HPA 447 (3) - 1. Sometimes healthcare service providers...

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Unformatted text preview: 1. Sometimes healthcare service providers decide how to price their services, and sometimes they have to figure out if they can provide the service given a certain price. 2. There are two generally accepted ways to set prices for healthcare service providers - full cost pricing and marginal cost pricing. 3. To properly apply a full cost pricing method, healthcare service providers must know the direct variable cost associated with the service, the direct fixed costs associated with the service, and the indirect costs associated with the service (such as overhead allocations). 4. To properly apply the marginal cost pricing method, all healthcare service managers need to know is the direct variable cost of the service. 5. Healthcare service managers who apply the full cost pricing method assume that all fixed costs, both direct and indirect, are covered by reimbursements associated with their existing patient base. 6. Medicare and Medicaide proponents believe that healthcare service providers should only use the marginal cost pricing method because it is not right to make money off of government sponsored patients. 7. Non-government proponents argue that marginal cost pricing should never be allowed because the healthcare services provider has no guarantee that it will break even, and if it does, spreading direct and indirect fixed costs over paying patients only increases the cost of healthcare substnatially to paying patients - especially when it is known that healthcare service providers have high leverage. 8. Healthcare service providers who price their services using the full cost pricing method can atract new clients via offering lower rates than providers using the marginal cost pricing method. 9. Target costing applies to healthcare service providers who are price takers. 10. Target costing assumes the price for a service is given and then subtracts the desired profit on that service to obtain the target cost level. 11. A non-profit hospital is thinking about offering a new outpatient service. The hospital manager collected information and made the following judgements-- indirect allocation (overhead) will be $50,000; annual direct fixed costs will be $200,000; and the variable cost per visit will be $20. The staff believes that the new outpatient service can bring in 7,500 visits the first year. In accounting terms, what is the break-even price that the non-profit at a minimum can charge each patient? A. $53.33 per visit B. $33.33 per visit C. $38.33 per visit D. $58.33 per visit 12. A non-profit hospital is thinking about offering a new outpatient service. The hospital manager collected information and made the following jugements-- indirect allocation (overhead) will be $50,000; annual direct fixed costs will be $200,000; and the variable cost per visit will be $20....
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This note was uploaded on 03/30/2008 for the course H P A 447 taught by Professor Graupensperger,ti during the Spring '08 term at Penn State.

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HPA 447 (3) - 1. Sometimes healthcare service providers...

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