Cost Accounting – 8
1) Use the information and table below to answer questions 1 a-c.
Your hospital has been approached by a major HMO to perform all of their MS-DRG 470s (major joint procedures). They have offered a flat price of $10,000 per case. You have reviewed your charges for MS-DRG 470 during the last year and found the following profile:
Average Charge: $15, 000
Average LOS: 5 Days
Cost / Charge
|
Variable Cost %
|
|
$3,600 |
0.80 |
60 |
|
Operating Room |
2,657 |
0.80 |
80 |
Anesthesiology |
293 |
0.80 |
80 |
Lab |
1,035 |
0.70 |
30 |
Radiology |
345 |
0.75 |
50 |
Medical Supplies |
4,524 |
0.50 |
90 |
Pharmacy |
1,230 |
0.50 |
90 |
Other Ancillary |
1,316 |
0.80 |
60 |
|
Total Ancillary
|
$11,400
|
0.75
|
50
|
|
1A) In the above data set, assume that the hospital’s cost to charge ratio is 0.80 for routine services and 0.75 for all other ancillary services. Using this information, what would be the average cost of MS-DRG 470?
1B) Estimate the variable cost per MS-DRG 470 using the departmental cost to charge ratios and variable cost percentages.
1C) In the above example, it has been indicated that the HMO doctors use less expensive joint implants. If less expensive implants are used, your medical supply charges will be reduced by $2,000. What will be the estimated reduction in variable cost?
2) You have been asked to establish a pricing structure for radiology on a per-procedure basis. Present budgetary data is provided below:
Budgeted Procedures |
10,000 |
Budgeted Cost |
$400,000 |
Desired Profit |
$80,000 |
It is estimated that Medicare patients comprise 40 percent of total radiology volume and will pay, on average, $38 per procedure. Approximately 10 percent of the patients are cost payers. Data on the remaining charge payers are summarized below:
Payer
|
Volume %
|
Discount %
|
Blue Cross |
20 |
4 |
Unity PPO |
15 |
10 |
Kaiser |
10 |
10 |
Self-Pay |
5 |
40 |
50% |
2A) In the preceding example, what rate must be set to generate the required $80,000 in profit?
2B) If the forecasted volume increased to 12,000 procedures and budgeted costs increased to $440,000, while all other variables remained constant, what price should be established?
2C) Assume that the only change in the original example data is that Blue Cross raises its discount to 20 percent. What price should be set?
3) Based on the following article, What factors would help you determine an appropriate par level for a particular inventory item? (1-2 pages)
http://www.evancarmichael.com/Management/4541/Finetuning-materials-management-in-the-healthcare-industry.html