Finance – exercises 9.1, 9.4 and 9.7

Complete Exercises 9.1, 9.4 and 9.7.

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Use the Excel document below to record your answers.

Note: For 9.7, provide a short response to the following (9.7j): “Use the measures in 9.7h and i for the final comparison among the three sites, and discuss potential problems at each site or overall for the company. What are your recommendations to correct them?”

Exercise 9.1: The chief at the ultrasound division of the radiologydepartment in a community hospital would like to measure the multi-factor productivity for a “complete abdomen” procedure. The last three years of data were accumulated, as shown in Table EX. 9.1 TABLE EX 9.1 Measurement Year 1 Year 2 Year 3 Price ($) 880 883 886 Volume 5,583 6,312 6,129 Labor ($) 75,000 77,000 80,000 Materials ($) 2,750 2,900 3,100 6,500 6,700 7,000 a. What are the multi-factor productivity ratios for these years? b. What can you conclude about the productivity trend for this procedure?

Exercise 9.4: Calculate the case mix index for the following hospitals, which use the same patient classification system, using the data in Table EX. 9.4. TABLE EX. 9.4 Patient Classification Direct Care Hours Hospital 1 Hospital 2 Hospital 3 Hospital 4 Low-level care 3.0 0.50 0.35 0.30 0.20 Medium-level care 6.0 0.35 0.40 0.30 0.25 High-level care 9.0 0.10 0.15 0.22 0.30 Extreme care 12.0 0.05 0.10 0.18 0.25 Exercise 9.7: The PERFORMSBETTER MEDICAL CENTER (PMC) , a three-site urology group practice, requires productivity monitoring. To create a benchmark for future years and to be able to compare performance to similar peer practices, the data in Table EX 9.7 were gathered for each of the three lacations. TABLE EX 9.7 Measurements/Sites Location 1 Location 2 Location 3 Annual Visits 135,000 94,000 101,000 Annual Paid Hours 115,000 112,000 125,000 Patient Classification (Based on CPT Coding) Initial Visit (.55)* .30 .10 .15 Low-Level Decision Making (.50) .40 .20 .15 Medium -Level Decision Making (.75) .20 .40 .35 High -Level Decision Making (1.40) .10 .30 .35 Skill-Mix Distribution Specialists ($110/hr.)+ .50 .30 .70 General Practitioners ($85/hr.) .30 .50 .30 Nurse Practitioners ($45/hr.) .20 .20 .00 *Represents total hours of direct care required per patient visit within the category + Represents hourly compensation including fringe benefits for the skill level Assume that 1 general practitioner = .75 specialists, and 1 nurse practitioner = .35 specialists for economic measure of skill substitution. Calculate: a. Work hours/visits b. Adjusted work hours /visits c. Work hours /adjusted visits d. Adjusted work hours/adjusted visits ⱡ e. Total salary expense/visits f. Total salary expense /adjusted visits ⱡ g. Percent of work hours in direct patient care h. Percent of adjusted work hours in direct patient care ⱡ i. Total salary expense/hours of direct patient care ⱡ ⱡUse these measures for the final comparison among the three sites, and discuss potential problems at each site or overall for the company. What are your recommendations to correct them? Week 5 Exercise Assistance Exercise 9.1 a: Formula 9.2 and Example 9.2, p. 208

Exercise 9.4 a: Formula 9.8 and Example 9.8, p. 218-219 Exercise 9.1: a. Formula 9.2 Multi-factor Productivity = Service Item * Price / Labor + Material + Overhead EXAMPLE 9.2: A specialty laboratory performs lab tests for the area hospitals. During its first two years of operation the following measurements were gathered; Measurement Year 1 Year 2 Price per test ($) 50 50 Annual tests 10,000 10,700 Today labor costs ($) 150,000 158,000 Material costs ($) 8,000 8,400 Overhead ($) 12,000 12,200 Exercise 9.4: a. Formula 9.8 Case mix index j = ∑ Wi Pij where Wi = weight for ith category care Pi j = percent of patients for acuity category i in unit j EXAMPLE 9.8: Unit A and unit B (from Example 9.3), medical care units in Memorial Hospital , classify patients into four acuity categories (Type 1 through Type IV), with direct care requirements per patient day being respectively , 0.5, 1.5, 4.0, and 6.0 hours. Annual distributions of patients in these four acuity categories in Unit A were 0.15, 0.25, 0.35, and 0.25. Annual distributions of patients in Unit B were 0.15, 0.30, 0.40, and 0.15. Calculate the case mix for these two units, and determine which unit has been serving more severe patients. Solution: Using formula (9.6), first calculate the weights for each of the four categories W1 = H1 / ∑ H1 / n = 0.5 / (0.5 + 1.5 + 4.0 + 6.0) / 4 = 0.5 / 12 / 4 = 0.5/3 = 0.17 W2 = H2 / ∑ H1 / n = 1.5 / (0.5 + 1.5 + 4.0 + 6.0) / 4 =1.5 / 12 / 4 = 1.5/3 = 0.5 For 9.7, provide a short response to the following (9.7j): “Use the measures in 9.7h and i for the final comparison among the three sites, and discuss potential problems at each site or overall for the company. What are your recommendations to correct them?” W3 = H3 / ∑ H1 / n = 4.0 / (0.5 + 1.5 + 4.0 + 6.0) / 4 =4.0 / 12 / 4 = 4.0/3 = 1.33 W4 = H4 / ∑ H1 / n = 6.0 / (0.5 + 1.5 + 4.0 + 6.0) / 4 =4.0 / 12 / 4 = 6.5/3 = 2.0 Then apply formula (9.8) to calculate the case mix as: Case mix index A = ∑ Wi PiA =(0.17 * 0.15) + (0.5 * 0.25) + (1.33 * 0.35) + (2.00 * 0.25

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