Boston Childrens Hospital Measuring Patient Costs (V) Case Solution

1. The state has recently decided to expand its insurance coverage to all the residents which have affected the market for pediatric care. Moreover, the rise in the cost of health care has allowed the providers to receive risk adjusted payments only. There was less competition from the other hospitals. Tuft's Floating Hospital was the major competitor.

The strengths of the hospitals come from the fact that they have highly competent physicians and state of the art equipment. They provide high quality care and conduct cutting-edge research. They were the only hospital to provide care for a rare disease such as Bubble Boy Syndrome and Wizkott Aldrich. They had top-ranked specialties Heart & Heart Surgery, Neurology and Neurosurgery. 

The weaknesses stem from the fact that there was immense local pressure to maintain the quality of service while still researching for new endeavors. Moreover, the objective to reduce cost was also there. It was difficult to compete with other institutes as they were given subsidies from other established divisions. Hence the cost to operate comes down to a lower level. Hence less subsidies and huge spending on research activities driving the total cost very high. 

There are multiple opportunities for Boston Children Hospital which if capitalized can generate great benefit for the hospital. The hospital is in talks to launch Alternative Quality Contract which was the first doctor facility. When this would be implemented, fixed amount will be charged for three years. Hence the overall value will increase and at the same time benefits would cost less. There is also an opportunity for Boston Children Hospital to allow bundle payments for it has been approached by many public and private institutions. 

The recent threat faced by Boston Children Hospital is attempts made by domestic council and private insurer to reduce their reimbursements. There is another threat that can reduce the footfall in the hospital. The contract that the BCH made with Hampshire medical program was failed. Hence the state's ability to send the patients to the hospital is seriously hampered.

2. The ratio of charge to expenses is calculated first to calculate the charge and margin using the RCC method. As shown in Exhibit 1, the total charge is around $12 Million and the expenses are around $7, Million. The portion of the cost to charge is 60%. The three office visits were charged $350 each. By multiplying it by the cost to charge ration, the total cost per visit can be estimated. Hence $210 is the cost, and remaining amount goes to profitability.

Using TDABC the cost and margins are calculated by utilizing capacity cost. The number of minutes required for each procedure to the capacity cost about that procedure. As shown in Exhibit 1, the Neoplasm skin excision needs 20 minutes and per minute cost is $6. Multiplying the both would give the cost charge to the surgeon. Similarly, the cost for ASR, RN and CA were calculated. Adding all the cost would give the total cost. Deducting it from the charge of $350 would give the cost and margin of the respective visit.

Exhibit 1