8.2 Here are the 2015 revenues for the Wendover Group Practice Association for f

Question

8.2 Here are the 2015 revenues for the Wendover Group Practice Association for four different budgets (in thousands of dollars): Static Flexible (Enrollment/Flexible (Enrollment) Actual Results Budget Utilization) Budget $425 Budget $180 $200 $300 a. What do the budget data tell you about the nature of Wendover's patients: Are they capitated or fce-for-service? (Hint: See the note to Exhibit 8.7.) b. Calculate and interpret the following variances: Revenue variance Volume variance Price variance Enrollment variance Utilization variance

Explanation / Answer

a). The revenue here shows that the patients were capitated. The reason is as follows.

The actual revenue figures were predicted to be $180, but it came it to $300(revenue increased).

The reason is a capitated patient provides fixed payment a year whatever the treatment may be, while a fee for service client pays per use.

By using this explanation, budget and some rational thinking we can conclude that the majority of Wendover's patients are fee for service because the difference between the static results and actual results is very high.

b) 1. Revenue variance = Actual Revenues - Static budget

= = $ 300 - $ 425 = - $125

2. Volume variance

= Flexible Revenues (enrollment and utilization) Revenues - Static Budget

= $ 200 - $ 425 = - $ 225

3. Price Variance

= Actual Revenues - Flexible Revenues

=$300 - $200 = $100

4. Enrollment variance

= Flexible (enrollment) Revenues - Static Budget

= $ 180 - $ 425 = - $ 245

5. Utilization variance

= Flexible (enrollment and utilization) revenues- Flexible (enrollment) Budget

= $ 200 - $ 180 = $ 20

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