Analyze my capitated managed care agreement with the city. Using differential cost analysis

for 2010 data, tell me the full cost profit/loss and the differential cost profit/loss. Should we

renew the contract for next year at present rates, or should we ask for a rate increase and if so,

how much rate increase do we need to cover our full cost? To cover our differential cost?

8. Analyze my capitated managed care agreement with the city. Using differential cost analysis for 2010 data, tell me the full cost profit/loss and the differential cost profit/loss. Should we renew the contract for next year at present rates, or should we ask for a rate increase and if so, how much rate increase do we need to cover our full cost? To cover our differential cost? CASE STUDY: Bobcat Integrated Delivery System YOUR IDS It is December 2010, and you have just accepted the CFO position at Bobcat Integrated Delivery System (IDS). You will be reporting to Mr. Salter, Bobcat IDS chief executive officer, a retired school teacher who was hired last year. Also reporting to Mr. Salter are Mr. Wannabe, Bobcat IDS chief operating officer; Dr. Spok, Bobcat IDS medical director; and Ms. Patty Care, Bobcat IDS director of nursing. When announcing your appointment, Mr. Salter stated that your primary objective in the coming year (2011) would be to reverse the ominous financial trend that began in 2009 with an operating loss and continued in 2010. Previous operating losses were funded with investment income (however, investment income was only $200,000 in 2010 due to weakening market conditions). Moreover, your board recently passed a resolution discontinuing that practice and restricting investment income to capital expenditures. Bobcat IDS is a not-for-profit corporation and includes a 120-bed acute care hospital, a 25-bed skilled nursing facility (SNF), a 15-bed rehab facility, a home healthcare agency, and an outpatient clinic. The hospital, Bobcat Community Hospital (BCH), is the only hospital in Bobcat, a rural community of 50,000 in your state. In order to acquire background information, you decide to meet with each member of the executive team first, then selected members of senior management. MEETING WITH DR. SPOK Dr. Spok, hospital medical director, told you: Most doctors have been on the medical staff for at least ten years. There is little loyalty to the hospital, and most doctors also have admitting privileges at County Hospital, a newer public hospital with better facilities 30 miles away. While it is a hassle for the doctors to drive to County Hospital to make rounds, there are few good reasons for the doctors to admit their patients to Bobcat Community Hospital. County Hospital has a hospitalist and pays physicians large amounts of money for menial service assignments like committee work (a practice that Bobcat has refused to participate in). MEETING WITH MR. SALTER Mr. Salter, chief executive officer, stated: I just don't understand why we are losing money. I spent a considerable amount of time recruiting new doctors while keeping the existing doctors happy. The new, younger doctors just don't seem to have a sense of loyalty to Bobcat Community Hospital. Furthermore, I've tried to establish a \"family atmosphere\" for our employees, which stresses getting along well with others in return for job security. Everyone seems happy. Everyone except Ms. Fi Nance Myway, whom you'll be replacing. She and I both started January 2009 and she seemed increasingly frustrated with the way I do things hereshe just didn't fit in. I tried to accommodate her by implementing some of her recommendations, even though they were against my better judgmentlike charging visitors for parking [generating $100,000 in other operating revenue for 2010]. And when I announced that I was bringing in more business to the hospital by entering into a twoyear capitated managed care agreement with the city (it expires this month)we get $250 per month per family for taking care of the 300 city employees and their families, whether they're sick or notMs. Myway threw a fit at an executive team meeting. She claimed that my decisions were driving Bobcat IDS deeper into the red. I finally had to show Ms. Myway the highway for insubordination. That happened in November 2010. MEETING WITH MR. OPERATOR Mr. Operator, chief operating officer and a recent graduate from a program in healthcare administration, expressed the following concerns regarding the hospital: It's easy to understand how we lost money last yearMr. Salter just won't say \"no\" to the doctors...or the nurses, for that matter. Our revenue is down for a variety of reasons and our expenses continue to increase. I don't know why the board ever picked a school teacher to run a healthcare system. MEETING WITH MS. PINCHER Ms. Penny Pincher, Summersville IDS controller, in answer to your question regarding last year's loss, believes the following: While acute care days are flat and SNF and rehab days and outpatient visits are up, our real financial problems involve our patient mix by financial classcommercial and self-pay continue to decline and fixed payment and capitation continue to increase, and our board won't approve more than a 2 percent rate increase for 2010 (which affects collections for only commercial and managed care with discountyou need to make assumptions regarding Medicare and Medicaid collections). 2010 Collections/Discharge MEETING WITH MS. CARE Ms. Patty Care, director of nursing, seeks your support in the following proposal: While our financial loss is serious, most of it is attributable to low rates we need to increase our rates to reflect our quality services. Our nurses are overworked and underpaid. I've been working on two solutions that I would like your support on. First, I believe strongly in primary care nursing and as a result, 90 percent of the nursing staff is RNs. RNs can perform more tasks than LPNs and nursing assistants, and therefore, are more efficient. This can be further justified by the acuity of our patients. Using the DRG scale as a severity index, our patients are sicker than those in the average hospital. However, I am having some difficulty getting the RNs to administer meds, empty bed pans, and feed patients. Therefore, I have developed a total quality management (TQM) program designed to convince the RNs that all their tasks are important. All RNs are required to attend five hours of TQM training each week. Even though patient days are down, I would like to hire ten more RNs to help cover the floors when the other RNs are in training. In order to recruit these RNs in light of the nursing shortage, we need to increase their average hourly rate to $50, which is competitive with County Hospital (see Table VI-A). This, of course, would be in addition to the cost-of-living raises already announced by the personnel director (Assignment #17 is to calculate the possible nurses' compensation packages). I also would like for you to include a doctorally prepared entry level nurse in our strategic plan for ten years from now. (If physical therapy can require a doctorate for entry level, so should we!) MEETING WITH MS. PERSONAL Ms. Personal, personnel director, reluctantly admits the following to you. Hospital practice in the past has been to give the employees a cost-ofliving raise equal to the previous year's percentage increase in the Consumer Price Index. Also, historically, we have allocated 5 percent of total wages to a merit pool to be awarded to meritorious employees based on their annual evaluations. Because Mr. Salter treats the employees like family, virtually everyone gets the raise. Because of shortages in nursing, I am recommending a market raise of 3 percent, in addition to the above raises, to keep us competitive. Here is a wage comparison to the facilities that we compete with for new hires (see Table VI-A). Mr. Salter asked us not to announce raises until your financial analysis is complete. In the event we can't give the expected raises, I need an explanation from you giving the reason (Assignment #18). MEETING WITH MR. MATERIALS Mr. Materials, materials manager, reports the following: I am projecting a 5 percent increase in supply and food prices for 2011 and a 10 percent increase in drug prices. All other prices should remain constant. TABLE I: Bobcat IDS Balance Sheet as of December 31, 2009: Assets TABLE II: Bobcat IDS Actual Expenses Through December 31, 2010 TABLE IV-A: Discharges TABLE IV-B: Percentage of Discharges by Payer TABLE IV-C: 2010 Charges per Discharge TABLE V: Radiology Department Procedures TABLE VI-A: Salary Survey of Area Hospitals Average Hourly Rates (without benefits), December 2010 TABLE VI-B: 2010 Bobcat Staffing as of December 31, * ** contract 90 percent RNs, 10 percent clerks TABLE VII*: Bobcat City and County Ad Valorem/Property Tax Schedule per $100 Assessed Value * This table is used only if your state requires non-profit hospitals to provide community benefits in relation to their potential state and local tax liabilities