Standard setting, benchmarking, ethics (continuation of 8-45). Ira Stone, the president of Sharon Hospital, has a meeting with the Medical Economics Group (MEG). MEG is a consulting firm in the health services sector. It reports that Sharon’s billing operations are grossly inefficient. Its standard costing per bill is above 90% ofthe 130 hospitals MEG tracks in its benchmarking database.

Stone suspects the billing group deliberately “padded” its standard costs and standard amounts. Despite large investment in new information systems, the standards for 2007 were not below actual results for 2006. Stone does not want to institute a witch hunt, but he does want to eliminate the fat in Sharon’s cost structure.

Required 1. How might Sharon’s billing operations group have “padded” its standard costs and standard amounts? Why might they do this padding?

2. What steps should Stone take to “reduce the fat” in the overhead costs of the billing oper¬

ations at Sharon Hospital?