A dermatology clinic expects to contract with an HMO for an estimated 80,000 enr

Question

A dermatology clinic expects to contract with an HMO for an estimated 80,000 enrollees. The HMO expects 1 in 4 of its enrolled members to use the dermatology services per month. At the end of the year, the dermatology clinic’s business manager looked at her monthly figures and saw that the number of enrolled members had increased by 5% over the budgeted amount, and that 1 in 3 of the total HMO members had used the dermatology services per month. Actual and budgeted statistics are presented below. The total variance is $70,000 and is unfavorable: Budgeted Actual Enrollees 80,000 84,000 Usage Rate 0.25 0.3333 Visits 20,000 28,000 Cost $200,000 $270,000 Cost Per Visit $10.00 $9.643 a. Determine the enrollment variance for the month. b. Determine the utilization variance for the month. c. Determine the efficiency variance for the month.

Explanation / Answer

Estimated Actuals Enrolles                              80,000      84,000 (80000*1.05) visits                              20,000      28,000 84000/3 cost                            200,000    270,000 cost per visit                                       10           9.64 enrollment variance (actual enrolles- estimated enrolles)*estimated cost per visit (84000-80000)*10                              40,000 Utilization variance (actual visit- estimated visit)*estimated cost per visit (28000-20000)*10                              80,000 Efficency variance (28000-20000)*9.64                              77,120

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