Sunnyview Medical Center As Financial Case Study

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03

0.0375

0.045

0.0525

0.06

Total

109180

113950

120310

128260

137800

Westside

106,000

109,445

114,480

121,105

129,320

Rate

0.0325

0.04

0.0475

0.055

0.0625

Total

109445

114480

121105

129320

139125

Westside Savings is superior in all instances, because the CD it offers is a quarter point ahead of Metro's in all instances. But these calculations are important for understanding the risks associated with early withdrawal when the rates are competitive among the two firms.

3. Risk contracting is undertaken when the hospital contracts out some of the risk it faces with respect to Medicare payments. The HMO faces risk associated with the payment rates for specific services, and the risk that Medicare recipients will congregate in those areas with higher payouts. This risk has fluctuated since its inception, with the need to contract that risk fluctuating alongside it (Hurley, Grossman & Strunk, 2003). Any risk contract is going to create financial incentives.

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What is important is that the financial incentives are to meet the organization's profitability goals. Efficiency of care is one way to improve profitability -- when the contract focuses on measures that encourage greater efficiency, it will drive improved profitability.

One of the downsides to risk sharing is that it encourages clinics to avoid patients requiring substantial care -- this is another means by which profitability can be improved. This has in the past resulted in consumer backlash against the practice. However, the risk-sharing partner (insurance company) will often avoid contracts that see it deliver unreasonable payments to the HMO. What we can expect are contracts that deliver us a relatively slim margin. This should encourage us to find ways to reduce costs, either through improved patient throughput, use of generic drugs, use of more efficient procedures and increasing the productivity of.....

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