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Case 4 - Assignment Example

The idea here is to see whether the clinic can "inflate" its way to profitability even if volume remains at its current level.)
4. Suppose you just found out that the $3,215 monthly malpractice insurance charge is based on an accounting allocation scheme that divides the hospital’s total annual malpractice insurance costs by the total annual number of inpatient days and outpatient visits to obtain a per-episode charge. Then, the per-episode value is multiplied by each departments projected number of patient days or outpatient visits to obtain each departments malpractice cost allocation. What impact does this allocation scheme have on the clinic’s true (cash) profitability? (No calculations are necessary.)
If the malpractice insurance charge is based on the hospital’s numbers of patient, then the clinic is paying too much. The clinic has fewer patients, so the insurance needs to be reduced to reflect the number of actual patient visits the clinic sees daily.
5.