Cost Analysis: The Purchase of Health Care Equipment Team Project

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Cost Analysis: The Purchase of Health Care Equipment Team
Project
An equipment acquisition proposal was being considered by a large
health care organization, XYZ Health Care. The array machine will
enable the hospital to perform autoimmunity tests (for
immunoglobulins G, M, and A and complements C3 and C4) in-house
rather than sending them to a reference laboratory. Test turnaround
time is expected to decrease by 2 days. The array machine costs
$50,000, with a useful life of 5 years. The depreciation schedule will
be $10,000/year. The expected volume for tests is one of each of the
five autoimmunity tests per day. Having the tests done by the
reference laboratory costs the hospital an average of $10/test. The
hospital’s average charge to patients is $20/test. If the array
machine is acquired and the tests done in-house, the costs of reagents
would average $2/test. The array machine can run a maximum of 40
patient samples and perform 20 different tests on each sample every 2
hours. Except in extraordinary circumstances, tests would be run
Monday thorough Saturday. The machine requires approximately 1 hour
of technician time (valued at $15/hour) each day to calibrate it, to
conduct a test run for control purposes and to perform general
maintenance. This is a fixed cost because it does not vary by volume.
Technician setup time to run tests is negligible. Beyond the five
autoimmunity tests the laboratory wants to perform in-house, the
machine can also perform apolipoprotein cardiac profiles that are
currently done on equipment in the clinical chemistry department. The
array machine can provide a quantitative measure and not just the
positive or negative indicator that the clinical chemistry department’s
current equipment gives.
Deliverables: The CEO of XYZ Health Care has hired your team as
consultants to prepare a report addressing the following questions
listed below. Submit one (1) single submission at the conclusion of
Week Eleven no later than Sunday, by 11:59 PM EST. This is a group
assignment.
 How many autoimmunity tests per year will have to be performed
on the array machine to break even?
 Given the present volume of tests, would there be an annual net
contribution and, if so, how much?
 If half of the patients have Medicare coverage (DRG
reimbursement includes all tests), would the laboratory break
even on the equipment? If not, should the equipment be acquired
anyway?
The written report must include the following:
 APA formatted cover and reference page
 APA formatted double-spaced typed submission in Arial or Times
New Roman font
 The report must not exceed four to five (4-5) pages (which
excludes the required cover page, reference page and any
provided graphs/illustrations)
Schedule of Deliverables & Important Notes:
 Note: For the purpose of this assignment, please remain in the
previously assigned groups from Week 5: Managed Care
Organization Team Project “Contracts Review”
 Week 10: A final copy of the written report (One submission per
group)
Resources:
Longest, B.B., Rakich, J.S., & Darr, K. (2000). Managing health services
organizations and system. Baltimore: Health Professions Press

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