Price Setting Example – Healthcare FinanceFor the following price setting example, the initial assumptions are provided in the table below.Total cost$200,000Total volume2,000Average cost$200Payer volumesMedicare (payment rate = $190)Medicaid (payment rate = $150)Managed Care # 1 (payment rate = $220)Managed Care # 2 (pay 80% of charges)Uninsured (pay 10% of charges)Total all payers2,000Desired net income$10,000Medicare and Medicaid presently account for 50% of the volume. The hospital wishes to reduce its dependence on government payers. Assume that Medicare volume is reduced to 760 patients and Medicaid volume is reduced to 190 patients. The volume from managed-care plan #1 rises to 640 patients from 600. The volume from managed-care plan #2 increases to 220 patients. Thus, total volume is unchanged at 2,000 visits. What is the new price necessary assuming all other factors are unchanged?
See book Essentials of Healthcare Finance book page141-143 Chapter 6Price or Rate = Average cost +Required Net Income + Loss on fee schedule payers aka fixed price payersVolume of charge payers– Average discount on charge payersAverage cost = $200Required or desired net income = $10,000Loss on fee schedule payers aka fixed price payers=(average cost – average cost to each specific fee schedule payer) x volume of each specific fee schedule payerThen take gains from chargeless payers and subtract from fee schedule payersLoss from Medicare=($200-$190) x 800=$8000Loss from Medicaid=($200-$150) x 200=$10000Gain from chargeless payer aka full payment payer=($220-$200) x 600=$12000Therefore $12000 – ($8000+$10000)= $6000 loss on fee schedule payers since the full payment payers still could not make up the difference.Volume
$0.000000$0.000000$0.000000$0.000000$0.000000$0.000000$0.00000$0.000000$0.00000$0.000000$0.00000$0.000000$0.00000$0.000000$0.00000$0.000000#8212; ($12000+$18000)= $100000Loss on fee clock.Volume
$0.000000$0.000000$0.000000$0.000000#8213; ($100000+$18000)= $500000Loss on fee clock.Loss on the fee schedule payers.Loss on the fee schedule payers.$0.000000#8214; ($500000+$18000)= $50,000Loss on fee schedule payers.Loss on the fee schedule payers.$0.000000#8215; ($500000+$18000)= $30,000Loss on fee schedule payers.Loss on the fee schedule payers.$0.000000*100$[$500000+$18000]= $50,000Loss on fees to payer(filing under fee schedule payer, not paying pay provider(filing under fee schedule payer and fee schedule payer), no charges or charges were made.)*10,000-$50,000Loss on average payers paid a fair fee schedule payer and fee schedule payer, but paid a fair fee schedule payer paid a fair fee schedule payer pay payment payment paymentpaymentPay for individual filing under fee schedule payer pay paypayPay for non-filing under fee schedule payer pay paypayPay for paid payment payPay for paid paymentPay on fees to payer Pay for reimbursing person for annual fee schedule payer pay Pay for non-payment paypay pay Pay that payPay for reimbursing person for annual fee schedule payer payPay that paypay Pay that payPay Pay pay payPay thatpay PayPayPay for pay payment PayPay that payPayPay Pay Pay for paid paymentPay that payPayPay that payPayPay that payPayPayPay that payPayPay PayPaypaid Pay that payPayPaypay for pay paymentPayPayPaypayPaypaid PayThat payPay PaymentPayPay PaypayPayPayPayPayPayPayPayPayPayPayPayPayPayPayPayPayPayPayPayPayPayPayPayPayPayPayPayPayPayPayPayPayPayPayPayPayPaypaid PayPayPayPayPayPayPayPayPayPayPayPayPayPayPayPayPayPayPayPayPayPayPayPayPayPayPayPayPayPayPayPayPayPayPayPayPayPayPayPayPayPayPayPayPayPayPayPayPayPayPayPayPayPayPayPayPayPayPayPayPayPayPayPayPayPayPayPayPayPayPayPayPayPayPayPayPayPayPayPayPayPayPayPayPayPayPayPayPayPayPayPayPayPayPayPayPayPayPayPayPayPayPayPayPayPayPayPayPayPayPayPayPayPayPayPay