The principles of economics as they relate to nursing and healthcare.
Scenario The nurse manager in orthopedics has asked for your assistance with a finance project. She is being asked to estimate revenue for the next fiscal year based on the projected number of hip replacements increasing from 300 this year to 340 next year. The nurse manager must also factor in the expected changes in sources of revenue by payer. It is estimated that the hospital will lose some contracted insurers due to local competition, and see an increase in Medicare and Medicaid patients due to area demographics and economic conditions. She has provided you with the numbers from this year’s budget and the projections on numbers and payment amounts for next year.
Instructions Prepare a financial forecasting memo to your nurse manager that: Part One – Financial Forecasting Model • Contains a completed financial forecasting model by downloading: NUR4327-Deliverable03-Financial-Forecasting-Memo-Template_Revised.xlsx • Calculate the income projected from each payer source and total for the year to compare next year’s revenue to this year’s revenue. • Provide your nurse manager with your estimates on the increase/ decrease in revenue for next year’s budgeting. Part Two – Financial Forecasting Memo • Explains how the change in payer mix will impact the overall projected revenue of the unit. • Describes the financial impact of a changing payer mix. • Lists recommendations for the manager to consider in expenses, so that the budget will balance as neutral. • Provides stated ideas with professional language and attribution for credible sources with correct APA citation, spelling, and grammar in the memo.
Impact of Changing Payer Mix on Overall Projected Revenue
The overall projected revenue increase is due to the 24% increase in total procedure volume (40 new cases). However, the changing payer mix acts as a significant financial headwind against this growth. The hospital is losing higher-reimbursing Commercial Insurance cases (from 120 to 110) and is replacing that revenue with a large increase in lower-reimbursing Medicare and Medicaid cases (increasing by 30 and 20 cases, respectively).
Commercial Insurance (at $13,500/case) is the unit’s most profitable payer, covering or exceeding the cost of care. Losing 10 cases from this source results in a $75,000 projected revenue decrease for that payer category.
Medicare ($9,000/case) and Medicaid ($6,000/case) are government payers that typically reimburse hospitals at rates below the actual cost of providing care (AHA, 2022). The substantial shift toward these lower-rate payers means that, while the unit is busier (higher volume), the net marginal revenue per case will be lower.
The overall impact is a mitigation of potential revenue growth. If the 40 additional cases had been commercial, the revenue increase would have been significantly higher. The shift toward a predominantly public payer mix thus presents a challenge to maintaining the unit's profitability, despite the volume growth.
Financial Impact of a Changing Payer Mix
A fundamental principle in healthcare finance is that commercial insurance revenues often subsidize the underpayments received from government programs like Medicare and Medicaid (KFF, 2022). Therefore, the financial impact of this changing payer mix is a reduction in the unit’s operating margin (profitability).
Sample Answer
Subject: Financial Forecasting for Orthopedics Unit - Hip Replacements (FY Next Year)
To: Nurse Manager, Orthopedics Unit
From: [Your Name/Title]
Date: November 5, 2025
This memo provides the financial forecasting model and analysis for the projected increase in hip replacement procedures (from 300 to 340) for the next fiscal year, factoring in the expected shift in payer mix.
📊 Part One – Financial Forecasting Model
The following table calculates the projected revenue for the next fiscal year based on the provided current and projected volumes and reimbursement rates.
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