Subject: Fiscal Management in Healthcare Services

Your company's chief financial officer (CFO) begins the preliminary work of developing the organization's financial plan for the upcoming year. Recently, there have been media reports that your state will be cutting health care costs by reducing benefits, paying health care providers or organizations less, and tightening eligibility. Specifically, the state's Medicaid budget will be reduced by 6 percent and fees to health providers will be reduced by 3 percent.

Revenue from Medicaid constitutes 30 percent of Krona's annual revenue. The annual revenue for Krona last year was $20,000,000 and was expected to increase 10 percent the following year. The chief executive officer (CEO) has asked that you provide a brief summary of capitation to share with the board.

Compose a memo to the CEO that includes the following:

• Discuss the impact that the Medicaid cuts will have on Krona's revenue.
• Address the possible issues surrounding next year's forecasting.
• Provide an explanation of capitation.
• Discuss the challenges, benefits, and risks in utilizing capitation.