Income statement revision

The revenues on the monthly income statement have to be revised once reimbursements have been received from third-party payers. The reason for making adjustments is that most payers make adjustments to each claim and charge the pharmacy administrative fees. Therefore, the actual amount paid to the pharmacy for prescriptions dispensed is almost always lower than the amount indicated on the Daily Plan Payment report. If the manager fails to revise the revenues, the income statement will show artificially inflated revenue. This can have a number of adverse consequences for a pharmacy including inaccurate financial reports and higher income taxes. In other words, if the revenues are recorded from online adjudications, the pharmacy... 

Consider an example in which an increase in utilization rate results in a decrease in the multiplier. For the base line situation, assume the income statement presented in Table 10.7. Assume further that the hypothetical firm is able to increase its utilization rate from 0.60 to 0.61, a 1.7 percent increase. Based on the Figure 10.1 relationship showing the overhead ratio as a function of expense ratio and utilization rate, the stated increase in U would reduce the overhead ratio by about 2.8 percent or the overhead by 16,800—from 600,000 to 583,200. If pre-tax profit is held at 190,000, the firm can reduce annual total revenues and, therefore, net revenues by 16,800 to 1,783,200 and 1,183,200 respectively. Therefore, the revised multiplier is equal to 1,183,200 divided by 400,000 = 2.96, which is a 1.33 percent decrease from the base line value of 3.00. In summary, a 1.7 percent increase in time utilization rate for the situation used in the example yields a 1.3 percent decrease in the multiplier with no reduction in pre-tax profit. 

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