Mayo Clinic is applying Lean principles to improve operational efficiency in healthcare delivery. The COGS for healthcare services includes direct medical costs and a portion of facility-related overhead expenses. For the previous fiscal year:

Requirements:

• Calculate the COGS for healthcare services using the formula: COGS = Direct Medical Costs + Allocated Facility Overhead.
• Provide a COGS table breaking down the costs for each component.
• Recommend strategies to reduce COGS, such as optimizing resource allocation and improving patient throughput.
• Discuss how reducing COGS aligns with Lean healthcare principles.
• Present a numerical example with hypothetical values demonstrating the calculation of COGS and potential cost savings.

COGS Table:

Category	Amount ($)
Direct Medical Costs	P
Allocated Facility Costs	Q
Total COGS	P + Q

Numerical Example:

• Direct Medical Costs: $15,000,000
• Allocated Facility Costs: $5,000,000
• COGS = $15,000,000 + $5,000,000 = $20,000,000

Mayo Clinic plans to reduce COGS by 12% through efficiency improvements, potentially saving $2,400,000 annually