Mercy Hospital is a regional hospital in Sault Ste. Marie, Ontario, which has recently completed a new building at a cost of $825 million. This building will be depreciated over a period of 30 years. With the new building and the expanded operation, the hospital wants to enter into discussions with the Ontario provincial government about a cost recovery formula that will ensure that the operating costs of the hospital are met on an ongoing basis.
The hospital is divided into three types of patient care areas: surgery, oncology, and internal medicine. The 1,000 beds of the hospital are divided between the three areas as follows: Surgery has 150 beds, oncology has 200 beds, and internal medicine has 650 beds. Nurses comprise one of the largest costs of the hospital and the various areas require nursing staff in proportion to the number of beds in the unit. Surgery requires an average of 8 nurses per bed, oncology 5 nurses per bed, and internal medicine 3 nurses per bed. On average, counting benefits and overtime premiums, nurses make about $82,500 per year.
In designing the new building, great care was taken to make the very best use of the facilities, and the staff are very pleased with the final outcome. The patient care areas make up 54 percent of the total floor area while the oncology treatment clinics make up 18 percent. Surgical operating rooms and internal medicine clinics each cover 10 percent of the space; the cafeteria takes 4 percent; administrative offices are 3 percent; and the pharmacy covers the remaining 1 percent.
The operating budget is composed of many different areas of the hospital and all costs must be recovered from an allocation from the province based on patient days. In calculating patient days, hospitals use 360 days per year and Mercy expects to achieve a 90 percent usage rate once it reaches full operations. Patient days for each department are calculated by multiplying the number of beds in the department by the estimated usage, which is 360 days multiplied by the usage rate.
The budgets for each area of the hospital, excluding nurses' salaries, are as follows: cafeteria, $60 million; internal medicine, $53.5 million; oncology, $26.5 million; surgery, $23.5 million; maintenance, $22.5 million; pharmacy, $12.5 million; and administration, $62.5 million. Cafeteria costs are allocated to the patient care areas on the basis of number of nurses in each patient care area; maintenance and building depreciation costs are allocated on the basis of occupancy and bed spaces; pharmacy and administration costs are allocated on the basis of number of beds in each patient care area.
Required:
You have been asked to recommend to the hospital directors the rate per patient day that the hospital should request for each area of patient care from the provincial government and to back up your recommendation with complete detail.