HSA 6175 Financial Management Of Health Systems Assignment 1

Hsa 6175 Financial Management Of Health Systemsassignment 1problem 1ov

OVERVIEW: John Rossi, MD is an Internal Medicine Physician. For the year 2016 he had the following Payor Mix: Insurance Patient Type Contract Type Contract Rate Per Visit or PMPM Patients Monthly Utilization Visits HMO A Commercial Fee for Service $85 1,320 HMOB Medicare Capitation $45 1,860 HMOB Medicaid Capitation $15 378 Medicare Medicare Fee for Service $65 1,632 Medicaid Medicaid Fee for Service $35 574 None Self Pay Fee for Service $85 307 Total 3,071 Average rate per visit Per member per month REQUIRED: A. Using an Excel Worksheet, calculate Dr. Rossi's revenues for 2016. B. HMO A has offered Dr. Rossi $11 PMPM capitation rate. Should he accept this offer? Why or why not? Problem 2 OVERVIEW: The Orthopedic Unit at Collins General Hospital had the following cases, excluding outliers: REQUIRED: A. What is the average Per Diem paid by Medicare and the actual average Per Diem the hospital realized? B. State at least two reasons why the actual ALOS was higher than the average MS-DRG LOS? Rubrics: Submission of both problems 50% Problem 1A 10% Problem 1B 15% Problem 2A 10% Problem 2B 15%

Paper For Above instruction

The financial management of healthcare providers is essential for ensuring sustainability, profitability, and quality care delivery. This paper analyzes Dr. Rossi’s 2016 revenue calculation and evaluates his decision regarding the HMO capitation offer. Additionally, it examines the hospital’s cost structure for orthopedic cases by comparing the average Per Diem payments by Medicare with the actual hospitalized patients’ expenses, and explores reasons for discrepancies in the Length of Stay (LOS) relative to the MS-DRG averages.

Introduction

Healthcare providers operate in complex financial environments that require rigorous analysis of various revenue streams, payer mixes, and cost structures. Proper financial management involves understanding contractual arrangements, patient volume, reimbursements, and market conditions. This paper provides a comprehensive review of Dr. Rossi's 2016 revenues based on his payor mix and explores strategic financial decision-making related to capitation offers. It also investigates hospital-level cost dynamics through the examination of orthopedic case data, focusing on Per Diem payments and Length of Stay (LOS). These insights are vital for optimizing revenue, controlling costs, and enhancing overall financial performance in health systems.

Part 1: Revenue Calculation for Dr. Rossi, 2016

In 2016, Dr. Rossi served a diverse patient population with multiple payor types, each with different reimbursement mechanisms including fee-for-service and capitation. Calculating his total revenue entails summing payments from each payor based on utilization data and contractual rates. Using the provided data, the calculation proceeds as follows:

First, the revenue from Fee-for-Service (FFS) payors (Commercial, Medicare, Medicaid, Self-Pay) is calculated by multiplying the number of visits by the applicable rate per visit:

  • Commercial (HMO A): 1320 visits * $85 = $112,200
  • Medicare: 1632 visits * $65 = $106,080
  • Medicaid: 574 visits * $35 = $20,090
  • Self Pay: 307 visits * $85 = $26,095

The total fee-for-service revenue sums to:

$112,200 + $106,080 + $20,090 + $26,095 = $264,465

Next, the capitation payments are calculated based on the number of patients, monthly utilization, and the rate per member per month:

  • HMOB Medicare: 1860 patients 12 months $45 = $1,005,600
  • HMOB Medicaid: 378 patients 12 months $15 = $68,040

The total capitation revenue is:

$1,005,600 + $68,040 = $1,073,640

Adding the fee-for-service and capitation payments together yields Dr. Rossi's total revenue for 2016:

Total Revenue = $264,465 (FFS) + $1,073,640 (Capitation) = $1,338,105

Part 2: Evaluation of Capitation Offer

The offer from HMO A proposes an $11 PMPM capitation rate. This contractual arrangement implies that Dr. Rossi would receive a fixed amount per patient each month, regardless of the number of visits or services utilized. To determine if this is a favorable offer, a comparison between the offered rate and the current average revenue per patient is necessary.

The current revenue from HMOB Medicare and Medicaid demonstrates average monthly earnings per patient, calculated by dividing the total capitation revenue by the number of patients:

  • HMOB Medicare: $1,005,600 / 1860 / 12 ≈ $45
  • HMOB Medicaid: $68,040 / 378 / 12 ≈ $15

Given that the current rates align with the capitation rates, the offered rate of $11 PMPM is significantly lower than the existing average of $45 and $15 respectively. Accepting this offer might jeopardize Dr. Rossi’s revenue stream, especially considering the current reimbursement level is higher and reflective of historical utilization and treatment costs. Therefore, he should carefully evaluate whether the reduced capitation rate would still cover his costs and provide sustainable income. If the fixed rate is less than the current average per patient revenue, accepting the offer would likely lead to decreased earnings and increased financial risk.

In conclusion, Dr. Rossi should decline the $11 PMPM offer unless he can demonstrate that his operating costs are significantly lowered, or he expects a substantial reduction in patient utilization or costs. Otherwise, the current revenue structure favors maintaining fee-for-service reimbursements or negotiating a higher capitation rate reflective of his historical earnings and expenses.

Part 3: Hospital Cost and Length of Stay Analysis

The orthopedic unit’s case data reveals the average Per Diem paid by Medicare and the actual Per Diem realized by the hospital for cases excluding outliers. Comparing these figures helps evaluate hospital cost efficiency and patient care management.

3a. Average Per Diem Calculations

The average Per Diem paid by Medicare is typically set by the MS-DRG reimbursement policies, often based on standardized rates and hospital cost data. Suppose, for example, the Medicare Per Diem is $2,000. If the hospital’s actual total Per Diem payments for the cases amount to a different total, dividing the total actual payments by the number of cases yields the hospital’s actual average Per Diem. For instance, if total payments were $150,000 for 75 cases, the hospital's average Per Diem realizations would be:

$150,000 / 75 = $2,000

which matches the Medicare standard, indicating cost alignment. Alternatively, if actual total payments were higher or lower, it suggests the hospital’s reimbursement exceeds or falls short of Medicare’s standard Per Diem rates.

3b. Reasons for Higher Actual Average Length of Stay (ALOS)

The observed ALOS often exceeds the standard MS-DRG LOS due to several factors:

  • Patient Complexity and Comorbidities: Patients with multiple underlying health issues may require extended hospitalization to stabilize their condition, extending the hospital stay beyond the standard DRG LOS.
  • Postoperative Complications: Complications following surgery, such as infections or delayed healing, can necessitate longer stays to ensure recovery and prevent readmissions.

Other contributing factors can include delays in discharge planning due to social or logistical issues, hospital policies favoring longer stays for quality assurance, or resource availability constraints. Overall, these reasons justify why actual patient stay durations can overshoot the average lengths prescribed by MS-DRG standards, impacting hospital costs and revenue optimization strategies.

Conclusion

Effective financial management in healthcare necessitates accurate revenue calculations, strategic contractual negotiations, and operational efficiencies. Dr. Rossi’s revenue analysis underscores the importance of understanding payor mix and rates to ensure sustainable earnings. The hospital’s case analysis highlights the need to manage patient complexity and resource utilization carefully. By refining these aspects, healthcare providers can improve financial health and maintain high-quality patient care amidst evolving reimbursement landscapes.

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