Assume that you are on the administrative team at High Peaks Medical Center. You are currently contracted with MoneyCare Health Plan, but that contract will end in 60 days and you will have to re-negotiate your payment terms. The current situation at your hospital is this:
The hospital had 32,500 discharges last year and is on pace to provide the same volume of services this year;
You have an average length of stay of 4.5 days per discharge;
Your actual costs to provide care (what you spend for salary, medicines, supplies and other items) average 70% of charges;
MoneyCare represents 25% of your total discharges;
There is an average charge of $27,500 per discharge, for which your current contract with MoneyCare requires you to give a 20% discount off of charges.
So your task for this assignment is in multiple parts:
1. Calculate the net revenue for High Peaks Medical Center from its current volume and payment rate with MoneyCare.
2. Now assume that you are in negotiation with MoneyCare. They have told you that they will not renew the contract under current terms and if you press for a discount off of charges, they will not renew the contract at all. SO you cannot propose cost reimbursement or anything doing with charges - after all it is 25% of your business! They are insistent on a prospective payment of some sort. They have offered either a per diem payment of $4,000 per day or a per discharge rate of $21,500. Using the facts presented above and the proposal you have from MoneyCare, which option is preferable? Why? You must show your calculations to get credit for your answer!!
3. Finally, after discussion with the negotiator from MoneyCare, their final proposal is a per discharge rate of $19,000. What do you need to do to maintain profitability at that rate? HINT: there are two answers that I am looking for - one is easy, one will require you to be creative.