our hospital has been approached by a major HMO to perform all their MS-DRG 470 cases (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 %
Rountine Charge $3,600 0.80 60
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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
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Total Ancillary $11,400 0.75 50
1. 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 the average cost of MS-DRG 470 be?
2. Estimate the variable cost per MS-DRG 470 using the departmental cost/charge ratios and variable cost percentages.
3. The HMO in the above example has indicated that their doctors use less expensive joint implants. If this less expensive implant is used, your medical supply charges would be reduced by $2,000. What is the estimated reduction in variable cost?
4. Management has studied work patterns in the housekeeping department and estimates the number of hours to be worked as follows. Hours worked = (1,500 hours per month) + (0.50 × RVUs). For the coming month, management expects RVUs to be 5,800. What should budgeted labor for the month be?
1.average cost of MS-DRG 470 = 12000
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, average cost of MS-DRG 470 be as follow
12000
calculation will be as follow
Average Variable Cost (AVC) = Variable Cost (VC) / Quantity (Q)
we dont have a quantity so we put Sales Revenue (SR)
Variable Cost percent (VC%) = Variable Cost (VC) / Sales Revenue (SR)
80% = VC / 15,000
.80 x 15,000 = VC
12,000 = VC
2. Estimate the variable cost per MS-DRG 470 using the departmental cost/charge ratios and variable cost percentages = 7183.23
Routine Charge Column x cost charge x variable cost % = Variable Cost
Rountine Charge $3,600 x 0.80 x.60 =1728
Operating Room $2,657 x 0.80 x .80 =1700
Anesthesiology $293 x 0.80 x. 80=187.52
Lab $1,035 x 0.70 x. 30=217.35
Radiology $345 x 0.75 x . 50=129.38
Medical Supplies $4,524 x 0.50x. 90=2035.8
Pharmacy $1,230 x 0.50x . 90=553.5
Other Ancillary $1,316 x 0.80x. 60=631.68
Total 7183.23
3. the estimated reduction in variable cost = 900
The HMO in the above example has indicated that their doctors use less expensive joint implants. If this less expensive implant is used, your medical supply charges would be reduced by $2,000. the estimated reduction in variable cost
Reduced by # X Cost Charge for Medical Supplies X Variable Cost %
2000 x .50 x .90 = 900
4) budgeted labor for the month be = 4400
Management has studied work patterns in the housekeeping department and estimates the number of hours to be worked as follows. Hours worked = (1,500 hours per month) + (0.50 × RVUs). For the coming month, management expects RVUs to be 5,800. budgeted labor for the month be
Hours worked = (1,500 hours per month) + (0.50 × RVUs)
=1500 +(.50 x 5800)
=4400
