Capitated payments

Several different types of billing mechanisms have been used to gain compensation from third parties for services that are not tied directly to dispensing a drug product. Examples include fee-for-service, capitation payment, and the Health Care Financing Administration (HCFA) 1500 claim form. Each method has inherent advantages and disadvantages and may not be a suitable method for compensation for a comprehensive pharmaceutical care practice. 

Cash subsidies may or may not specify the inputs they subsidize They include lump-sum payments and block contracts to provide a set of services tax rebates (on the construction of health facilities in underserved areas, for example) and capitated payments based solely on a catchment population. (A capitation payment that depends on the number of patients actually using a provider regularly or a system in which patients lose access to service when they shift to a different provider is a demand-side subsidy, as it is linked to the output of service utilization.)... 

Provider-Led Demand-Side Subsidies Provided before Service Provision Provider-led demand-side subsidies transferred before service provision include cost-per-case contracts in which the provider receives a fixed subsidy for a specified number of services, capitation payments, and referral vouchers distributed by providers that entitle the recipient to goods or services provided by others. 

Cream-skimming. Cream-skimming occurs when providers avoid providing care to groups that require more services than others. As under capitation payments and health insurance subsidies, this problem can arise if the subsidy is for providing access to services rather than their utilization. 

With the planned consolidation of the top four U.S. dialysis providers into two vertically integrated companies, the field of available dialyzers is likely to narrow. Meanwhile, the decrease in dialyzer reuse will continue to drive increased production. Given that the Center for Medicare and Medicaid Services (CMS), formerly known as the Healthcare Financing Administration (HCFA), will continue its downward pressure on costs, and possibly institute a capitated payment system (i.e., a fixed monthly payment to cover all patient costs including hospitalization), only incremental improvements in commercially available dialyzer membranes are expected in the next 5 years. 

There can be an element of maintenance costs that is fixed and an element which is variable. Fixed maintenance costs cover routine maintenance such as regular maintenance on safety valves which must be carried out irrespective of the rate of production. There also can be an element of maintenance costs which is variable. This arises from the fact that certain items of equipment can need more maintenance as the production rate increases. Also, royalties which cover the cost of purchasing another company s process technology may have different bases. Royalties may be a variable cost, since they can sometimes be paid in proportion to the rate of production. Alternatively, the royalty might be a single-sum payment at the beginning of the project. In this case, the single-sum payment will become part of the project s capital investment. As such, it will be included in the annual capital repayment, and this becomes part of the fixed cost. 

Take the capital cost and spread it as a series of equal annual payments A made at the end of each year over n years. The first payment gains interest over (n — 1) years, and its future value after (n - 1) years is... 

DecoveTj of Capital. In Figure 1, the annual book depreciation is used to retire the fixed capital investment. Whereas this accounting model does not correspond to the typical money flow, it is one possible model for recovery of capital. This model assumes that the investment is reduced each year by the amount of the annual depreciation. Another model (22) assumes that a uniform yearly book depreciation payment is made to an interest-bear sinking fund that accumulates to the depreciable fixed capital amount at the end of the venture. Using this second model, the investment is outstanding throughout the lifetime of the project. This also does not correspond to the actual money flow in most cases. ProfitabiUty analysis utilizes a third model based on discounted cash flows. 

A fourth method of computing depreciation (now seldom used) is the sinking-fund method. In this method, the annual depreciation A is the same for each year of the life of the equipment or plant. The series of equal amounts of depreciation Aq, invested at a fractional interest rate i and made at the end of each year over the life of the equipment or plant of s years, is used to build up a future sum of money equal to (Cpc S). This last is the fixed-capital cost of the equipment or plant minus its salvage or scrap value and is the total amount of depreciation during its useful life. The equation relating i Fc S) and Ao is simply the annual cost or payment equation, written either as... 

FIG. 9-6 Effect of straight-line depreciation on rate of return for a project. Abd — annual depreciation allowance A c/ = annual net cash income after tax Awwp = annual net profit after payment of tax Cj = total capital cost. 

The interest-rate equivalent of the cash discounts is 2 percent per month, since this discount could he obtained every month if payment were to he made at the beginning of the month rather than, as at present, at its end. Since the hills are settled monthly, the notional interest is paid monthly and should not he compounded. The discount is equivalent to 12 monthly simple-interest payments per year. Hence, from Eq. (9-31) the effective annual interest rate on discounts = (12)(0.02) = 0.24 = 24 percent. It would, therefore, he a good use of surplus cash to reduce this debt as quickly as possible. This would require cash equivalent to one-sixth of the annual hills due, or 16,700, to he avadahle. It can, therefore, he assumed that this level of liquidity is not available for capital projects, either as working capital to reduce the debt or for fixed-capital projects. Further, since the new project will not increase sales, it cannot generate further debt of this kind. Hence, this source is not available to capitahze the new project. 

A positive value of any term in Eq. (9-177) implies an increase in working capital, and a negative value a decrease. For example, the sale of fixed assets such as plant, buildings, land, etc., is a source of cash, and the purchase of fixed assets uses up cash. Similarly, an increase in financial resources in the form of loans and stock and bond issues is a source of cash, and a decrease in financial resources in the form of repayment of loans, retirement of stocks and bonds, and the payment of cash dividends uses up cash. (Note that a stock dividend as opposed to a cash dividend does not use up cash.)... 

Transactions that change the character of the net working capital but do not affect its value occur in a company. For example, a cash payment of 10,000 for accounts payable reduces both the current asset of cash by 10,000 and the current liabihty of accounts payable by 10,000, leaving the net working capital unchanged. However, this transac tion affects Doth the current and the quick ratios. 

The capital charge factor (/3) multiplied by the capital cost of the plant (Co) gives the cost of servicing the total capital required. Suppose the capital costs of a plant at the beginning of the first year is Co and the plant has a life of N years so an annual amount must be provided which is (Co/ + B). The first term (CoO is the simple interest payment and the second (B) matures into the capital repayment after N years (i.e. interest added to the accumulated sum at the end of each year), thus... 

The CCE spreads the investment over the lifetime of the measure into equal annual payments with the familiar capital recovery factor. The annual payment is then divided by the annual energy savings to yield a cost of saving a unit of energy. It is calculated using the following formula ... 

A dollar that will be received a year from today has a present value of I divided by (1+r), where r is the discount rate, which is equal to the opportunity cost of capital and a dollar that will be received two years from today has a present value of 1 divided by (1+r)(1+r) or (1+r)f A payment that is to be received t years from today must be divided by (1 +r). If the opportunity cost of capital is fairly high, savings that will be realized many years from today will be heavily discounted. For example, if r is 10 percent, the present value of a dollar that will he received seven years from today is about 51 cents. If a dollar will be received twenty-five years from today, its present value is not even a dime. The total value of the tunnel that saves 1 million per year indefinitely is only 1 million divided by r. If the opportunity cost of capital is 10 percent, the tunnel is worth only 10 million. The economy will not prosper if it sinks 1 billion in building a tunnel that will generate only 10 million of benefits. 

Liberation from payment of import duties on capital plant and equipment, and on materials ... 

Businesses require funds for day-to-day operations ( working capital ) and for expansion by acquisition and for the provision of plant and machinery, buildings, etc. Most working capital needs are normally (and should be) met from the company s own cash generated from its own operations. Indeed, the need to meet this criterion serves as a discipline upon the company s standard of cash management in relation to credit control, payment of suppliers, etc. 

If the process used has not been developed exclusively by the operating company, royalties and licence fees may be payable. These may be paid as a lump sum, included in the fixed capital, or as an annual fee or payments based on the amount of product sold. 

A man wishes to borrow 2,400 so he can buy a new car. He can get a bank loan for which he would be required to pay 7% interest on the initial loan. The payments would be in equal monthly installments over a period of one year. He could also get a loan from the credit union where he works. The terms are that each month he would pay 200 to reduce the capital borrowed and 1% interest on the unpaid balance. What is the total interest paid for each loan ... 

An annuity is a series of equal periodic payments that last for a given length of time. This is the usual way an individual pays for the capital necessary to purchase a new home, or buys life insurance. 

For corporations the same reasoning applies. To offer the prime interest rate the lender must be sure he can get his capital back plus interest. This means that the borrower s total assets must be considerably greater than the current liabilities and debts. Consider the simplified balance sheet given in Table 10-13. By current assets is meant cash and everything involved in working capital-feedstocks, unsold product, plus all the product that has been shipped but for which no payment has... 

Solution If operating costs are to be stated in terms of dollars per year, then the capital costs must be stated in the same units. Because the funds required for the insulation are to be paid back in equal installments over a period of 5 years, the payment per year is r(C0 + Cxx)A. The energy savings due to insulation can be calculated from the difference between Q(x = 0) = Q0, and Q ... 

The reconciliation between the cash flow statement and the income and expense statement is as follows. Start with the 40,000 from the last line in the cash flow statement, subtract 20,000 for the depreciation expense, and add back the 30,000 mortgage loan principal payment (not an allowed expense). The result is the net after-tax earnings. Figure B.ll is a set of statements from a small oil company. The statement of operations lists revenue and expenses, whereas the balance sheet lists various assets, liabilities, and stockholders equity ( net worth ). So-called capital items such as buildings, equipment, oil and gas property, and various intangibles are assets. Operating costs are deductions from revenues for operations not including expenditures for capital items. 

Suppose you are asked to evaluate the purchase of the multicone cyclone referred to in Example 3.4. The capital investment is 35,000 (see Example 3.4), and the equipment has a class life of 5 years, after which it will be sold for the salvage value of 4000. The income stream generated by the machine is on line A in Tables EB.5A and EB.5B. As the equipment ages, its operating and maintenance costs increase, and line B lists the expense profile. Assume a tax rate of 35 percent with no investment tax credit. Evaluate two possible scenarios (a) 100 percent use of equity and (b) 100 percent debt financing. Use straight-line depreciation for debt financing, for simplicity assume equal annual payments (principal plus interest) to the lender for the 5 years at a rate of 10.5%. 

Hence WACC is applied two times in the model to calculate inventory capital costs and to discount period profits. This approach is used in payment plans, where interests for investments paid in each period are also discounted with an interest rate to calculate the net present value. 

The regional demand input data consists of monthly spot demand quantity qsa and spot demand price pT by article and customer cluster / a,k e Is1, te T. These regional businesses differ not only by price, but also by sales and distribution costs for the individual customer or article. Payment terms rRRp, /ke K measured in days reflect the specific number of days the company concedes the customer for order payment. Higher payment terms lead to increased working capital due to debts outstanding longer and consequently to higher capital costs. 

Key passages in Marx s writings that demonstrate the role of the Kalecki principle in relation to the circulation of money are in chapter 17 of Capital, volume 2 (see Sardoni 1989 211). Starting with the case of simple reproduction, Marx considers the circulation of money using the example of an individual capitalist. During the first year he advances a money capital of 5,000, let us say, in payment for means of production ( 4,000) and for... 

If we consider firms as a whole, their only external purchase is labour force. All other exchanges being internal transactions, no further monetary payment is required. Only at the end of the production process firms buy capital goods to be used in the following period. 

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