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Capstone Project Part 3 – Program Finances

Capstone Project Part 3 – Program Finances

Factors that determine the financial feasibility of a healthcare program include the cost of the facility, equipment, staff salaries, patient out-of-pocket expenses, and insurance reimbursement. Referring to the concepts practiced so far, work on the following:

Determine how many physicians and supporting staff are needed to operate the clinic, applying the appropriate ratio of clinical and support staff per physician.

Staffing is specifically required for the Heart Disease Management and Education Program for Hale County. Determining the number of physicians and supporting staff needed to operate the clinic utilizes the AMGMA (Alabama Medical Group Management Association) staffing benchmarks with a focus on the staffing-to-demand (S2D) model. The S2D model bases staffing decisions on the expected demand by considering patient volume, complexity of services provided, and overall time needed per patient and has proved to help reduce overworking nurses by minimizing total overtime work (in hours) by improving the nurse-to-resident ratios (Leung et al., 2021).

Determining the demand focuses on the number of people with heart disease and the estimated number of obese and overweight people at risk of developing heart disease in the Sawyerville community and the entire Hale County in Alabama.

Current Hale County population = ~14,491 people

Estimated number of people with heart disease

Number of people affected = (Rate of disease/100,000) × Total population

Current rate = 334.0 per 100,000 people

  • = 334.0/100,000 × 14,491
  • = (334.0 × 14,491)/100,000
  • = 4,839,994/100,000

Approximately 49 people have heart disease

However, the program also targets at-risk populations who are obese and overweight. In this case, over 40% of the Hale Count population is estimated to be obese or overweight.

Therefore, the target population is 5,796.4, which can be rounded off to the nearest 500 to 6000 people, both with heart disease and obese at risk of heart disease.

Notably, each physician is expected to see 20 patients daily, each visit taking 30 minutes.

MGMA standards on staffing ratios include 1 physician to 1,200-1,500 patients, 1 to 1.5 nurses per physician, and 2 to 3 support staff per physician.


  • Number of physicians = 6,000 patients/1,500 patients per physician means 4 physicians.
  • Number of nurses = ratio of 1 physician to 2 nurses means 8 nurses
  • Number of support staff = ratio of 1 physician to 3 support staff means 12 support staff

Therefore, the program will need three physicians, eight nurses, and 12 support staff.

  1. Determine the direct costs of the program. Direct costs, in this case, are patient expenses, and they increase as the number of patients increases. These include:
  2. Physician and procedural support staff costs per patient/procedure
  3. Gloves, sutures, gowns, equipment, lab supplies, other supplies
  4. Determine the indirect costs of the program. Indirect costs are overhead costs that include but are not limited to:
  5. General support staff and related costs
  6. Electronic medical records
  7. Insurance and taxes
  8. Facility and administration
  9. Employee benefits such as health and life insurance, retirement plans, and fringe benefits
  10. Determine the equipment costs of the program. This includes items for the physician clinic that will be used for more than one year. This is in contrast to variable costs, which occur per patient and include such items as gloves, syringes, needles, and gauze, and would include items such as:
  11. Examination tables
  12. Workstations
  13. Desks and chairs in the waiting room
  14. Other equipment of this nature
  15. Determine reimbursement for clinic services based on HCPCS/CPT codes with geographical adjustment.
  16. Determine net reimbursement after variable costs per patient.
  17. Determine how many patients the clinic will need to see (a) on average per day and (b) annually to break even on expenses.

Note: Refer to the health financial instructions and sample calculations document to help you with this part of the project.

Table 1. Staffing and Salaries

Complete Table 1 by adding the staff positions, including physician specialty, nurses and support staff, and the number of positions in your clinic. Multiply the number of positions by the average salary for those positions to obtain total salaries.

Staff Position Number of Positions Average Salary Total Salaries
Primary Care Physician 4 $243,666 $974,664
Nurse 8 $62,000 $496,000
Support Staff 12 $37,687 $452,244

Total Salary: $1,922,908

Table 2. Fringe Benefits Expense and Total Salary Expense

These expenses have been established by the hospital system at 25% of salaries and added to salaries for Total Salary Expense.

Factors Dollar Amount
Total Salaries $1,922,908
Fringe Benefit Expense 25% of Salaries $480,727

Total Salary Expense w/ Fringe Benefits: $2,403,635

Table 3. Overhead (Indirect) Costs and Total Fixed Practice Costs

Begin with total salaries, including fringe benefits. Multiply that amount by 40% (0.40) and combine the 2 numbers for total fixed practice costs. These costs do not vary based on the number of patients.

Cost Factors Dollar Amount
Overhead Costs 40% of Total Salary Expense $961,454
Total Salaries Expense $2,403,635
Overhead Costs 40% of Total Salary Expense $961,454

Total Overhead and Fixed Costs: $3,365,089

Table 4. Equipment Costs

These items will be used by the clinic for 5 years so the costs will be divided equally over 5 years (depreciation).

Noting that the items’ lifetime is five years, the depreciation assumption is 30% in 5 years.

Depreciation per year = Useful life in yearsCost of the asset−Salvage value/useful life in years


  • Cost of the medical equipment = $961,454
  • Depreciation rate = 30% over five years
  • Useful life = 5 years
  • Depreciation per year:
    • = ($961,454−Salvage value)/5
    • = [$961,454−(0.3 × $961,4545)]/5
    • = ($961,454−$288,436.25)/5
    • = $673,017.85/5
    • = $134,603.56
Cost Factors Dollar Amount
Total Equipment Cost $961,454
Depreciated Equipment Cost (cost for year one) $134,603.56

Total Clinic Costs (for year one, including salaries, overhead, and equipment costs): $2,403,635 + $961,454 + $134,603.56 = $3,499,692.56

Table 5. RVU and Reimbursement Calculation

The cost of physician care varies in different locations, as do the cost of operating a practice and the rates of physician malpractice claims. In addition, each year Medicare adjusts the conversion rate either up or down.

Category RVU GCI Total RVU
Work 2.600 1.000 2.600
Fully Implemented Facility PE 2.13 0.878 1.87014
MP 0.18 0.748 0.13464


  • RVU: 2.600 + 1.87014 + 0.13464 = 4.60478
  • GCI: 1.000 + 0.878 + 0.748 = 2.626
  • Total RVU: 4.60478 × $33.8872 = $156.043100816, approx. $156.04

Table 6. Variable Costs and Net Reimbursement

To complete Table 6, multiply reimbursement per visit by 10% (0.10) and subtract this number from reimbursement to obtain net reimbursement per patient.

Cost Factors Dollar Amount
Reimbursement per visit $156.04
Variable cost per patient 10% $15.604

Net Reimbursement per Patient: $140.436

7. Breakeven Analysis

To calculate the number of patients needed to break even, divide total practice costs by net reimbursement. To calculate the number of patients per day, divide the total number of patients for an annual breakeven number by the number of days the practice is open. Enter text below.

Number of patient visits needed to break even = Total costs ÷ Net reimbursement per patient

Total Annual Costs = $3,499,692.56

Net Reimbursement per Patient Visit = $140.436

  • = $3,499,692.56/$140.436
  • = 24,920.2 visits per year

Number of patients per day = Total patient visits per year/Total annual physician workdays in Alabama

  • = 24,920.2/260 (5 days/week for 52 weeks)
  • = 95.84 visits per day = Approximately 96 visits per day.

Therefore, 24,920.2 visits per year and 96 visits per day are needed to break even.


Leung, P. P. L., Wu, C. H., Kwong, C. K., Ip, W. H., & Ching, W. K. (2021). Digitalization for optimizing nursing staff demand modeling and scheduling in nursing homes. Technological Forecasting and Social Change, 164, 120512.


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This course is centered around a Capstone Project that requires you to synthesize the information you have learned in the Master of Health Administration Program. There are 5 progressive parts to the project, and you will complete and submit part 1 to part 5 as mentioned in competency 1 to competency 3.

Capstone Project Part 3 - Program Finances

Capstone Project Part 3 – Program Finances

Note: This document serves as your project guide and template, and you will submit the majority of the project deliverables on this document.

For each item that requires a response, enter your response on a new line.


Assume you work in health administration in a hospital system in a metropolitan area in the United States. The board of directors and CEO of the hospital system have established a goal for the year to better address the healthcare needs of the community. You have been tasked with establishing a physician outpatient clinic focused on treating an endemic health concern in your county.


You are to examine county health data to determine a health problem of prevalent need and to design a program that can help alleviate these concerns in the community. Integral to program design are factors and considerations such as cost, staffing, facility, policies, and its potential impact on vulnerable populations. The executives also want to ensure that the physicians, staff, and administrators are held to ethical and leadership standards that align with the practices to promote a supportive work environment governed by transformational leadership. You are to research, design, and create a proposal for a program that meets the stated expectations of the board and CEO.


  • Part 1: Defining the Health Problem and Identifying the Affected Population
  • Part 2: Program Design
  • Part 3: Program Finances
  • Part 4: Organizational Structure
  • Part 5: Program Proposal and Presentation

Part 1: Defining the Health Problem

Your task in this part of the project is to identify a public health issue in a locale of your choice based on an analysis of public health data for the demographic area. Based on your research, you will conceive of a program at the local hospital, health system, or clinic to improve health outcomes for the population.


Use this project template to complete the requirements for Part 1 of your Capstone Project, detailed as follows:

  1. Use the data to identify 2 endemic health issues among populations in the county. Your project will focus on only 1 of the issues, but you will need to identify a second issue if your first choice is determined to be unfeasible for this project. Your instructor will assist you in making that determination. Since county-level health data in most states is more detailed than city-level data, it is recommended that you choose a county rather than a city. You can locate health data from the following sources:
  1. Describe the conditions and the extent of these health problems and why you feel they warrant a program or service to address their impact on the population. Support the results of your analysis using charts or graphs that include demographic, morbidity, and mortality data.
  2. Provide and analyze demographic information on the county population, including age, gender, income, employment, and other relevant information for your program.
  3. Summarize the health issue you want to work on and explain your idea for a program to accomplish this objective.

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