Problem:
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.
Using the Gentiva Health Services Statement of Income https://investors.gentiva.com/financials.cfm, 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:
Q1. How many more visits will the company generate if it accepts Medicare patients?
Q2. What would be the estimated profit or loss associated with the Medicare service line?
Q3. Would you recommend that Gentiva Health Services increase its number of Medicare patients served? Why or why not?