Solution Preview
Introduction:
This report analyzes Gentiva Health Services’ feasibility of increasing Medicare patients served and developing a business plan for the upcoming financial year. The report uses provided volumes and sources to calculate and recommend whether or not Gentiva should accept Medicare patients.
1. How many more visits will the company generate if it accepts Medicare patients?
Gentiva Health Services can generate 900 more visits if it accepts Medicare patients, calculated by multiplying 6,000 by 15%.
New Annual Visits = 6,000 x 1.15 = 6,900
Increase in Visits = 6,900 – 6,000 = 900
2. What would be the estimated profit or loss associated with the Medicare service line?
Gentiva Health Services will make $8,100 in profit with an RN on board, calculated by multiplying the increase in visits, 900, with the $45 reimbursement minus the $35 hourly wages, or contribution margin, of an RN. However, considering the added administrative cost of $10,000, Gentiva will face a loss of $1,900.
Profit or Loss = (New Annual Visits x (Medicare Reimbursement – RN Hourly Wage)) – Administrative Cost
Profit or Loss = (900 x ($45 – $35)) – $10,000
Profit or Loss = $8,100 – $10,000
Profit or Loss = -$1,900 (loss)
3. Would you recommend that Gentiva Health Services increase its number of Medicare patients served? Why or why not?
It is not recommended that Gentiva Health Services increase its number of Medicare patients served, as it would result in a loss of $1,900. Although Gentiva could generate an additional 900 visits, the added administrative cost is too substantial. The company should focus on finding alternative ways to increase profitability rather than expanding its Medicare service line.
Business Plan:
Organization Segment: Gentiva Health Services provides in-home health care services for chronically ill and elderly patients.
Marketing Segment: Gentiva will conduct a social media and online advertising campaign to target potential patients or their caregivers. The company will also attend health fairs and expos to increase awareness of their services.
Financial Segment: Gentiva plans to increase revenue by 10% next year by expanding its services to cover all seven days of the week and partnering with more insurance providers. It will also decrease its expenses by 5% by utilizing telehealth technologies and reducing office lease expenses.
Projected Cash Flow Statement: Gentiva anticipates a net increase in cash for the upcoming financial year due to its efforts to increase revenue and decrease expenses.
Projected Income Statement: Gentiva projects an increase in revenue and a decrease in expenses for the upcoming financial year, resulting in a net income increase of 15%.
Projected Balance Sheet: Gentiva expects its assets to increase next year due to its expansion efforts, resulting in a higher owner’s equity and a lower debt-to-equity ratio.
References:
(2013). GTIV – FY2013 10-K. Retrieved from https://www.sec.gov/Archives/edgar/data/1096142/000109614214000007/gtiv-2013x10xk.htm
Gentiva Health Services Reports Third Quarter 2014 Results. (2014, November 5). Retrieved from http://www.streetinsider.com/dr/news.php?id=10017840
Gentiva Health Services Reports Third Quarter 2014 Results. (2014, November 5). Retrieved from http://finance.yahoo.com/news/gentiva-health-services-reports-third-221500117.html
