Directions: Complete the Problem “Reverse Referral Fees” as a two to three page paper. For a general description of Marcus Welby Hospital see page 369 of the text (provided in attachment).
You are outside counsel to the Marcus Welby Healthcare Corporation (MWHC), which is concerned that expenses in some of its ancillary departments are causing it to lose money under Medicare and HMO insurance. It would like to start charging its hospital-based physicians for some of the costs of running their departments. Its current relationship with these physicians is one in which they have exclusive contracts to work in these departments, but no money changes hands between them. The hospital handles all billing, staffing, and overhead, but it bills separately for facility charges versus professional fees, and the physicians keep all the professional fees the hospital collects on their behalf. This is the standard practice in the industry. MWHC has the following suggestions for changing this arrangement:
• Have the radiology group pay for services, supplies, personnel, utilities, maintenance, and billing services furnished by the hospital. In a non-hospital, office-based setting, this package would normally cost about $100,000 to $150,000 per year. The hospital will charge the radiology group only $25,000 at first, but increase the charges to $100,000 over four years. Payments are due only if the hospital’s gross revenue derived from radiology services exceeds $1,000,000 in the previous year.
• The hospital’s clinical laboratory, under the direction of the pathology group, would pay the hospital a 20 percent fee for “specimen collection and handling services” when a physician on the MWHC medical staff orders a test from the clinical lab.
What advice would you give?
Expert Solution Preview
Introduction:
As an experienced medical professor, I understand the importance of maintaining the financial stability of hospitals and healthcare corporations. In this scenario, the Marcus Welby Healthcare Corporation (MWHC) faces the challenge of losing money under Medicare and HMO insurance due to increased expenses in its ancillary departments. MWHC is considering charging its hospital-based physicians for some of the costs of running their departments. In this paper, I will provide advice to MWHC regarding its proposed changes to the current arrangement and suggest a course of action.
Answer:
After careful consideration of MWHC’s proposals, I would advise against implementing them. Charging the radiology group only $25,000 initially and then increasing the charges to $100,000 over four years is unreasonable. The amount charged should be the same as that for an office-based setting, which normally costs about $100,000 to $150,000 per year. This charge should not be dependent on the hospital’s gross revenue derived from radiology services, as this will put undue pressure on the radiology group to generate more revenue for the hospital.
Similarly, charging a 20 percent fee for “specimen collection and handling services” to the hospital’s clinical laboratory, under the direction of the pathology group, is not justifiable. These services are essential for the functioning of the laboratory, and the physician on the MWHC medical staff orders a test from the clinical lab, which should be paid for by the hospital, not the clinical laboratory.
I recommend that MWHC should explore other avenues to address the financial challenges it faces. One option is to negotiate better rates with insurance companies and Medicare. Another option is to reduce costs in other areas of the hospital. Additionally, MWHC could consider outsourcing some of its ancillary services to specialized providers, which may be more cost-effective.
Overall, it is important for MWHC to carefully consider the long-term implications of its proposed changes and ensure that they are fair and justifiable to all parties involved.
