Health Care Financial Management- Specialist Physicians

The Network has three practice locations, each staffed with a mix of primary care and specialist physicians. Although the Network itself is only marginally profitable, it is an important contributor to the profitability. Of the System because it generates a large amount of revenues from referrals for both inpatient admissions. Also in inpatient and outpatient ancillary services. In fact, they can generate each $1 of revenue within the Network  estimates. This is  to lead to $8 of inpatient and ancillary revenues to the System. By limiting the amount of ancillary services available at the three Network locations, they force patients(or at least encourage) to use other System facilities for such services. Still, some ancillary services are best performed at the Network locations for one or more of the following reasons.

Lower costs, increased physician efficiency, and improved patient convenience and hence better CAHPS (Consumer Assessment of Healthcare Providers and Systems) scores. For example, one of the practice locations now has a diagnostic imaging capability. When you move the scanner from another facility to the Network location. Volume increased, costs decreased, and both physician and patient satisfaction improved. (For more information on the CAHPS program, see www. ahrq .gov/ cahps/ about-cahps/index.html)The proposal currently being considered by the Network is to provide ultrasound services at the Network locations. Preliminary analysis indicates that two approaches are most suitable. Alternative 1 involves the purchase of one ultrasound machine for each of the Network’s three locations.

Further Description

Patients would schedule appointments, generally at the clinic they are using, during preset times on specified days of the week. Then, the full-time ultrasound technician would travel from one location to another to administer the tests as scheduled. Alternative 2, on the other hand, involves the purchase of only one ultrasound machine, but patient scheduling would be the same. Mount the machine in a van that the technician would drive to each of the three Network 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 capital investment costs because Alternative 1 requires three ultrasound machines, at a cost of $100,000 each, whereas Alternative 2 requires only one machine.

However, Alternative 2 requires a van, which with necessary modifications would cost $40,000. Thus, the capital costs for Alternative 1 total 3 x $100,000 = $300,000. Whereas the costs for Alternative 2 amount to only $100,000 + $40,000 = $140,000. Because the two alternatives have different operating costs, a proper cost analysis of the two alternatives must include both capital investment and operating costs. The Network financial staff, which is the System financial staff, considered several methods for estimating the operating costs of each alternative. After much discussion, the chief financial officer (CFO) decided that the activity-based costing (ABC) method would be best. Furthermore, an ad hoc task force was assigned to perform the cost analysis.

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