Instructions are located for each section in the ORANGE cells. All YELLOW cells must be completed for the assignment to include each section for A, B, C, D, and E. D and E have two sections for Offer Evaluation and Current Contract.
BUMCH_Scenario_Analysis Bundled Payments Module: Differential Cost Accounting Parts A and B - Instructions Step 1. Please enter your name below. Step 2. Read the Boston University Medical Center Hospital case Step 3. You have been asked to review the bundled rate agreement between BUMCH and Health Source and make a recommendation as to what BUMCH should have done in their negotiations. Your task is to develop a spreadsheet analysis identifying the bundled rate and profit or loss under the current Health Source contract and three additional rates that you feel BUMCH should have used at the time of its initial negotiations with Health Source. The three rates are the first offer, eminently fair rate, and lowest acceptable rate (walk away rate). Each rate you propose is to be a single number inclusive of all DRGs for the physicians and the hospital (see Z in Table D below), in other words the weighted average bundled rate, for only the population covered under this contract. (You may want to reread the previous sentence!). Step 4. So that you don’t have to build your own model from scratch, use the model given below (from Mom & Pop) as a starting point, and make modifications as necessary, such as accommodating the 7 DRGs and changing title headings as appropriate (i.e. change “service” to “DRG”). Step 5. While all of the information for the givens is available in the case, assumptions must be made about the percentage of variable for both direct and indirect costs as well as any physician fee discounts in Table B. Use information from the case to find the number of patients covered under this contract. You may want to do a little outside research, to justify these assumptions. Cite your sources and explain your justifications for your assumptions. Step 6. When you have completed all of the parts below, submit your assignment on Canvas. Step 7. Proceed to the questions for Parts A and B below. Where we go from here: Case Presenters (BUMCH Managed Care analyst) and Respondents (BUMCH Managed Care VP): After preparing your analysis of bundled payment offers, you will record a presentation with your recommendation of how to approach the bundled payment negotiations with Health Source. Presenters: You are presenting your analysis of bundled payment arrangement and advising your supervisor about how to approach the negotiation. Record a 2-4 minute discussion of your presentation and analysis. Respondents: You are the asking questions or seeking clarification on points discussed in the analyst's presentation. You can respond with some of your own analysis and approach, and you also should pose 2-3 questions in response to the presenter's analysis. Givens Table A. Service Mix and Financial Data A B C D E F G ServiceFull Direct Indirect Total PhysicianDepartment ServiceMix1Charge ($)Costs ($) Costs ($) 2 Costs ($) Fees ($) Margin [B - E - F] 1044%37,26021,54517,35438,89910,050-11,689 1057%24,10014,8079,46524,27210,050-10,222 10610%27,44215,13313,42028,5539,700-10,811 10717%17,7079,6828,02517,7078,250-8,250 11235%10,4635,1944,99010,1843,500-3,221 12417%4,5002,7532,7535,5062,300-3,306 12511%4,5001,5242,1053,6292,000-1,129 1. Service Mix is an assumption, presented with givens for space purposes for this example. 2. Assume indirect costs are allocated. Consider them as fixed overhead this service is being asked to cover. Table B. Assumptions HCollections %100% ealcorn: Professor: Do not change the Collections %Justification and Source IVariable Cost % Direct60% ealcorn: Professor: The values in these yellow cells will not turn grreen, since they are your individual assumptionsComparable health care provider's cost structure JVariable Cost % Indirect40%Comparable health care provider's cost structure KPhysician Fee Discount0% LAssumed # Patients:50Hint: Look closely at the case Part C, Current Contract - Instructions Step 1. In Table C, you will be calculating the financial results given the assumptions in the Current Contract from Tables A and B Step 2. Enter values for each DRG and formulas in fields M through T. Step 3. Proceed to the Parts D and E below. Calculations Table C. Weighted Average Bundled Margin By Service Considering Incremental and Consultation Fees for Contract 1 MNOPQRST WeightedWeightedWeightedWeightedWeightedWeighted ServiceWeightedIncremental IncrementalTotal Incre-ClinicContractBundled MixCollectionsDirect Costs Indirect Costsmental CostsContr. MarginFeesMargin Formulas[A][B*H*M][C*I*M][D*J*M][O+P][N-Q][F*(1-K)*M][R-S] Service 1044% 105 106 107 112 124 125 Total3.5%0.000.000.000.000.000.000.00 # Services [L]50$0.00$0.00$0.00$0.00$0.00$0.00$0.00 1. Numbers in $s unless otherwise noted. Uses assumptions for Table B. 2. Weighted Bundled Margin [T'] is analogous to the product margin for the bundled service(s) Parts D and E, Offer Evaluation - Instructions Step 1. In Tables D and E, you will be calculating your First Offer (the best possible deal for BUMCH), your "fair" offer, and your Lowest Acceptable Rate (a deal lower than this number and you will walk away). Step 2. Depending on the ranges found during your original research on assumptions in Table B, you may want to adjust some assumption values for your three offers. Enter these adjusted assumptions in fields U through Y in Table D for the First Offer, Fair Offer, and Lowest Acceptable Rate. Step 3. Review the BUMCH Offer for the Current Contract (Total Revenue) in Field Z. Determine methods for calculating the First Offer, Fair Offer, and the Lowest Acceptable Rate. You may find it useful to use or review the results in Table E when formulating your offers. Be prepared to justify your methods for each calculation in the Parts D and E Questions below. Step 4. Review the results from each offer in Table E and Chart F. Step 5. Proceed to Parts D and E Questions below. Table D. Offer Assumptions AssumptionsCurrent ContractFirst OfferFair OfferLowest Acceptable Rate UCollections %100%100%100%100% VVariable Cost % Direct60%60%60%60% WVariable Cost % Indirect40%5%5%5% XPhysician Fee Discount0%0%0%0% YProjected Volume50505050 Type in your offers here! -->ZBUMCH Offer (Total Revenue)$0$0$0$0 AABUMCH Offer (Incremental Rev.)$0$0$0$0 Table E. Reformulated ResultsCurrent ContractFirst OfferFair OfferLowest Acceptable Rate Per UnitTotalPer UnitTotal Per UnitTotal Per UnitTotal ABWeighted Revenues$0$0$0$0$0$0$0$0 ACWeighted Total Incremental Costs $0$0 $4,704$235,223 $4,704$235,223 $4,704$235,223 ADWeighted Contribution Margin [AB - AC] $0 $0($4,704)($235,223)($4,704)($235,223)($4,704)($235,223) AEWeighted Contract Fees $0$0 $5,202$260,085 $5,202$260,085 $5,202$260,085 AFWeighted Bundled Margin [AD - AE] $0 $0($9,906)($495,308)($9,906)($495,308)($9,906)($495,308) AGTotal Fixed Costs $1,366$68,287($3,339)($166,937)($3,339)($166,937)($3,339)($166,937) AHNet Income [AF - AG]($1,366)($68,287)($6,567)($328,371)($6,567)($328,371)($6,567)($328,371) Chart F. Total Bundled Margin by Scenario Parts D and E, Current Contract - Questions Step 1. Answer the questions for Parts D and E below 1. How did you determine the values to use for your assumptions in the First Offer, Fair Offer, and the Lowest Acceptable Rate? 2. How did you calculate your First Offer? Justify your methods and assumptions. 3. How did you calculate your Fair Offer? Justify your methods and assumptions. 4. How did you calculate your Lowest Acceptable Rate? Justify your methods and assumptions. Step 2. When you are finished, return to Step 6 in the Parts A and B instructions for submission directions Table A. Service Mix and Financial Data A B C D E F G ServiceFull Direct Indirect Total PhysicianDepartment ServiceMix1Charge ($)Costs ($) Costs ($) 2 Costs ($) Fees ($) Margin [B - E - F] 1044%37,26021,54517,35438,89910,050-11,689 1057%24,10014,8079,46524,27210,050-10,222 10610%27,44215,13313,42028,5539,700-10,811 10717%17,7079,6828,02517,7078,250-8,250 11235%10,4635,1944,99010,1843,500-3,221 12417%4,5002,7532,7535,5062,300-3,306 12511%4,5001,5242,1053,6292,000-1,129 Table B. Assumptions HCollections %100% ealcorn: Professor: Do not change the Collections % ealcorn: Professor: The values in these yellow cells will not turn grreen, since they are your individual assumptionsIVariable Cost % Direct60% ealcorn: Professor: The values in these yellow cells will not turn grreen, since they are your individual assumptions JVariable Cost % Indirect40% KPhysician Fee Discount0% LAssumed # Patients:50 Calculations - Current Contract Table C. Weighted Average Bundled Margin By Service Considering Incremental and Consultation Fees for Contract 1 MNOPQRST WeightedWeightedWeightedWeightedWeightedWeighted ServiceWeightedIncremental IncrementalTotal Incre-ClinicPhysicianBundled MixCollectionsDirect Costs Indirect Costsmental CostsContr. MarginFeesMargin Formulas[A][B*H*M][C*I*M][D*J*M][O+P][N-Q][F*(1-K)*M][R-S] Service 1043.5%1,308.19453.86243.72697.58610.61352.85257.75 1056.5%1,571.41579.28246.86826.14745.27655.3089.97 1069.7%2,666.78882.36521.661,404.021,262.76942.63320.13 10717.1%3,019.63990.66547.411,538.071,481.561,406.9074.66 11235.2%3,686.651,098.07703.291,801.361,885.291,233.23652.06 12417.2%773.04283.76189.17472.93300.11395.11-95.00 12510.8%485.2798.6190.80189.40295.86215.6780.19 Total100.0%13,510.964,386.602,542.916,929.516,581.455,201.691,379.76 # Services [L]50$675,547.96$219,330.00$127,145.40$346,475.40$329,072.56$260,084.64$68,987.92 1. Numbers in $s unless otherwise noted. Uses assumptions for Table B. 2. Weighted Bundled Margin [T'] is analogous to the product margin for the bundled service(s) Calculations - First Offer Table C. Weighted Average Bundled Margin By Service Considering Incremental and Consultation Fees for Contract 1 MNOPQRST WeightedWeightedWeightedWeightedWeightedWeighted ServiceWeightedIncremental IncrementalTotal Incre-Pharmacy ContractBundled MixCollectionsDirect Costs Indirect Costsmental CostsContr. MarginFeesMargin Formulas[A][B*H*M][C*I*M][D*J*M][O+P][N-Q][F*(1-K)*M][R-S] Service 1043.5%1,308.19453.8630.46484.33823.86352.85471.01 1056.5%1,571.41579.2830.86610.14961.27655.30305.97 1069.7%2,666.78882.3665.21947.571,719.21942.63776.57 10717.1%3,019.63990.6668.431,059.091,960.541,406.90553.64 11235.2%3,686.651,098.0787.911,185.982,500.671,233.231,267.44 12417.2%773.04283.7623.65307.40465.64395.1170.53 12510.8%485.2798.6111.35109.96375.31215.67159.64 Total100.0%13,510.964,386.60317.864,704.468,806.505,201.693,604.80 # Services [L]50$675,547.96$219,330.00$15,893.18$235,223.18$440,324.79$260,084.64$180,240.15 1. Numbers in $s unless otherwise noted. Uses assumptions for Table B. 2. Weighted Bundled Margin [T'] is analogous to the product margin for the bundled service(s) Calculations - Fair Offer Table C. Weighted Average Bundled Margin By Service Considering Incremental and Consultation Fees for Contract 1 MNOPQRST WeightedWeightedWeightedWeightedWeightedWeighted ServiceWeightedIncremental IncrementalTotal Incre-Pharmacy ContractBundled MixCollectionsDirect Costs Indirect Costsmental CostsContr. MarginFeesMargin Formulas[A][B*H*M][C*I*M][D*J*M][O+P][N-Q][F*(1-K)*M][R-S] Service 1043.5%1,308.19453.8630.46484.33823.86352.85471.01 1056.5%1,571.41579.2830.86610.14961.27655.30305.97 1069.7%2,666.78882.3665.21947.571,719.21942.63776.57 10717.1%3,019.63990.6668.431,059.091,960.541,406.90553.64 11235.2%3,686.651,098.0787.911,185.982,500.671,233.231,267.44 12417.2%773.04283.7623