Nowadays, a pervasive and important issue concerns healthcare costs and healthcare services. This case will examine the
Question:
Nowadays, a pervasive and important issue concerns healthcare costs and healthcare services. This case will examine the role of allocations on reimbursement amounts at High Desert Hospital. To simplify the case, there are two classes of patients: Plan One patients, whose care is reimbursed by the government and ?Others,? whose care is reimbursed by a private plan. Reimbursement to the XYZ hospital for the care of Plan One patients is 'limited to the costs of treating these Plan One patients." The reimbursement to the XYZ hospital for the care of ?Others? is based on a negotiated total amount that is set once a year based on negotiations with the private plan. (NOTE: these are fictitious plans!)
Hospital services may be divided into two categories: (1) revenue producing departments and (2) non-revenue producing departments. This classification is simple, but useful. The traditional accounting concepts associated with "service department cost allocation' while appropriate to this context, lead to a great deal of confusion in terminology since all of the hospital's departments are considered to be rendering services.
Costs of revenue producing departments are charged to Plan One patients on the basis of actual usage of the departments. These costs are relatively simple to apportion. The costs of non-revenue producing departments are somewhat more difficult to apportion. The approach to finding the appropriate distribution of these costs begins with the establishment of a reasonable basis for allocating non-revenue producing department costs to revenue producing departments. Statistical measures of the relationships between departments must be ascertained. The cost allocation bases listed in Exhibit A have been established by Plan One regulations as acceptable for cost reimbursement purposes. The regulated order of allocation (as listed below) must be used for Plan One reimbursement even though the general rule may call for another order.
REQUIRED:
Develop a spreadsheet (data section and analysis section) to do the following:
- Using the?step down method, compute the reimbursement claim for Plan One and the minimum reimbursement that XYZ would accept in its negotiations with the private plan.
- Using the?simultaneous or reciprocal method, compute the reimbursement claim for Plan One and the minimum reimbursement that XYZ would accept in its negotiations with the private plan.
- Assess the impact of a doubling of Plan One patients including a consideration of capacity issues.
- Evaluate each allocation method. Discuss the impact of the change in Plan One patients on each method. Make a recommendation as to which allocation method should be chosen. Be sure to include your reasons for choosing the method. Be sure to hand in the cell formulas for your program. Don't forget to clearly identity all assumptions that you are making.
Fundamentals of Cost Accounting
ISBN: 978-0077398194
3rd Edition
Authors: William Lanen, Shannon Anderson, Michael Maher