The Hospital CEO has asked you to provide her with an explanation for the rapid
ID: 366223 • Letter: T
Question
The Hospital CEO has asked you to provide her with an explanation for the rapid increase in cost per case over the last 5 years. She indicated that the cost per case in Fiscal 2010 was $ 9,295 and today it is trending at $14,355. She is having a difficult time explaining a 54+% cost increase. Provide her with an explanation for the $138,250 increase in costs ($445,000 - $306,750). Additional data you need is provided in Table 8.1
Table 8.1
Fiscal Year 2015
Total Cost
Volume
Average Cost
DRG A
$150,000
10
$15,000
DRG B
$200,000
20
$10,000
DRG C
$95,000
1
$95,000
$445,000
31
$14,355
Fiscal Year 2010
Total Cost
Volume
Average Cost
DRG A
$114,750
9
$12,750
DRG B
$192,000
24
$8,000
DRG C
$0
0
$0
$306,750
33
$9,295
Total Cost
Volume
Average Cost
DRG A
$150,000
10
$15,000
DRG B
$200,000
20
$10,000
DRG C
$95,000
1
$95,000
$445,000
31
$14,355
Fiscal Year 2010
Total Cost
Volume
Average Cost
DRG A
$114,750
9
$12,750
DRG B
$192,000
24
$8,000
DRG C
$0
0
$0
$306,750
33
$9,295
Explanation / Answer
The average total cost in 2010 was 9295 whereas in 2015 it is 14355.
these two costs are not comparable. The major reason for that is DRG C was not done in 2010 hence cost was 0 for that in 2010. whereas in 2015 DRG C was done and its average cost is 95000 which is far greater than the average cost of both DRG A and DRG B.
To compare the total costs and average costs properly DRG C should be removed from calculation.
Average cost in 2010 = 9295
total cost of DRG A & B in 2015 = 150000 + 200000 = 350000
total volume of DRG A & B in 2015 = 10 + 20 = 30
average cost = 350000/30 =11666.67
average cost of 11666.67 is much less than given amount of 14355 and this cost can be attributed to inflation and other factors affecting cost increase.