Health Care Finance

Mrs. Smith is a 70-year-old hospitalized for a Kidney Transplant procedure. General Hospital is a large urban hospital in SanFrancisco that incurred $150,000 in Medicare-approved charges in treating Mrs. Smith. Use the information provided in this module as well as the Hospital Payments Example, which can be found in the Module 4 Presentation section, to answer the following questions. Include all formulas and calculations in your paper.

DRG Description Case Weight

115 Permanent Cardiac Pacemaker 3.5513

302 Kidney Transplant 4.1370

441 Hand Procedure/Surgery 0.8785

Case Assignment

Answer the following questions for Kidney Transplant only:

1. What is the operating payment to be paid to the hospital?

2. What is the capital payment to be paid to the hospital?

3. Will the hospital be eligible for the Medicare outlier payment?

4. What is the total payment to the hospital?

Health Care Finance


The Acute inpatient services payments system, offers its beneficiaries several programs that are subsidized by the US government. The IPPS payment rates cover the costs that efficient and fair service providers would incur when providing treatment to all the beneficiaries. Medicare is an American national social insurance program that is administered and controlled by the federal government of the USA and it was founded in the year 1966. It’s among several other programs that are funded by the US government.

The Health care financial calculations fall under the Acute Care Hospital Inpatient Prospective Payment System. It covers a maximum 90 days of an inpatient care hospital services with a life time addition of another 60 days. The medical claims include also the beneficiary’s outpatients diagnostic and other related services that were granted to the inpatient while still seeking medical treatment as an outpatient. (Lemieux, Chovan & Heath, 2008) Payment is sometimes reduced when the patient or the beneficiary has had a short period in hospital (LOS, Short Length of Stay) (Hogan, Lunney, Gabel & Lynn, 2001)

The following are the procedures for calculating the payments for the hospital services received by Mrs. Smith. (Feder, Clemans-Cope, Coughlin, Holahan & Waidmann, 2011) She received a Kidney transplant in San Francisco and the whole treatment costed $150,000 which included all the Medicare related charges. The figure below is the formula for calculating the operating payments.

 Wage Index 68.8 adjusted
 > 1for area wages Base rate
 Non Labor adjustedAdjusted
Operating relatedfor MS – DRG base pymt
Base PyMportiongeographicalweightrate
  Wage Index 62% adjusted
< 1for area wages

1. The operating payments = 5164* 68.8%*3.5513 = $12,617.17

2. The cost of payment to the hospital = 420 * 68.8% *3.5513 = $1026

3. The hospital has qualified for outlier payments as the hospital services offered relate to serious medical conditions that required heavy expenditure on capital equipments which are expensive. (Berenson and Holahan, 2011)

4. The total payments to the hospital included the following’

DRG No. Details Case weightoperationTotal
302Kidney transplant4.137516421363.47
441Hand procedure0.878551644536.574
 Capital payments1026
 Operating pymt12617.17
 payments for operation39543.21
  services & diagnostic charges & 
 Outlier payments$110,457
    Total payments to the Hospital$150,000

To conclude, the calculations carried out have assumed that the hospital qualified for the outlier payments which were also part of the $150,000 paid for Mrs. Smith treatment. Outlier payments only cover major expenditure which have been received and considerable amount of money was spent on capital equipments such the pacesetter machine that is mostly used during most operations.


Berenson, R.A. and Holahan, J. (2011) Preserving Medicare: A Practical Approach to Controlling Spending (Washington, DC: Urban Institute, Sept. 2011)

Feder, J., Clemans-Cope, L., Coughlin, J., Holahan, J. & Waidmann, T. (2011) “Refocusing Responsibility For Dual Eligibles: Why Medicare Should Take The Lead.” Robert Wood Johnson Foundation, October 2011.

Hogan, C., Lunney, J., Gabel, J. & Lynn, J. (2001) Medicare Beneficiaries Costs of Care in the Last Year of Life. Health Affairs

Lemieux, J., Chovan, T. & Heath, K. (2008)”Medigap Coverage& Medicare Spending: A Second Look,” Health Affairs, Volume 27, Number 2, March/April 2008