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 Pharmacy 4,524 0.50 90 1,230 0.50 90 Other ancillary 1,316 0.80 Total ancillary $11,400 0.75 60 50 The HMO in the preceding 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?

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 Pharmacy 4,524 0.50 90 1,230 0.50 90 Other ancillary 1,316 0.80 Total ancillary $11,400 0.75 60 50 The HMO in the preceding 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?

Managerial Accounting: The Cornerstone of Business Decision-Making

7th Edition

ISBN:9781337115773

Author:Maryanne M. Mowen, Don R. Hansen, Dan L. Heitger

Publisher:Maryanne M. Mowen, Don R. Hansen, Dan L. Heitger

Chapter3: Cost Behavior And Cost Forecasting

Section: Chapter Questions

Problem 36E

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