Problem 2. Your hospital has been approached by a major HMO to perform all their MS-DRG 470 cases (major joint procedures). They have offered a flat price of $10,000 per case. You have reviewed your charges for MS-DRG 470 during the last year and found the following profile:

In the data set, assume that the hospital's cost to charge ratio is 0.80 for routine services and 0.75 for all other ancillary services. Using this information, what would the average cost of MS-DRG 470 be?

Average Charge	$15,000
Average LOS	5 Days
Routine Charge	$3,600	Cost/Charge .80	Variable Cost 60%
Operating Room	2,657	0.80	80
Anesthesiology	293	0.80	80
Lab	1,035	0.70	30
Radiology	345	0.75	50
Medical Supplies	4,524	0.50	90
Pharmacy	1,230	0.50	90
Other Ancillary	1,316	0.80	60
Total Ancillary	$11,400	0.75	50