What subjective factors would influence the decision as to which alternative to choose?
practice locations. Preli Show more The proposal now being considered is to provide ultrasound services at the practice locations. Preliminary analysis indicates that two approaches are most suitable. Alternative 1 involves the purchase of three ultrasound machines one for each of the practices three locations. Patients would schedule appointments generally at the location that they are using during preset times on particular days of the week. Then the full-time ultrasound technician would travel from one location to another to administer the tests as scheduled. In Alternative 2 patient scheduling would be the same but only one ultrasound machine would be purchased. It would be mounted in a van that the technician would drive to each of the three practice locations. Most of the operating costs of the two alternatives are identical but Alternative 2 has the added cost of operating the van and setting up the machine after each move. The two alternatives differ substantially in initial costs because Alternative 1 requires three ultrasound machines at a cost of $75000 each whereas Alternative 2 requires only one. However Alternative 2 requires a van which with necessary modifications would cost $40000.Thus the start- upcosts for Alternative 1 total 3 $75000= $225000 while those for Alternative 2 amount to only $75000+ $40000 = $115000. TABLE 2 Panhandle Regional Medical Center Activity Cost Detail Cost Activity Cost Driver Volume Cost per Unit Appointment scheduling Receptionist time 3minutes $ .20 Patient check-in Receptionist time 5 minutes .20 Ultrasound testing Technician time 45 minutes .40 Physician time 1.5 minutes 3.00 Supplies per procedure 1 packet 9.00 Patient checkout Receptionist time 5 minutes .20 Film processing Technician time 10 minutes .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* Technician time 6 minutes 1.00 *Alternative 2 only 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 practice. Films will be read by the hospitals 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 is based on ten procedures per day at each location and includes vehicle operating costs excluding maintenance.Copyright 2009 Health Administration Press QUESTIONS 1. Estimate the base case cost of each alternative regarding the provision of ultrasound services. (For now ignore the discount if three units are purchased.) 2. Which alternative has the lower total cost? 3. What value for travel and setup costs would make the costs of the two alternatives the same? 4. Now consider the 5 percent discount. What impact does this discount have on the decision? What discount amount would make the two alternatives equal in costs? 5. What subjective factors would influence the decision as to which alternative to choose? 6. What is your final decision? Show less
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