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?
To answer these questions, we need to perform some calculations based on the given information. Let's break it down step by step:
a) To calculate the rate of claims currently being returned for recording, we divide the number of claims returned (250) by the total number of coded physician visits per month (24,000):
Rate of claims returned = Number of claims returned / Total number of coded physician visits
Rate of claims returned = 250 / 24,000
Rate of claims returned = 0.0104 (approximately)
b) To calculate the number of claims that would be returned after the installation of the software, we need to apply the promised reduction of 90% to the current rate of claims returned:
Number of claims returned after installation = Current rate * (1 - Reduction)
Number of claims returned after installation = 0.0104 * (1 - 0.90)
Number of claims returned after installation = 0.0104 * 0.10
Number of claims returned after installation = 0.00104 (approximately)
c) To calculate the savings realized after eliminating the two FTEs that handle the returned claims, we need to calculate the cost of re-filing returned claims:
Cost of re-filing returned claims = Number of FTEs * Hours per month * Hourly rate
Cost of re-filing returned claims = 2 * (Monthly hours worked by one FTE) * $9.50
You haven't provided the monthly hours worked by one FTE, so please provide that information to proceed with the calculation.
d) To calculate the payback period, we need to consider the cost savings from reduced returned claims compared to the annual license fee:
Payback period = Cost of software / Annual cost savings
Payback period = $34,000 / (Number of claims returned per month * Cost per returned claim * 12)
You haven't provided the cost per returned claim, so please provide that information to proceed with the calculation.
e) To calculate the return on investment (ROI), we need to compare the cost savings to the investment:
ROI = (Annual cost savings - Cost of software) / Cost of software
You need to provide the annual cost savings to proceed with the calculation.
Please provide the missing information so we can complete the calculations for (c), (d), and (e).