Your hospital has been approached by a major HMO to perform all their MS-DRG 470 cases (major joint procedures. They have offered a flat price of…

Your hospital has been approached by a major HMO to perform all their MS-DRG 470 cases (major joint procedures.  They have offered a flat price of $10,000 per case.  You have reviewed your charges for MS-DRG 470 during the last year and found the following profile:

Average charge $15,000

Average LOS

                                                            Cost/Charge        Variable Cost %

Routine Charge           $3,600                .80                      60

Operating Room           2,657                .80                      80

Anesthesiology                 293                .80                      80

Lab                                   1,035               .70                      30

Radiology                           345               .75                     50

Medical Supplies            4,524                .50                    90

Pharmacy                         1,230               .50                     90

Other Ancillary                 1,316               .80                     60

Total Ancillary                 $11,400                .75                 50

Estimate the variable cost per MS-DRG 470 using the departmental cost/charge ratios and variable cost percentages