Your group has been ‘hired’ as interns at Valley Medical Center. Instead of acting as mere go-fors for the duration of the time at VMC, the VP of Finance has decided that it would be a waste to not take advantage of the accounting knowledge that you have accumulated at Bellevue College. In addition, the project assigned would provide a taste of what real-life management accountants are called upon to do.
VMC is a local hospital that provides services to primarily the southern King County area of the State of Washington. If you want full details on what VMC is and what it does, you can find out more at www.valleymed.org (Links to an external site.). One of the largest services VMC provides is in Emergency Services, or the ER as most people like to call it.
Located in the same directory of this document is an excel spreadsheet containing a host of data on the emergency department as well as support departments at VMC. In addition, you will also find detail of revenues and expenses of other departments at VMC. There should also be a tab that will help you cross reference department numbers to department descriptions.
One item that you should notice is that the income statement of the emergency department shows gross patient revenues and then something called contractual adjustments. Gross patient revenues are essentially the number of times a service is performed multiplied times some price. The interesting thing about health care is despite the fact we charge a certain amount, we will not get that amount. All medical facilities enter into contracts with insurance carriers. For a particular type of service, an insurance company may only reimburse 80% of the price of the service provided. In other situations, some insurance companies may only reimburse a fixed amount for the service provided. As a result, the difference between what the medical facility charges and what is actually paid by insurance is considered to be a contractual allowance. The rest of the expenses are fairly self-explanatory. For the purposes of this project, you can ignore other operating revenues.
Another tab that might draw your attention is one called ED_Services_Provided_2011. You will find a summary of the services that were charged to patients. VMC charges patients based on a level. Each level has a set of criteria that would indicate how you would be charged. For the purposes of this project, you can assume that each level consumes a multiple of the resources of the lowest level. So, a Level 3 ED Charge will consume 3 times as many resources as Level 1 ED Charge, while a Level 4 ED Charge will consume 4 times as many resources as a Level 1 ED Charge.
1.Determine whether the Emergency Department is profitable after allocating costs of support departments.
Is there one level charge that is more or less profitable than another? Who should determine what charges should be applied to a patient? What are the advantages/disadvantages on determining who should determine what emergency department charge level should be applied to a patient? Does it matter? Are there any ethical issues involved in this?