Use the following data to calculate the variances in problem. Your hospital has

Question

Use the following data to calculate the variances in problem.

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:

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?

Explanation / Answer

Variance=abs(New $charge-$Charge) Total charges=Charge/cost/charge New $ Charge=New cost/charge*Total charges $ Charge cost/charge Total charges New cost/charge New $ Charge Variance Routine charge 3600 0.8 4500 0.8 3600 0 Operating Room 2657 0.8 3321 0.75 2491 166.0625 Anestheology 293 0.8 366 0.75 275 18.3125 Lab 1035 0.7 1479 0.75 1109 73.92857143 Radiology 345 0.75 460 0.75 345 0 Medical supplies 4524 0.5 9048 0.75 6786 2262 Pharmacy 1230 0.5 2460 0.75 1845 615 Other Ancillery 1316 0.8 1645 0.75 1234 82.25 Tota Ancillery 11400 0.75 15200 0.93 14084 2684.303571 Total 2684 old Average $ Charge 15000 new Average $Charge 17684 ( average cost of MS-DRG 470=3600+14084) Total Variance 2684 Fixed Cost=$Charge-Variable cost Variable cost=Variable cost(%)*$Charge New Variable cost=New $ charge-Fixed cost Variable cost(%) Variable cost Fixed Cost New Variable cost Variance in Variable cost Routine charge 60% 2160 1440 2160 0 Operating Room 80% 2126 531 1960 166.06 Anestheology 80% 234 59 216 18.31 Lab 30% 311 725 384 73.93 Radiology 50% 173 173 173 0.00 Medical supplies 90% 4072 452 6334 2262.00 Pharmacy 90% 1107 123 1722 615.00 Other Ancillery 60% 790 526 707 82.25 Tota Ancillery 10971 4029 10056 915.70

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