HS440 Finance for Healthcare unit 7 Assignment

Numeric Problems (8 @ 6.25 = 50)

Use the following information for problems 1, 2, and 3.

David Jones, the new administrator for a surgical clinic, was trying to determine how to allocate his indirect expenses. His staff was complaining that the current method of taking a percentage of revenues was unfair. He decided to try to allocate utilities based on square footage of each department, administration based on direct costs, and laboratory based on tests. Use the information in the chart below to answer problems 1, 2 and 3.

Square Footage

Direct

Expenses

Lab Tests

Utilities

$200,000

Administration

2,000

500,000

Laboratory

2,000

625,000

Day-op Suite

3,000

1,400,000

4,000

Cystoscopy

1,500

300,000

500

Endoscopy

1,500

600,000

500

Total

10,000

$ 3,375,000

5,000

What are the Day Op Suite’s total expenses?

What are the Cystoscopy Department’s total expenses?

What are the Endoscopy Department’s total expenses?

Use the following information for questions 4, 5, and 6.

Your 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 %

Routine Charge $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

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?

Estimate the variable cost per MS-DRG 470 using the departmental cost/charge ratios and variable cost percentages.

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?

Calculate the number of units needed to break even given the following information:

Revenue per Visit

$55

Variable Cost per Visit

$30

Contribution Margin per Visit

$25

Fixed Cost

$154,000

Calculate the breakeven price from the following information.

quantity of services = 3,000

fixed costs = $45,000

average cost per unit = $150.00

required profit = $30,000