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Case #3 Taking Risk as Providers Total Joint Case Rate

Your local BC/BS plan has experienced high costs and unpredictable cost increases for total joint replacement cases in recent years. They have approached three competing hospital systems about taking a case rate for total knee replacements. The case rate will cover all diagnostic work, the surgery itself and all rehabilitation needed to get the patient back to full functionality. Last year, BC/BS paid for 1000 total knee replacements in this region, and they project the same volume next year. The working assumption here is that the winning bidder will get 100% of that volume next year.

The current breakdown of BC/BS business at these three facilities is as follows:

	Mercy	St. Sebastian	University
Total Knee Procedures/ year	500	350	150
Current BC/BS hospital reimbursement/case	$22,000	$21,000	$24,500
Allocated overhead cost/case	$7,500	$8,500	$9,000
Implantable device cost/case	$5,000	$5,000	$4,500
Other variable costs/case	$2,500	$2,400	$2,300

In addition to the hospital cost for these procedures, you can assume that BC/BS has also paid the following on average per case:

- Diagnostics (all) - $1,000

- Professional (all) - $2,000

- 30% of patients will require post-acute care at a rehab. facility at a cost of $15,000/case

- 70% of patients will go home with home care and other follow-up at a cost of $1,000/case

1. .For this question, refer to the case study you will complete this week. Assume you are the orthopedic service line leader of the winning bidder. What strategies will you now employ to be sure your hospital performs well (i.e. profitably) under this new deal?

2. Given the organizational structure of each system bidding, describe the advantages and disadvantages each faces as they attempt to maximize performance under this contract