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?
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a) To find the rate of claims that are currently being returned for recording, divide the number of claims returned each month (250) by the total number of physician visits per month (24,000).
Rate of claims returned = (Number of claims returned / Total number of physician visits) * 100%
Rate of claims returned = (250 / 24,000) * 100%
Rate of claims returned = 1.04%
b) To calculate the number of claims that would be returned after the installation of the software, you need to apply the promised reduction of 90% to the current rate of claims returned.
Claims returned after software installation = Rate of claims returned * Reduction rate
Claims returned after software installation = 1.04% * (100% - 90%)
Claims returned after software installation = 1.04% * 10%
Claims returned after software installation = 0.104%
c) First, calculate the number of hours spent by the two FTEs filing the returned claims per month. Assuming they work 8 hours a day, 5 days a week, and 4.33 weeks per month:
Hours spent per month = 2 FTEs * 8 hours/day * 5 days/week * 4.33 weeks/month
Then, calculate the cost of the two FTEs based on their hourly rate:
Cost of FTEs per month = Hours spent per month * Hourly rate
Cost of FTEs per month = (2 FTEs * 8 hours/day * 5 days/week * 4.33 weeks/month) * $9.50/hour
Finally, calculate the monthly savings by subtracting the cost of the FTEs after software installation:
Savings per month = Cost of FTEs per month - Cost of FTEs per month after software installation
d) The payback period is the amount of time it takes for the cost of the software to be recovered through the savings generated. To calculate the payback period, divide the license fee for the software ($34,000) by the monthly savings.
Payback period = License fee / Monthly savings
e) The return on investment (ROI) represents the financial benefits gained from an investment, expressed as a percentage of the initial cost. To calculate the ROI, divide the net gain in savings by the initial cost of the software, and then multiply by 100%.
ROI = (Net gain in savings / License fee) * 100%
a) To find the rate of claims that are currently being returned for recording, you need to divide the number of claims returned each month by the total number of claims coded per month, and then multiply the result by 100 to express it as a percentage.
Rate of claims returned = (Number of claims returned / Number of claims coded) * 100
Number of claims returned = 250
Number of claims coded = 24,000
Rate of claims returned = (250 / 24,000) * 100
b) To calculate the number of claims that would be returned after the installation of the software, you need to multiply the current rate of claims returned by the reduction factor promised by the software company.
Number of claims returned after software = Rate of claims returned * Reduction factor
Reduction factor = 90% = 0.9
Number of claims returned after software = (Rate of claims returned / 100) * Reduction factor * Number of claims coded
c) To determine the savings realized by eliminating the two FTEs handling returned claims, you need to calculate the cost of their salaries and multiply it by the number of months in a year.
Savings from eliminating FTEs = (Number of FTEs * Hourly rate * Monthly hours) * Months in a year
Number of FTEs = 2
Hourly rate = $9.50
Monthly hours = assume 160 hours per FTE
Savings from eliminating FTEs = (2 * $9.50 * 160) * 12
d) To find the payback period, you need to calculate how long it would take for the savings from reduced errors to offset the annual license fee.
Payback period = License fee / (Savings per month - Savings per month after software)
License fee = $34,000
Savings per month = (Number of claims returned * Cost per claim)
Savings per month after software = (Number of claims returned after software * Cost per claim)
e) To calculate the return on investment (ROI), you need to determine the net gain from implementing the software divided by the cost of the investment, and then multiply it by 100 to express it as a percentage.
ROI = (Net gain / Cost of investment) * 100
Net gain = (Savings from eliminating FTEs * Months in a year) + (Savings per month - Savings per month after software) * Months in a year
Cost of investment = License fee
Please provide the cost per claim in order to calculate the savings per month and complete the calculations for parts b), d), and e).