Cost, Payment and Profit Analysis Submit written responses to these questions.
Discuss the four major concerns of using the cost-to charge ration method. What is the relationship between the concepts cost allocation basis as used in the step-down method and cost driver as used in ABC? What is the difference between a cost object’s direct cost and its fully allocated cost? Give an example. What are the advantages and disadvantages of ABC relative to the step-down method of cost allocation? Name the units of service on which cost-based payers may pay providers. How do copayments and deductibles reduce risk? Why do providers desire “steerage”? Who bears the risk under a flat is system? Why? How do HMOs uses determine their premiums? If an HMO covered 150,000 lives, expected 25 myocardial infarctions (MI) to occur each year within the covered lives, would expect a length of stay of 4.5 days for each MI, and had to pay an average of $950 per day for each day the MI patient was in the hospital, what would the PMPM cost of the HMO be? What would have to be charged to the patient/employer if the HMO had administrative costs equaling 10 percent of its costs and it wanted a profit margin of 7 percent?
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