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Unformatted text preview: Castlemont Health Services I became a doctor to heal people, not run a business. But, with health care costs heading out of control, the only way we can survive is to apply some of the tools of cost management to the practice. I wish I could focus on new drugs and medical proce- dures, but right now the best thing I can do for our patients is continue to find ways to take costs out of the system. Gianni Schicci, MD President & CEO Organization Castlemont Health Services (CHS) is an independent, for-profit, health care firm located in Oakland, California. The firm is organized in two groups General Administration and Clinic Services (see Exhibit 1). General Admin- istration includes Accounting and Legal Services (A&LS), Information Tech- nology (IT), and Billing Services. Clinic Services consists of two clinics, which provide different services. The Fruitvale Clinic provides kidney dialysis ser- vices. The Fremont Clinic provides walk-in emergency services. (See below for more complete descriptions.) Clinic Services Clinic Services oversees the operation of the two clinics. The clinics (and Clinic Services) have been organized as profit centers and the clinic man- agers are evaluated on return-on-investment (ROI). ROI is computed as after- tax accounting income divided by net clinic assets measured at the begin- ning of the year. The managers are paid a bonus for exceeding the estimated after-tax cost-of-capital (8%). The bonus paid cannot exceed 30% of the base salary and no bonus is paid for an ROI below 6%. The Fruitvale Clinic is designed to provide renal dialysis treatments to kidney patients. There are two types of treatments. Hemodialysis (HD) This case was prepared the basis for class discussion rather than to illustrate either effective or ineffective handling of an administrative situation. All data in the case are fictitious. William N. Lanen, February 2003, University of Michigan Business School. Permission is hereby granted to reproduce and distribute this case for classroom instruction provided this copyright statement is included on the first page of any such reproduction Castlemont Health Services 2 treatments require patients to visit the clinic three (3) times per week. At the clinic, they receive the treatment using expensive, specialized equipment. Peritoneal dialysis (PD) patients can administer their own (daily) treatment at home. The clinic monitors PD patients and assists in obtaining the sup- plies required. The Fremont Clinic offers emergency and non-emergency medical ser- vices and is open 24 hours every day. Although they treat many types of medical problems, they classify their services into two (2) offerings: basic procedures and complex procedures. The differences between the two af- fect the amount of physician time required for each visit as well as the type of equipment needed for treatment....
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- Spring '08