Reference no: EM132915689
Question - Need help with these problems calculating costs. Reference is book Financial Management for nurse managers and executives fifth edition ISBN 978-0323-41516-3.
Wagner Residential Treatment - Wagner Residential Treatment Facility anticipated that it will have 50,000 patient days next year. This is substantially below its capacity of 70,000 patient days per year. The facility has variable costs of $150 per patient day. Its fixed costs are $3,000,000 per year.
a. Calculate the average cost per patient day for Wagner Residential Treatment Facility at a volume of 50,000 patient days and at 60,000 patient days
b. Assume that an HMO offers to generate 10,000 patient days per year. It currently sends no patients to Wagner. It is willing to pay a maximum flat amount of $180 per patient day. Assuming that its case-mix is similar to the current 50,000 patient days, should Wagner accept its business?
Struggling Hospital - The Struggling Hospital has been pushed by its physicians 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, Struggling could expect to receive average reimbursement of $28,000 per open heart surgery for each of an anticipated 100 cases per year. Incremental costs would be expected to be $30,000 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 that each of these 10 physicians would generate 20 patient admissions per year, spread across a wide variety of DRGs. Struggling has excess capacity and would welcome the additional patients.
It is expected that the average DRG reimbursement for these new patients would be $14,000. The average cost would be $13,900. The average marginal cost is expected to be $13,200.
a. Should Struggling add open heart surgery as a loss leader? Why?
b. What other considerations might be important in the decision to open a cardiac surgery unit?