The coding department of a large physician clinic is interested in purchasing a software program that will edit claims before they are sent out to billing. The license fee for the software costs $34,000 per year. The software is expected to reduce the number of errors on claims and thus reduce the number of claims returned to the clinic for recording. Currently the department codes 24,000 physician visits per month and 250 claims are returned each month for recording. The facility pays two FTEs in the business office $9.50 per hour each to refile the returned claims. The software company promises that its software will reduce the number of returned claims by 90 percent.
a) What is the rate of claims that are currently being returned for recording?
b) How many claims would be returned after the installation of the software?
c) if the clinic eliminated the two FTEs that handle the returned claims, what saving would it realize after installation of the software?
d) what is the payback period?
e) what is the return on investment?
a) To find the rate of claims that are currently being returned for recording, divide the number of claims returned by the total number of claims coded:
Rate of claims returned = (number of claims returned / total number of claims coded) * 100%
In this case:
Number of claims returned = 250
Total number of claims coded = 24,000
Rate of claims returned = (250 / 24,000) * 100% = 1.04%
Therefore, the rate of claims currently being returned for recording is 1.04%.
b) After the installation of the software, the company promises to reduce the number of returned claims by 90%. To calculate the number of claims that would be returned after the installation:
Number of claims returned after installation = Total claims coded * (1 - Reduction rate)
Total claims coded = 24,000
Reduction rate = 90% = 0.90
Number of claims returned after installation = 24,000 * (1 - 0.90) = 2,400
Therefore, after the installation of the software, 2,400 claims would be returned.
c) The two FTEs currently handling the returned claims cost $9.50 per hour each. To calculate the monthly savings after eliminating these FTEs:
Savings per month = Number of returned claims * (cost per FTE per hour * hours worked per claim)
Number of returned claims = 250 (as given)
Cost per FTE per hour = $9.50
Hours worked per claim = Time taken to refile returned claims
Since the time taken to refile returned claims is not given, this information is required to make an accurate calculation.
d) The payback period is the time it takes for the cost of the investment to be recouped through savings or revenue generated. To calculate the payback period:
Payback period = Software license fee / Monthly savings
Software license fee = $34,000 per year
Monthly savings = Savings per month (calculated in part c)
Again, the monthly savings information is required to determine the payback period accurately.
e) The return on investment (ROI) is the percentage of return earned on an investment relative to its cost. To calculate ROI:
ROI = (Total savings - Investment cost) / Investment cost * 100%
Total savings = Monthly savings * 12 (annual savings)
Investment cost = Software license fee
Once again, the monthly savings information is needed to accurately calculate the return on investment.