Prior Auth
The CFO needs to understand the cost of non-compliance vs. the cost of the compliance program. MedBridge generates $420M in annual revenue from CMS contracts, which would be at risk if compliance is not achieved. The regulation specifies financial penalties of $10,000 per violation per day for turnaround time breaches, and MedBridge currently processes 1,200 authorization requests per day. Assume 30% of those are currently non-compliant with the new turnaround standards. Separately, the compliance program is estimated to cost $38M over 18 months. Should MedBridge invest in compliance purely on a financial basis?
Case Exhibit
Rounding is standard practice in case interviews and almost always permitted with a quick ask.
Step 1: Calculate daily penalty exposure
Non-compliant requests per day: 1,200 x 30% = 360 requests per day.Penalty per violation: $10,000.Daily penalty exposure: 360 x $10,000 = $3,600,000 per day.
Step 2: Calculate annual penalty exposure
$3,600,000 x 365 days = $1,314,000,000 per year. Rounded: approximately $1.3B per year in penalty exposure.
Step 3: Compare to compliance investment
Compliance program cost: $38M over 18 months. Annual equivalent: approximately $25M per year. Even in a scenario where only a fraction of violations are actually penalized, the penalty exposure dwarfs the compliance investment.
Step 4: Factor in CMS contract revenue at risk
$420M in annual CMS contract revenue is at risk if compliance is not achieved and contracts are lost. The compliance investment of $38M represents less than 10% of one year of CMS revenue.
Step 5: Contextualize
The financial case for compliance is unambiguous. Even discounting penalty enforcement to 5% of theoretical exposure, that is still $65M per year in penalties vs. a $38M total compliance investment. Add the $420M CMS revenue at risk and non-compliance is not a viable option on any reasonable financial assumption. The real question is not whether to comply but how to do it as efficiently as possible within the 18-month window.
