Reference no: EM13507079

Treatment Facility anticipates that it will have 25,000 patient-days next year. This is substantially below its capacity of 35,000 patient-days per year. The facility has variable costs of $75 per patient-day. Its fixed costs are $1,500,000 per year.

a. Calculate the average cost per patient-day for Finkler Residential Treatment Facility at a volume of 25,000 patient-days and at 30,000patient-days.

b. Assume that an HMO offers to generate 5,000 patient-days per year. It currently sends no patients to Finkler Residential Treatment Facility. It is willing to pay a maximum flat amount of $90 per patient-day. Assuming that its case mix is similar to the current 25,000 patient-days, should Finkler accept its business? (Finkler, Ward & Baker, 2007, p. 95)

3. The health hospital has been pushed by its physician to add an open heart surgery unit. This has always been resisted on the grounds that there was not adequate demand to make the unit financially reasonable. Under the DRG system, Healthy could expect to receive average reimbursement of $56000 per open heart surgery for each of an anticipated 100 open heart surgeries per year. Incremental costs would be expected to $60000 per case so a loss would be incurred.

However, the prestige associated with offering open heart surgery would attract new affiliations. It is expected that 10 additional general practice physicians would join the staff and each of these 10 physicians would generate 20 patients per year, spread across a wide variety of DRGs. Struggling has excess capacity and would welcome additional patients.

It is expected that the average DRG reimbursement for these new patients would be $28000. The average cost is expected to be $27800.