I save this game for my older kids.  Rhythmically, my 4th and 5th graders can read it: the most advanced rhythm is tika-ti.  I *sometimes use this with 3rd grade but I like to hold onto it for my older students.  Melodically, we don't do much with it.  I haven't gotten to ti with my 5th graders at this point in the year so we can't extract the phrases that have ti in it.  There are a couple spots that are extractable (measures 1-2, 9-10, 13-14) but to be honest, I use it only for rhythmic practice/reinforcement of tika-ti.

Here's the game:

Formation:  standing circle
Action:

1. Before teaching this game we spend a lesson practicing a bouncing pattern with a playground ball to the beat of the song.  We bounce on beat one and catch on beat two.  
2. At the second lesson we review bouncing on beat one and catching on beat two.
3. We then try passing the ball on the bounces, with the neighboring student catching the ball.  This continues all the way around the circle until it gets back to the teacher.  While doing this for the first time, we do not sing the song.  Instead we say "bounce, catch, bounce, catch. . . ." until the ball has made it all around the circle.  I have the students keep the pattern going even when they don't have the ball by patting their laps when the ball is bounced and clapping their hands when the ball is caught.
4. We then add the song.  Before we begin "competative play" we do a practice round so students can practice the beat passing pattern while singing the song.  When play begins the student who catches the ball on the last beat of the song is "out."  From here there are two ways to continue the play:
1. The "out" student starts a new circle with a different playgound ball and all the "outed" students join that circle.
2. The "out" student sits down where they are.  The "outed" student continues to keep the steady beat pattern (pat-clap) OR they keep the rhythm on sticks.  When I know that eventually everyone is going to be playing sticks I have the students use chop sticks.  This keeps the stick volume under control and not over-powering the singing.  This way is more challenging because as students are eliminated they have to bounce the ball past the seated students.  In all honesty, it's a good test of their physical skills, more then their musical skills.  But it's a way of "kicking it up a notch."

A few years ago I found these balls at King Soopers (our local Kroger store):