The Center for Medicare and Medicaid Services (CMS) reimburses health care facilities at a fixed rate for patients of a certain diagnosis-related group (DRG). The facility must also demonstrate an acceptable level of performance at the aggregate level. For a selected DRG, CMS reimburses the facility $3000, with the expected length of stay being three days. The facility's records for the past month shows it treated 80 patients, who each spent two days, 50 patients who each spent three days, and 60 patients who each spent four days.
For each day of patient stay up to the accepted norm, the facility incurs a cost of $600, while the cost goes up to $1500 per day, beyond the norm.
Discuss the profitability situation of the facility per patient. What is the lost opportunity cost by failing to treat patients within three days? What should it do to improve?