Seashore Healthcare operates two medical groups, one in Philadelphia and one in Baltimore. The semiannual bonus plan for each medical group’s president has three components:

Required

a. Profitability performance. Add 1.50% of operating income.

b. Average patient waiting time. Add $ 30,000 if the average waiting time for a patient to see a doctor after the scheduled appointment time is less than 15 minutes. If average patient waiting time is more than 15 minutes, add nothing.

c. Patient satisfaction performance. Deduct $ 35,000 if patient satisfaction (measured using a survey asking patients about their satisfaction with their doctor and their overall satisfaction with Seashore Healthcare) falls below 65 on a scale from 0 (lowest) to 100 (highest). No additional bonus is awarded for satisfaction scores of 65 or more.

Semiannual data for 2013 for the Philadelphia and Baltimore groups are as follows:

1. Compute the bonuses paid in each half year of 2013 to the Philadelphia and Baltimore medical group presidents.
2. Discuss the validity of the components of the bonus plan as measures of profitability, waiting time performance, and patient satisfaction. Suggest one shortcoming of each measure and how it might be overcome (by redesign of the plan or by another measure).
3. Why do you think Seashore Healthcare includes measures of both operating income and waiting time in its bonus plan for group presidents? Give one example of what might happen if waiting time was dropped as a performancemeasure.

Transcribed Image Text:

January-June July-December Philadelphia Operating income Average waiting time Patient satisfaction $11,150,000 13 minutes 72 $10,000,000 17 minutes Baltimore Operating income Average waiting time Patient satisfaction $8,800,000 20 minutes 59 7,500,000 13 minutes 68