BUMCH_Scenario_Analysis
Bundled Payments
Module: Differential Cost Accounting
Parts A and B - Instructions
Step 1. Please enter your name below.
Step 2. Read the Boston University Medical Center Hospital case
Step 3. You have been asked to review the bundled rate agreement between BUMCH and Health Source and make a recommendation as to what BUMCH should have done in their negotiations. Your task is to develop a spreadsheet analysis identifying the bundled rate and profit or loss under the cu
ent Health Source contract and three additional rates that you feel BUMCH should have used at the time of its initial negotiations with Health Source. The three rates are the first offer, eminently fair rate, and lowest acceptable rate (walk away rate). Each rate you propose is to be a single number inclusive of all DRGs for the physicians and the hospital (see Z in Table D below), in other words the weighted average bundled rate, for only the population covered under this contract. (You may want to reread the previous sentence!).
Step 4. So that you don’t have to build your own model from scratch, use the model given below (from Mom & Pop) as a starting point, and make modifications as necessary, such as accommodating the 7 DRGs and changing title headings as appropriate (i.e. change “service” to “DRG”).
Step 5. While all of the information for the givens is available in the case, assumptions must be made about the percentage of variable for both direct and indirect costs as well as any physician fee discounts in Table B. Use information from the case to find the number of patients covered under this contract. You may want to do a little outside research, to justify these assumptions. Cite your sources and explain your justifications for your assumptions.
Step 6. When you have completed all of the parts below, submit your assignment on Canvas.
Step 7. Proceed to the questions for Parts A and B below.
Where we go from here:
Case Presenters (BUMCH Managed Care analyst) and Respondents (BUMCH Managed Care VP): After preparing your analysis of bundled payment offers, you will record a presentation with your recommendation of how to approach the bundled payment negotiations with Health Source.
Presenters: You are presenting your analysis of bundled payment a
angement and advising your supervisor about how to approach the negotiation. Record a 2-4 minute discussion of your presentation and analysis.
Respondents: You are the asking questions or seeking clarification on points discussed in the analyst's presentation. You can respond with some of your own analysis and approach, and you also should pose 2-3 questions in response to the presenter's analysis.
Givens
Table A. Service Mix and Financial Data
A B C D E F G
Service Full Direct Indirect Total Physician Department
Service Mix1 Charge ($) Costs ($) Costs ($) 2 Costs ($) Fees ($) Margin
[B - E - F]
104 4% 37,260 21,545 17,354 38,899 10,050 -11,689
105 7% 24,100 14,807 9,465 24,272 10,050 -10,222
106 10% 27,442 15,133 13,420 28,553 9,700 -10,811
107 17% 17,707 9,682 8,025 17,707 8,250 -8,250
112 35% 10,463 5,194 4,990 10,184 3,500 -3,221
124 17% 4,500 2,753 2,753 5,506 2,300 -3,306
125 11% 4,500 1,524 2,105 3,629 2,000 -1,129
1. Service Mix is an assumption, presented with givens for space purposes for this example.
2. Assume indirect costs are allocated. Consider them as fixed overhead this service is being asked to cover.
Table B. Assumptions
H Collections % 100%
ealcorn: Professor:
Do not change the Collections % Justification and Source
I Variable Cost % Direct 60%
ealcorn: Professor:
The values in these yellow cells will not turn g
een, since they are your individual assumptions Comparable health care provider's cost structure
J Variable Cost % Indirect 40% Comparable health care provider's cost structure
K Physician Fee Discount 0%
L Assumed # Patients: 50 Hint: Look closely at the case
Part C, Cu
ent Contract - Instructions
Step 1. In Table C, you will be calculating the financial results given the assumptions in the Cu
ent Contract from Tables A and B
Step 2. Enter values for each DRG and formulas in fields M through T.
Step 3. Proceed to the Parts D and E below.
Calculations
Table C. Weighted Average Bundled Margin By Service Considering Incremental and Consultation Fees for Contract 1
M N O P Q R S T
Weighted Weighted Weighted Weighted Weighted Weighted
Service Weighted Incremental Incremental Total Incre- Clinic Contract Bundled
Mix Collections Direct Costs Indirect Costs mental Costs Contr. Margin Fees Margin
Formulas [A] [B*H*M] [C*I*M] [D*J*M] [O+P] [N-Q] [F*(1-K)*M] [R-S]
Service
104 4%
105
106
107
112
124
125
Total 3.5% 0.00 0.00 0.00 0.00 0.00 0.00 0.00
# Services [L] 50 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00
1. Numbers in $s unless otherwise noted. Uses assumptions for Table B.
2. Weighted Bundled Margin [T'] is analogous to the product margin for the bundled service(s)
Parts D and E, Offer Evaluation - Instructions
Step 1. In Tables D and E, you will be calculating your First Offer (the best possible deal for BUMCH), your "fair" offer, and your Lowest Acceptable Rate (a deal lower than this number and you will walk away).
Step 2. Depending on the ranges found during your original research on assumptions in Table B, you may want to adjust some assumption values for your three offers. Enter these adjusted assumptions in fields U through Y in Table D for the First Offer, Fair Offer, and Lowest Acceptable Rate.
Step 3. Review the BUMCH Offer for the Cu
ent Contract (Total Revenue) in Field Z. Determine methods for calculating the First Offer, Fair Offer, and the Lowest Acceptable Rate. You may find it useful to use or review the results in Table E when formulating your offers. Be prepared to justify your methods for each calculation in the Parts D and E Questions below.
Step 4. Review the results from each offer in Table E and Chart F.
Step 5. Proceed to Parts D and E Questions below.
Table D. Offer Assumptions
Assumptions Cu
ent Contract First Offer Fair Offer Lowest Acceptable Rate
U Collections % 100% 100% 100% 100%
V Variable Cost % Direct 60% 60% 60% 60%
W Variable Cost % Indirect 40% 5% 5% 5%
X Physician Fee Discount 0% 0% 0% 0%
Y Projected Volume 50 50 50 50
Type in your offers here! --> Z BUMCH Offer (Total Revenue) $0 $0 $0 $0
AA BUMCH Offer (Incremental Rev.) $0 $0 $0 $0
Table E. Reformulated Results Cu
ent Contract First Offer Fair Offer Lowest Acceptable Rate
Per Unit Total Per Unit Total Per Unit Total Per Unit Total
AB Weighted Revenues $0 $0 $0 $0 $0 $0 $0 $0
AC Weighted Total Incremental Costs $0 $0 $4,704 $235,223 $4,704 $235,223 $4,704 $235,223
AD Weighted Contribution Margin [AB - AC] $0 $0 ($4,704) ($235,223) ($4,704) ($235,223) ($4,704) ($235,223)
AE Weighted Contract Fees $0 $0 $5,202 $260,085 $5,202 $260,085 $5,202 $260,085
AF Weighted Bundled Margin [AD - AE] $0 $0 ($9,906) ($495,308) ($9,906) ($495,308) ($9,906) ($495,308)
AG Total Fixed Costs $1,366 $68,287 ($3,339) ($166,937) ($3,339) ($166,937) ($3,339) ($166,937)
AH Net Income [AF - AG] ($1,366) ($68,287) ($6,567) ($328,371) ($6,567) ($328,371) ($6,567) ($328,371)
Chart F. Total Bundled Margin by Scenario
Parts D and E, Cu
ent Contract - Questions
Step 1. Answer the questions for Parts D and E below
1. How did you determine the values to use for your assumptions in the First Offer, Fair Offer, and the Lowest Acceptable Rate?
2. How did you calculate your First Offer? Justify your methods and assumptions.
3. How did you calculate your Fair Offer? Justify your methods and assumptions.
4. How did you calculate your Lowest Acceptable Rate? Justify your methods and assumptions.
Step 2. When you are finished, return to Step 6 in the Parts A and B instructions for submission directions
Table A. Service Mix and Financial Data
A B C D E F G
Service Full Direct Indirect Total Physician Department
Service Mix1 Charge ($) Costs ($) Costs ($) 2 Costs ($) Fees ($) Margin
[B - E - F]
104 4% 37,260 21,545 17,354 38,899 10,050 -11,689
105 7% 24,100 14,807 9,465 24,272 10,050 -10,222
106 10% 27,442 15,133 13,420 28,553 9,700 -10,811
107 17% 17,707 9,682 8,025 17,707 8,250 -8,250
112 35% 10,463 5,194 4,990 10,184 3,500 -3,221
124 17% 4,500 2,753 2,753 5,506 2,300 -3,306
125 11% 4,500 1,524 2,105 3,629 2,000 -1,129
Table B. Assumptions
H Collections % 100%
ealcorn: Professor:
Do not change the Collections %
ealcorn: Professor:
The values in these yellow cells will not turn g
een, since they are your individual assumptions I Variable Cost % Direct 60%
ealcorn: Professor:
The values in these yellow cells will not turn g
een, since they are your individual assumptions
J Variable Cost % Indirect 40%
K Physician Fee Discount 0%
L Assumed # Patients: 50
Calculations - Cu
ent Contract
Table C. Weighted Average Bundled Margin By Service Considering Incremental and Consultation Fees for Contract 1
M N O P Q R S T
Weighted Weighted Weighted Weighted Weighted Weighted
Service Weighted Incremental Incremental Total Incre- Clinic Physician Bundled
Mix Collections Direct Costs Indirect Costs mental Costs Contr. Margin Fees Margin
Formulas [A] [B*H*M] [C*I*M] [D*J*M] [O+P] [N-Q] [F*(1-K)*M] [R-S]
Service
104 3.5% 1,308.19 453.86 243.72 697.58 610.61 352.85 257.75
105 6.5% 1,571.41 579.28 246.86 826.14 745.27 655.30 89.97
106 9.7% 2,666.78 882.36 521.66 1,404.02 1,262.76 942.63 320.13
107 17.1% 3,019.63 990.66 547.41 1,538.07 1,481.56 1,406.90 74.66
112 35.2% 3,686.65 1,098.07 703.29 1,801.36 1,885.29 1,233.23 652.06
124 17.2% 773.04 283.76 189.17 472.93 300.11 395.11 -95.00
125 10.8% 485.27 98.61 90.80 189.40 295.86 215.67 80.19
Total 100.0% 13,510.96 4,386.60 2,542.91 6,929.51 6,581.45 5,201.69 1,379.76
# Services [L] 50 $675,547.96 $219,330.00 $127,145.40 $346,475.40 $329,072.56 $260,084.64 $68,987.92
1. Numbers in $s unless otherwise noted. Uses assumptions for Table B.
2. Weighted Bundled Margin [T'] is analogous to the product margin for the bundled service(s)
Calculations - First Offe
Table C. Weighted Average Bundled Margin By Service Considering Incremental and Consultation Fees for Contract 1
M N O P Q R S T
Weighted Weighted Weighted Weighted Weighted Weighted
Service Weighted Incremental Incremental Total Incre- Pharmacy Contract Bundled
Mix Collections Direct Costs Indirect Costs mental Costs Contr. Margin Fees Margin
Formulas [A] [B*H*M] [C*I*M] [D*J*M] [O+P] [N-Q] [F*(1-K)*M] [R-S]
Service
104 3.5% 1,308.19 453.86 30.46 484.33 823.86 352.85 471.01
105 6.5% 1,571.41 579.28 30.86 610.14 961.27 655.30 305.97
106 9.7% 2,666.78 882.36 65.21 947.57 1,719.21 942.63 776.57
107 17.1% 3,019.63 990.66 68.43 1,059.09 1,960.54 1,406.90 553.64
112 35.2% 3,686.65 1,098.07 87.91 1,185.98 2,500.67 1,233.23 1,267.44
124 17.2% 773.04 283.76 23.65 307.40 465.64 395.11 70.53
125 10.8% 485.27 98.61 11.35 109.96 375.31 215.67 159.64
Total 100.0% 13,510.96 4,386.60 317.86 4,704.46 8,806.50 5,201.69 3,604.80
# Services [L] 50 $675,547.96 $219,330.00 $15,893.18 $235,223.18 $440,324.79 $260,084.64 $180,240.15
1. Numbers in $s unless otherwise noted. Uses assumptions for Table B.
2. Weighted Bundled Margin [T'] is analogous to the product margin for the bundled service(s)
Calculations - Fair Offe
Table C. Weighted Average Bundled Margin By Service Considering Incremental and Consultation Fees for Contract 1
M N O P Q R S T
Weighted Weighted Weighted Weighted Weighted Weighted
Service Weighted Incremental Incremental Total Incre- Pharmacy Contract Bundled
Mix Collections Direct Costs Indirect Costs mental Costs Contr. Margin Fees Margin
Formulas [A] [B*H*M] [C*I*M] [D*J*M] [O+P] [N-Q] [F*(1-K)*M] [R-S]
Service
104 3.5% 1,308.19 453.86 30.46 484.33 823.86 352.85 471.01
105 6.5% 1,571.41 579.28 30.86 610.14 961.27 655.30 305.97
106 9.7% 2,666.78 882.36 65.21 947.57 1,719.21 942.63 776.57
107 17.1% 3,019.63 990.66 68.43 1,059.09 1,960.54 1,406.90 553.64
112 35.2% 3,686.65 1,098.07 87.91 1,185.98 2,500.67 1,233.23 1,267.44
124 17.2% 773.04 283.76 23