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Boston Childrens Hospital Measuring Patient Costs Case Solution

Solution Id Length Case Author Case Publisher
1284 1849 Words (7 Pages) Robert S. Kaplan, Mary L. Witkowski, Jessica A. Hohman Harvard Business School : 112086
This solution includes: A Word File A Word File and An Excel File An Excel File

The market for pediatric care was recently influenced and affected by the state’s decision to expand insurance coverage to all residents. The commission on health care payment suggests a model in which all the providers in the state would receive only risk-adjusted payments. The decision was stems from the fact that the cost of health care was rising.

The Boston Children Hospital was the only hospital that was self-supporting. The only competition it faced was from Tuft’s Floating Hospital for children which were based in downtown Boston. In the pediatric care market, Floating Hospital had seen growth in revenues and volumes.

Following questions are answered in this case study solution

  1. Analyze the market and competitive forces faced by Boston Children’s Hospital. What are BCH’s strengths, weaknesses, opportunities, and threats (SWOT)?

  2. What is the value proposition that BCH is offering? What is required for BCH to be successful? (Hint: Think Michael Porter in Competitive Strategy)

  3. In this industry situation, why should clinical department heads, such as Drs.? Meara and Waters, be interested in developing more accurate costs for their procedures?

  4. What are the advantages of using the RCC system? What concerns do you have with the use of this approach?

  5. Compute the capacity cost rates (for the TDABC approach). What implications exist for the organization of work in health care organizations?

  6. Calculate the costs and margins of the three different office visits using: a) RCC method; b) TDABC method. Compare the two sets of numbers. What are the implications?

  7. Suppose DPOS dedicates the following resources to handle all office visits:  2.5 Surgeons, 2 Ambulatory Service Representatives, 2 Registered Nurses, and 1 Clinical Assistant. During the year the office performs 4,400 Plagiocephaly visits, 2,200 Neoplasm visits, and 1,800 Craniosynostosis visits. Calculate the cost of used and unused capacity for the four types of personnel and the total cost of unused capacity for the year. How can Dr. Meara reduce the costs of unused capacity?

  8. What should Drs? Meara and Waters do next? Why?

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Case Analysis for Boston Childrens Hospital Measuring Patient Costs

Strengths
  • The Boston Children’s Hospital has physicians who were extremely competent and the hospital has access to state of the equipment that enables the hospital to serve their patients in an effective and efficient manner.

  • The specialties offered by BCH were outstanding and top ranked according to the News and world report. It provides last recourse for the kids with unusual diseases such as Wiskott-Aldrich (blood infection) and Bubble Boy Syndrome (immunodeficiency). Moreover, the hospital was also leading in serving the low-income segment in state, and the Medicaid provided by the hospital was 30% of its total patients.

  • The research center at BCH related pediatric studies was the largest in the world which have identified rare treatments related different pediatric conditions. Every year the hospital provides the research Centre with a funding of $225 million.

Weakness
  • BCH was facing this hindrance of maintaining its position in the industry and also sustaining the research activities while making attempts to reduce cost stemming from local, national pressure. Their cost was somewhat similar to the other service provider, but the other pediatric wards were ender reporting the cost as they were operating under supervision of doctors and they were provided with the cross-subsidies from other established divisions.

  • The hospital was incurring more expenses in order to maintain its reputation as research-based institution which was driving the cost extremely high.

Opportunity
  • The hospital has been taking initiatives to introduced new repayment techniques and got successful in 2012 in launching Alternative Quality Contract (AQC) with Blue Cross Blue Shield of Massachusetts which was the first doctor facility. The idea was to charge fix payment for three years with extra benefits which was the result of the savings achieved. Many public and private payers are contacting BCH to make arrangements for bundle payments which would eliminate the need for fixed fee payment for care.

Threats
  • Currently, BCH is wrestling with the fact that private insurer, domestic council, and financially pressured state are making attempts to reduce their reimbursements to the providers of medical service. Also, the contract that BCH made with Hampshire’s Medicaid program failed which effect the ability of the state to send the patients to BCH. If this decision is to be imitated by other states, the number of low-income people visiting BCH would fall drastically.

2. Boston children hospital is capitalizing their ability to provide top ranked care, conducting extensive pediatric research. They are providing the health care to local communities that are not able to afford services. They are valuing their ability to be a leader in improving the health of children and providing the experience of quality and healthy human life. The offer health care services to the children all over the globe.

Currently, the Hospital is incurring huge expenses which are deriving its cost. In order to be successful, BCH needs to cut cost and eliminate the process that is not adding value to the whole operation. When it comes to the cost savings, BCH could be the cost leader can produce services that are being offered by incurring the lowest possible cost. According to Porter’s competitive strategy, a firm can choose to be cost leader differentiate its offerings and can focus either on cost or differentiation by setting to beat in a segment. In the light of current circumstances, the cost leadership or cost focus strategy seem to be suitable for BCH.

3. As the market conditions are effected by the changing economic environment. This dynamic environment requires BCH to focus more on cutting costs and eliminating wasteful activities that which would enable them to attract more number of patients as the local government and state is reducing reimbursements to medical service providers. The foremost purpose of making an accurate estimate of cost is necessary for Department heads to negotiate the terms of new repayment model introduced by the hospital and asked for suitable bundled payment offered by payers. It would also help the management to identify what are key factors that act as cost drivers. By shifting focus on these drivers, the hospital can get succeeded in making their care delivery process more efficient. Consequently, developing more accurate costs for their procedures department heads can develop repayments procedure that is forward looking and advanced.

4. The ratio of cost to charge (RCC) is a simple method for measuring cost for clinical department. The simplicity and its ability to enable financial managers to calculate cost very easily are the main major benefits that promote its usage among hospital departments and physician practices. The cost to charge ratio also has the advantage of comparing the relative cost of patients in one specialty diagnosed group in one hospital to some other hospital. The ratio of cost to charge also worked very well when for the calculating average cost for each diagnosed related group.

The major concern in using cost to charge ratio is an allocation of shared costs such as utilities, space, and housekeeping. There is no objective criterion for allocating these costs to the department. It is very complicated to calculate the precise portion of these costs. One can easily manipulate these costs in order to over or underestimates the total cost. Also using the same ratio for all the departments may cause problems as each department has its procedure which requires different equipment, personnel and is subject to different costs. That’s why it is not reliably precise. It does not account for the reduction in cost as well.

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