Metropolitan Community Hospital performs 500 hip replacements each year. Reimbursement for this service line averages $10,000 per case. Average direct costs are $11,500 per case. This including marginal costs of $4,500 per case for the implantable device and other supplies.
Your quality improvement team has identified a process improvement that will reduce length of stay sufficiently to allow Metropolitan to perform an additional 50 hip replacements each year.
As the leader of the QI team, you must prepare for a presentation to the senior executives, including the hospital’s president and its chief financial officer. The leadership team will want to know if adding 50 cases of this type is financially viable or not. You will need to describe the financial impact of the added cases. How will you communicate this to the hospital’s leadership team?
To complete this case assignment, you must prepare an appropriate financial analysis indicating the financial impact of the 50 added cases and, as well, describe, in telegraphic fashion (i.e., bullet features as opposed to a narrative), the logic supporting your analysis. Should your analysis support pursuing the initiative, what argument(s) will you use to convince the leadership team?
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From a traditional economics perspective, firms seek to maximize profit and as such a firm achieves optimum performance when marginal benefit equates to marginal cost. Marginal revenue and marginal cost are the two core concepts of marginal analysis analyzed in this paper. By definition, margin revenue is the change in total revenue over the change in quantity...
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