Case 2 Questions

Question 1

Estimate the base case cost of Alternatives 1 and 2 regarding the provision of ultrasound services.

Question 2

Which alternative has the lower total cost?

Question 3

Redo the analysis assuming that the per-unit supplies cost, billing and collection cost, general administration cost, and transportation, setup, and breakdown costs are higher than the base case values by 10 percent. Redo the analysis again, assuming these costs are 20 percent higher than the base case values.

Question 4

Return to the base case. What value for transportation and set-up costs would make the costs of the two alternatives the same?

Question 5

Again, use all base case data but assume that a 5 percent discount is available if three machines are purchased. What effect does this have on the decision? What discount amount would make the two alternatives equal in costs?

Redo the base case analysis assuming a useful life of 3 years. Now consider a life of 7 years.

Question 6

Do the analyses conducted for Questions 3 through 6 affect your decision on which alternative has the lowest cost?

Question 7

What subjective factors would influence the decision as to which alternative to choose?

Cost EXHIBIT 8.2 Dallas Health Network: Activity Activity Cost Detail Appointment scheduling Cost Driver Volume per Unit Receptionist time 3 minutes $ 0.20 Patient check-in Receptionist time 5 minutes 0.20 Ultrasound testing Technician time Physician time Supplies 30 minutes 1.5 minutes per procedure 0.40 3.00 9.00 Patient check-out Receptionist time 5 minutes 0.20 Film processing Technician time 10 minutes 0.40 Film reading Contract terms per procedure 40.00 Billing and collection Overhead costs per procedure 6.80 General administration Overhead costs per procedure 1.25 Transportation, setup, and Technician time breakdown 18 minutes 0.50 Notes: 1. Physician time for testing (15 minutes) is needed for one of every ten patients. 2. Supplies consist of linen, probe cover, gel, film, and print paper. 3. There are no radiologists in the Network. Films will be read by the hospital's radiologists at a contract fee of $40 per procedure. 4. Billing and collection costs are based on an average cost per medical services bill. 5. General administration costs are based on an estimate of facilities and other administrative costs. 6. Transportation, setup, and breakdown are based on ten procedures per day and include vehicle operating costs, excluding maintenance. EXHIBIT 8.1 Dallas Health Network: Activities Associated with Alternatives 1 and 2 1. Appointment scheduling 2. Patient check-in 3. Ultrasound testing 4. Patient check-out 5. Film processing 6. Film reading 7. Billing and collection 8. General administration 9. Transportation, setup, and breakdown (Alternative 2 only) Cost EXHIBIT 8.2 Dallas Health Network: Activity Activity Cost Detail Appointment scheduling Cost Driver Volume per Unit Receptionist time 3 minutes $ 0.20 Patient check-in Receptionist time 5 minutes 0.20 Ultrasound testing Technician time Physician time Supplies 30 minutes 1.5 minutes per procedure 0.40 3.00 9.00 Patient check-out Receptionist time 5 minutes 0.20 Film processing Technician time 10 minutes 0.40 Film reading Contract terms per procedure 40.00 Billing and collection Overhead costs per procedure 6.80 General administration Overhead costs per procedure 1.25 Transportation, setup, and Technician time breakdown 18 minutes 0.50 Notes: 1. Physician time for testing (15 minutes) is needed for one of every ten patients. 2. Supplies consist of linen, probe cover, gel, film, and print paper. 3. There are no radiologists in the Network. Films will be read by the hospital's radiologists at a contract fee of $40 per procedure. 4. Billing and collection costs are based on an average cost per medical services bill. 5. General administration costs are based on an estimate of facilities and other administrative costs. 6. Transportation, setup, and breakdown are based on ten procedures per day and include vehicle operating costs, excluding maintenance. EXHIBIT 8.1 Dallas Health Network: Activities Associated with Alternatives 1 and 2 1. Appointment scheduling 2. Patient check-in 3. Ultrasound testing 4. Patient check-out 5. Film processing 6. Film reading 7. Billing and collection 8. General administration 9. Transportation, setup, and breakdown (Alternative 2 only)