Essentials of Healthcare Finance: Chapter 16 Assignment #7

7. You must establish a pricing schedule for laboratory procedures. From a total hospital perspective, management has decided that the hospital must earn 5% above costs. The hospital has established that it loses 10% on each fixed-price payer (Medicare). That is, for every $100 of cost incurred to treat a fixed-price payer, the hospital receives only $90 in payment. You must build both the required profit and the expected loss on fixed-price payers into your rate structure. Payer mix for the laboratory is expected to be as presented in Table 16-10.

Medicare pays on a fixed price per diagnosis-related group for all inpatients. There is thus no separate payment for laboratory tests. Medicaid pays average costs for both inpatient and outpatient tests. Medicare also pays on a fee schedule for outpatient tests. On average Medicare pays 80% of cost for outpatient lab tests. Blue Cross pays 95% of charges for both inpatient and outpatient procedures. All other commercial insurance and health maintenance organization (HMO) patients pay 100% of charges. If budgeted expenses are $1,000,000 ($2.00 per RVU), what price must be set to meet managements profit expectations?

Updated Table 16-10: Laboratory Pricing Data
	Budgeted RVUs
	Inpatient	Outpatient	Total
Medicare	$200,000	$75,000	$275,000
Medicaid	$40,000	$10,000	$50,000
Blue Cross	$80,000	$20,000	$100,000
Commercial Insurance and HMOs	$60,000	$10,000	$70,000
Bad debt and charity	$50,000	$15,000	$65,000
Total RVUs	$430,000	$130,000	$560,000