Summarize the costs to the practice of owning a system (per Doctor Smith) versus leasing (per Doctor Brown).
Great Docs a three-physician practice with two office sites is considering whether to buy or lease Show more Great Docs a three-physician practice with two office sites is considering whether to buy or lease a new computer system. Currently they own a low-tech (and low-cost) information system. The new system will have to meet all government specifications for an electronic health record system and will also have to connect the two office sites. It will be considerably more sophisticated than the current hardware and software and thus will require training for office staff clinical staff and the physicians. Everyone agrees there will be a learning curve in order to reach the systems full potential. Doctor Smith the majority owner of the practice wants to buy a medical records system from Sams Club. He argues that the package is supposed to electronically prescribe track billings set appointments and keep records so it should meet their needs. The cost of the first installed system is supposed to be $25000 plus $10000 for each additional system. The doctors are not sure if this means $25000 for one office site plus $10000 for the (connected) second office site for a total of $35000 or if this means $25000 for the first installed system plus $10000 each for three more doctors for a total of $55000. There is also supposed to be $4000 to $5000 in maintenance costs each year as part of the purchased package. Doctor Smith proposes to pay 20% down and obtain a five-year installment loan from the local bank for the remaining 80% at an interest rate of 8%. Doctor Jones the youngest of the three physicians has been recently added to the practice. A computer nerd he wants to lease a complete system from the small company his college roommate began last year. While he has received a quote of $20000 for the entire system including first year maintenance it does not meet the government requirements for an electronic health record system. Consequently the other two doctors have outvoted Doctor Jones and this system will not be seriously considered. Doctor Brown the usual peace-maker between Doctor Smith and Doctor Jones wants to lease a system. He argues that leasing will place the responsibility for upgrades and maintenance upon the lessor company and that removing the responsibilities of ownership is advantageous. He has received a quote of $20000 per year for a five-year lease that includes hardware and software for both offices that meets the government requirements for an electronic health record system and that includes training maintenance and upgrades. Required Summarize the costs to the practice of owning a system (per Doctor Smith) versus leasing (per Doctor Brown). Include a computation of comparative present value. (Refer to Assignment 21-1 for setting up a comparative present-value table.) Show less
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