Boston Medical Center Essay

1010 Words Aug 22nd, 2013 5 Pages
Case Study 9 Boston Medical Center

1.) What is the marginal cost estimate of the Phase 4 hospital services, assuming that 60 percent of the designated costs are fixed and the remaining costs are variable?
* The Marginal cost estimate is $ 71,468

2.) What is the ‘relevant range’ for the cost structure? In other words, at what volume might you expect the fixed and variable costs to change appreciably?

* The current amount of patients treated for liver transplant volume totaled 120 patients annually, with a reimbursement rate of $140,000, providing the hospital with the ability to handle 30 more patients before the fixed costs would increase. 120 +30= 150. This means that the hospital can sufficiently handle a
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(Again, so far, remember that pricing in this case is set at the marginal cost level.)
* If the contract were to require new fixed costs in addition to variable costs at 10 % the total Margin cost would be $ 79,524 which would be a substantial increase of $8,056 from question 1
* If the fixed cost rose to 20% the total margin cost would be $ 87,580 which would be a substantial increase of $16,112 from question 1

* If the price was set at $90,000 the new fixed cost percent would be 23% as that is the closest to $90,000 at $89,997

6. How does the current reimbursement level of $140,000 per case affect a decision to use or not use marginal cost pricing? Does the amount of excess capacity affect the decision? Why?
Reimbursement minus the cost of for the transplant will ultimately define the profitability of the transplant program. The current reimbursement level of 140,000 per a case significantly effects the decision to use or not to use marginal cost pricing, as 140,000 per a case provide far greater revenue and helps allocate for the outlier cases. Currently if Boston is receiving $140,000 per a case with an average actual cost of $120, 000 Boston is making a profit, which helps to offset some of the outlier costs. With using total marginal cost the profit will decrease in variations of each fixed percentage scenario including of negative - $30,000 to -$50,000 in profit decrease. However,…