| Lakeview Hospital |
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Beginner |
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4 |
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Available.
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$9.00
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We
just can’t afford to operate your department at 50 percent capacity. If
we average 20 dialysis patients, it costs us $425 per treatment, and
our budget was based on a per-treatment cost of $250. If a department
can’t keep its costs, including a fair share of overhead, at the
budgeted level, I don’t think we should carry it. If we close it,
we can save over $1.3 million, which will go a long way toward helping
us stay within our budget.
Peter Lawrence, C.P.A., Director of Fiscal Affairs
at Lakeview Hospital, was speaking to James Newell, M.D., Chief
of Nephrology at Lakeview’s Hospital, concerning a change in patients’
use of hemodialysis treatments. Recently, some patients had begun to
shift their preferred treatment site to freestanding dialysis centers
that focused only on standard dialysis treatments. The change had
caused patient volume in Lakeview’s dialysis unit to decrease to about
50 percent of capacity, producing a corresponding increase in
per-treatment costs. By February of the current fiscal year, Lakeview’s
board of directors, at the suggestion of Mr. Lawrence, was considering
closing the hospital’s dialysis unit and referring all patients to the
freestanding centers.
Dr. Newell, who had been Chief Nephrologist since
he’d helped establish the unit, was opposed to closing it. Although he
was impressed by the quality of care that the freestanding centers
offered, he was convinced that Lakeview’s unit was necessary for
providing back-up and emergency services for the centers, as well as
for treating some of the hospital’s seriously ill inpatients.
Furthermore, although the unit could not achieve the low costs of the
freestanding centers, he disagreed with Mr. Lawrence’s cost figure of
$425 per treatment. He resolved to prepare his own cost analysis for
their next meeting. . . .
Assignment
1. What are the direct costs of the dialysis unit at its current volume? What assumptions did you use in making your calculations?
2. What is a fair share of overhead at the current level of volume?
3. What will happen to total costs at Lakeview if the dialysis unit is closed?
4. With only 20 patients being served, can Dr.
Newell bring the cost of a dialysis procedure down to the budgeted
level of $250? If so, how? If not, what should he do?
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