Schedules computing the total allowable cost of inpatien

Question:

Hospital Costs Allocation Methods. Providence Hospital completed its first year of operation as a qualified institutional provider under the health insurance (HI) program for the aged and wishes to receive maximum reimbursement for its allowable costs from the government. The hospital compiled the following financial, statistical, and other information :

(a) The hospitals charges and allowable costs for departmental inpatient services were as follows

 Department Charges for HI Program Beneficiaries Total Charges Total Allowable costs Inpatient routine Services(room,borad,nursing) \$425,000 \$1,275,000 \$1,350,000 Inpatient ancillary service department X-ray \$56,000 \$200,000 \$150,000 Operation room 57,000 190,000 220,000 Laboratory 59,000 236,000 96,000 Pharmacy 98,000 294,000 207,000 Other 10,000 80,000 88,000 Total ancillary \$280,000 \$1,000,000 \$761,000 Total \$705,000 \$2,275,000 \$2,111,000

(b) For the first year the reimbursement settlement for inpatient services may be calculated at the option of the provider under either of the following apportion¬ment methods:

(1) Departmental RCC (Ratio of Cost Centers) Method-provides for listing on a departmental basis the ratios of beneficiary inpatient charges to total inpatient charges with each departmental beneficiary inpatient charge ratio applied to the allowable total cost of the respective department.

(2) Combination Method (With Cost Finding)-provides that the cost of routine services be apportioned on the basis of the average allowable cost per day for all inpatients applied to total inpatient days of beneficiaries. The residualpart of the provider's total allowable cost attributable to ancillary (nonroutine) services is to be apportioned in the ratio of the beneficiaries' share of charges for ancillary services to the total charges for all patients for such services.

(c) Statistical and other information:

(1) Total inpatient days for all patients 40,000

(2) Total inpatient days applicable to HI beneficiaries (1,200 aged patients with average stay of 12.5 days) 1 5,000

(3) A fiscal intermediary acting on behalf of the government Medicare program negotiated a fixed allowance rate of \$45 per inpatient day subject to retroactive adjustment as a reasonable cost basis for reimbursement of covered services to the hospital under the HI program. Interim payments based on an estimated 1,000 inpatient days per month were received during the 12-month period subject to an adjustment for the provider's actual cost experience.

Required:

(1) Schedules computing the total allowable cost of inpatien services for which the provider should receive payment under the HI program,and the remaining balance due for reimbursement under

(a) the Departmental RCC Method and

(b) the Combination Method (With Cost Finding).

(2) The method under which Providence Hospital should elect to be reimbursed for its first year under the HI program, assuming the election can be changed for the following year with the approval of the fiscal intermediary. Explain.

(3) Providence Hospital wishes to compare its charges to HI program beneficiaries with published information on national averages for charges for hospital services. Determine with computations

(a) the average total hospital charge for an HI inpatient and

(b) the average charge per inpatient day for HI inpatients.

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