Question
Question: A hospital has five service departments and five clinical departments and five outputs DRG1, DRG2, DRG3, DRG4 and DRG5. The costs of the service
Question:A hospital has five service departments and five clinical departments and five outputs DRG1, DRG2, DRG3, DRG4 and DRG5. The costs of the service department must first be passed onto the clinical departments. Then the costs of the clinical department must be allocated to DRG categories to determine the per-unit cost of each DRG.
Budgeted patient numbers for 2010 for each DRG category is:
DRG1 2,200
DRG2 1,200
DRG3 300
DRG4 350
DRG5 550
Budgeted costs for the service departments are:
Administration $300,000
Cleaning $410,000
Security $120,000
Medical records $400,000
Laundry $750,000
The direct costs of the clinical departments are:
Radiology $1,400,000
Laboratory $1,000,000
Physiotherapy $140,000
Nursing $2,400,000
Oncology $2,000,000
Administration costs are to be allocated on the basis of staff numbers.
Cleaning costs are to be allocated on the basis of area occupied.
Security is to be allocated equally among the clinical departments.
Medical records are to be allocated according to patient episodes of care.
Laundry is to be allocated on the basis of kilos of laundry handled.
Staff Numbers Area Occupied Episodes of Care Kilos of laundry
Radiology 30 220 sq ft 3000 115
Laboratory 40 270 sq ft 4000 265
Physiotherapy 20 95 sq ft 4800 165
Nursing 0 370 sq ft 9800 695
Oncology 30 210 sq ft 4100 155
The costs of the clinical departments are to be allocated to DRG categories on the basis of service weights only.
The service weights are as follows:
DRG1 DRG2 DRG3 DRG4 DRG5 Total
Radiology 2 2.5 4.5 1 0 10
Laboratory 0.5 3.5 4 1 1 10
Physiotherapy 2 3 1 1 3 10
Nursing 3 0 2 4 1 10
Oncology 2.5 0.5 2 3 2 10
a. Given the above information, calculate the unit costs of each DRG.
b. The government pays the following reimbursements for these DRG categories:
DRG1 $1,000
DRG2 $1,200
DRG3 $7,000
DRG4 $6,000
DRG5 $3,500
Given that this hospital is funded on a casemix basis, explain how the government would calculate these reimbursement rates.
c. Given the hospital's cost structure and these reimbursement rates, what actions should this hospital take with regard to the provision of these DRG services.
d. Suppose that instead of casemix funding the hospital was simply reimbursed for its actual costs in providing the above DRG services. eg. if the hospital incurred costs of $1,500 to provide DRG1 it was reimbursed $1,500 for each DRG1 patient. How would this payment system affect the way in which the hospital provided these services - i.e. would the hospital's reaction be different to the way it would have acted in your answer to part 3?
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