Ira Stone, the president of General Hospital, has a meeting with the Medical Economics Group (MEG). MEG is a consulting firm in the health services sector. It reports that General's billing operations are grossly inefficient. Its standard costing per bill is above 90% of the 130 hospitals MEG tracks in its benchmark.
Stone suspects the billing group deliberately "padded" its standard costs and standard amounts. Despite large investment in new information systems, the standards for 2015 were not below actual results for 2014. Stone does not want to institute a witch hunt, but he does want to eliminate the excess in General's cost structure.
Required
1. How might General's billing operations group have "padded" its standard costs and standard amounts? Why might they do this padding?
2. What steps should Stone take to "reduce the excess" in the overhead costs of the billing operations at General Hospital?