Dr. Mallory practices at your hospital and your competitor. Presented below are data
for DRG 469 (major joint and limb reattachments, (lower extremity) with MCC that reflects practice patterns
for Dr. Mallory at the two hospitals:
Your Hospital Competitor
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Discharges 150 90
Average age 68 50
Length of stay 4.4 4.1
Average cost $10,550 $7,108
Nursing cost 1,998 1,208
Ancillary cost 8,552 5,900
Operating room cost 2,405 2,158
Lab cost 836 484
Radiology cost 277 191
Medical Supplies cost 3,022 1,690
Pharmacy cost 857 335
Other costs 1,156 1,042
Question: What do you think accounts for the difference in costs between the two hospitals?
2. Activity:
Calculate the contribution margin per case based on the following information:
(a) Variable cost per case $2,000.
(b) Fixed cost per period $200,000.
(c) Price per case $4,800.
To determine what accounts for the difference in costs between the two hospitals, we can analyze the various cost components for Dr. Mallory's practice at each hospital:
1. Discharges: Your Hospital has 150 discharges, while the Competitor has 90. This difference in volume may contribute to variations in costs. Higher patient volume can potentially lead to economies of scale and lower costs per case.
2. Average age: Your Hospital has an average age of 68, while the Competitor has an average age of 50. The age of the patients treated by Dr. Mallory may impact the complexity and severity of the cases, which could influence the costs of care.
3. Length of stay: Your Hospital has an average length of stay of 4.4 days, while the Competitor has an average length of stay of 4.1 days. Differences in length of stay can affect costs, as longer stays may require more resources and increase expenses.
4. Average cost: Your Hospital has an average cost of $10,550 per case, while the Competitor has an average cost of $7,108 per case. The overall cost difference could be influenced by factors such as the hospital's pricing structure, resource utilization, labor costs, reimbursement rates, or efficiency in operations.
5. Specific cost components: Looking at the breakdown of costs, we observe variations in nursing cost, ancillary cost, operating room cost, lab cost, radiology cost, medical supplies cost, pharmacy cost, and other costs between the two hospitals. These variations indicate differences in resource utilization, pricing, or efficiency in managing these cost components.
To determine the exact factors contributing to the cost differences, a more detailed analysis may be required. It could involve evaluating the pricing strategy, staffing levels, supply chain management, utilization of resources, contract negotiations with suppliers, reimbursement rates, and overall operational efficiency at each hospital.
Moving on to the second question regarding the contribution margin per case:
Contribution margin is a measure that indicates the amount of revenue remaining after deducting the variable costs associated with producing a product or providing a service. It represents the amount available to cover fixed costs and contribute towards profit.
Given the information provided, we can calculate the contribution margin per case using the following formula:
Contribution Margin = Price per case - Variable cost per case
(a) Variable cost per case is given as $2,000.
(b) Fixed cost per period is given as $200,000.
(c) Price per case is given as $4,800.
Using the formula:
Contribution Margin = $4,800 - $2,000
= $2,800
Therefore, the contribution margin per case is $2,800. This means that after deducting variable costs of $2,000 per case, there is $2,800 available to cover fixed costs per case and contribute towards profit.