1) A HCO's investment of $2,000 in a piece of equipment will reduce labor costs by $550 per year for the next 5 years. Twenty-five percent (25%) of all patients seen by the firm have a third-party payer arrangement that pays for capital costs on a retrospective basis. Twenty-five percent (25%) of all patients also reimburse for actual operating costs. What is the annual cash flow of the investment? Assume a 5-year life and straight-line depreciation.

2) Your present length of stay on Medicare patients is 7.1 days for 2,300 Medicare admissions. This value is unadjusted for case-mix effects. You have discovered that a normal length of stay should have been 5.5 days. If this level had been realized you would have had 3,680 fewer days of care for Medicare patients. You are trying to determine the amount of actual savings that would be realized if the shorter length of stay could be achieved. You have been told that a shorter length of stay would affect only direct costs of nursing. Your present direct cost of nursing per day is $330. Some of this cost is considered fixed and would not be changed. If 60% of the nursing cost were considered variable, how much saving would be realized through the length of stay reduction?