) As Holy Family Hospital prepares its budget for the upcoming year, it is tryin
ID: 2788818 • Letter: #
Question
) As Holy Family Hospital prepares its budget for the upcoming year, it is trying to determine where to set its average inpatient charge per case. Consider the following data on volume, payer mix, and finances.
Volume
Medicare and Medicaid cases 1,000
Charity care and bad-debt cases 200
Commercial-paying cases 1,900
Full-charge-paying cases 100
Financial Data
Budgeted operating expenses $10,000,000
Debt principal payment 400,000
Increases in current assets 500,000
Increases in current liabilities 300,000
Capital expenditures 500,000
Assume that the average payment per case for the Medicare and Medicaid patients is $3,500. Assume that Holy Family realizes no payment on its charity care and bad debt cases. Holy Family’s contracts with commercial payers are negotiated based on a percentage discount off of full charges. For the coming year, the average negotiated discount with commercial payers is 15%.
If the hospital’s total financial requirements for the coming year are $11,100,000
($10,000,000 + $400,000 + ($500,000–300,000) + $500,000 = $11,100,000)
What should be Holy Family’s average charge per case in order to meet the total financial requirements?
Explanation / Answer
Now, thw average charge per case can be calculated as:
Assuming average charge = P
So,
1000*350 + 200*0 + 1900*P*(1-0.15) + 100*P = 11100000
So, P = (11100000 - 350000)/(1900*0.85 + 100)
= 6268.22
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