David Jones, the new administrator for a surgical clinic, was trying to determine how to allocate his indirect expenses. His staff was complaining that the current method of taking a percentage of revenues was unfair.
David Jones, the new administrator for a surgical clinic, was trying to determine how to allocate his indirect expenses. His staff was complaining that the current method of taking a percentage of revenues was unfair. He decided to try to allocate utilities based on square footage of each department, administration based on direct costs, and laboratory based on tests. Use the information in the chart below to answer the question.
Square Footage
Direct Expenses
Lab Tests
Utilities
200,000
Administration
2,000
500,000
Laboratory
2,000
625,000
Day-op Suite
3,000
1,400,000
4,000
Cystoscopy
1,500
350,000
500
Endoscopy
1,500
300,000
500
Total
10,000
3,375,000
5,000
Based on the scenario above, what are the Endoscopy Department’s total expenses?
Problem 2. Your hospital has been approached by a major HMO to perform all their MS-DRG 470 cases (major joint procedures). They have offered a flat price of $10,000 per case. You have reviewed your charges for MS-DRG 470 during the last year and found the following profile:
Average Charge
$15,000
Average LOS
5 Days
Routine Charge
$3,600
Cost/Charge 0.80
Variable Cost % 60
Operating Room
2,657
0.80
80
Anesthesiology
293
0.80
80
Lab
1,035
0.70
30
Radiology
345
0.75
50
Medical Supplies
4,524
0.50
90
Pharmacy
1,230
0.50
90
Other Ancillary
1,316
0.80
60
Total Ancillary
$11,400
0.75
50
In the above data set, assume that the hospital’s cost to charge ratio is 0.80 for routine services and 0.75 for all other ancillary services. Using this information, what would the average cost of MS-DRG 470 be?
Problem 3. A free-standing ambulatory care center averages $70 in charges per patient. Variable costs are approximately $12 per patient, and fixed costs are about $1.5 million per year. Using these data, how many patients must be seen each day, assuming a 365-day operation, to reach the break-even point?
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