1. Compare FMMG's Process Costs to the averages of all private thoracic practices, and to the other three practices in the benchmarking group. Which business processes are significantly higher or lower than the other practices?. What business conclusions can be drawn from this data? What are the implications for process improvement and cost reduction?

2. Use Table 2 to compare the Maintain Medical Records process costs across the five benchmarks. Suppose you are told that Practice # 1outsources its Maintain Medical Records process. What are the implications for FMMG?. What would you recommend? Are you sure?

3. Four processes are activated for thoracic practices to be paid for their services: Obtain Insurance Authorisation, Billing, Collect Payments and Resolve Collection Disputes. How does FMMG compare to other practices?. What should FMMG do?

4. Practice # 1 does not use physician's assistants (PAs) to assist its doctors in the operating room because Medicare does not reimburse for this expense. The rationale is that hospital-employed PAs can assist in the operating room. FMMG, however, does use PAs in the operating room. Should FMMG continue to use its PAs in the operating room?

5. Use Table 6 to compare FMMG's per unit cost of the four cost objects to the averages shown. Discuss. Do your answers here seem consistent to your answers to (1)?. If so, explain why they should be consistent to your answers to (1)?. If so, explain why they should be consistent. If not, explain what is causing the inconsistencies.

6. Given your answer to (5), which process costs seem the most out of line (too high) for FMMG? Explain. Use the information in Table 7 to look at the process costs per unit.

7. In manufacturing, capacity represents the work that could be performed if all the resources of the factory are used to their full potential. For example, running three shifts a day, a factory should be able to their full potential. For example, running three shifts a day, a factory should be able to produce a given output per year. A management accountant could then compute unit cost using ''practical capacity'' or ''actual utilization'' as a base. In a manufacturing setting, the argument in favor of using practical capacity as a denominator to compute unit costs is that it eliminates the effect of volume differences on cost computation, and that it suggests what a product should cost if capacity is fully utilized. On the other hand, practical capacity can be arbitrary, masks the actual costs, and may be difficult for non-accountants to understand. What is the relevance of capacity considerations in a medical practice? To benchmark against other practices, should FMMG compute the cost of each unit of service delivered on a capacity base or an actual volume base?. When would capacity or actual volume bases be most appropriate in medical practices?

Table 2 Breakdown of MMR Process Cost Practice # 1 3 7 FMMG Database Average Exp. Abbvn EXPENSE LINE ITEM Staff salaries-administrative Staff salaries-clinical Office supplies & postage Transcription service Sustain business Maintain facility $1,212 $0 $121 $33,4701 $1,200 $2341 $12,625 $12,431 $7,264 $0 $0 $13,254 $13,544 $14,855 $1,276 $5,233 $0 $7,823 $7.477 $16,126 $21,670 S6,618 $0 0 $12,436 $12,855 $13,214 Sal-Adm $4,873 Sal-Clin $6,713 Ofc Sup $2,487 Trns Svc $12,413 Sust Bus $17.433 Facility TOTAL $36,237 $59, 118 $36,664 $69,705 $57,133 Table 3 - Personnel at FMMG; Allocation of employee time to processes Physicians Dr. Don Fannon Thoracic Surgeon Partner of FMMG Dr. Dan Martens Thoracic Surgeon Partner of FMMG Dr. Mark Stein Thoracic Surgeon Surgeon employee Clinical Staff John Lee Physician Assistant Full-time Nicholas Hunter Physician Assistant 40%-time Joann Wallace Physician Assistant 40%-time Administrative Staff Ms. Kathy Nielsen Practice Manager 50%-time Ms. Kelly Smith Scheduling Coordinator Full-time Ms. Linda Evans Administrative Assistant; Backup Surgery Scheduler Full-time Ms. Miriam Black Billing and Collection Representative Full-time Ms. Dee Andrews Billing and Collection Representative Full-time Ms. Susan Grant Statistics Coordinator; Computer Systems Manager 60%-time 60% Susan Process Clinical Personnel 100% 40% 40% John Nicholas Joann 30 16 16 55 16 16 SPO Administrative Personnel 50% 100% 100% 100% 100% Kathy Kelly Linda Miriam Dee 40 40 10 10 10 10 30 10 10 20 5 5 10 20 25 30 20 30 25 5 4 4 SPH Auth MMR Sched Bill Collect Disputes 3rd pties MPE Sust Bus 5 5 5 4 4 50 10 20 60 Facility 5 100 50 100 100 100 60 100 40 40 ABC/ABM in Healthcare Case, Part II Siegel, Kaciuba & Mangold Page 6 of 11 6 Table 1 Process Costs and Practice Information Practice # 1 3 7 FMMG Database Average Proc. Abbvn TOTAL COST OF PROCESSES Service Patients in the Office Service Patients in the Hospital Obtain Insurance Authorization (a) Maintain Medical Records Schedule & Coordinate Surgeries Billing (a) Collect Payments (a) Resolve Collection Disputes (a) Provide Information to 3rd Parties Teaching & Research Maintain Professional Education $383,011 $101,268 $41,797 $36,237 $20,720 $51,584 $16.766 $11,263 $20,720 $0 $13,035 $63,434 $71,120 $17.422 $59,118 $26,694 $18,218 $6,445 $6,751 $17,558 $2,376 $18,467 $74,908 $153,029 $9,122 $36,664 $44,435 $41,0011 $35.759 $60,938 $15,683 $0 $27,264 $347,045 $186,764 $45,930 $69,705 $30,915 $64,950 $54,199 $58,333 $16,989 SO $31,118 $212,046 SPO $173,192 SPH $28,991 Auth $57,133 MMR $36,415 Sched $45,352 BILI $26,234 Collect $32,792 Disputes $17,230 3rd pties $297 T&R $37,163 MPE TOTAL $696,401 $307,603 $498,803 $905,948 $666,845 (a) Total Reimbursement Processes Sustain & Manage Business Maintain Facility $121,410 $326,987 $88,785 S48,836 $92,475 $77,856 $146,820 $117,640 $145,458 $223,412 $153,906 $223,180 $133,369 Reimb $170,211 Sust Bus $121,203 Facility Number of MDS Number of no-charge office visits Number of charge office visits Number of charge hospital visits Number of surgeries 868 2,518) 570) 546 418 334 54 263 2 333 215 28 208 1,188 1,975 779 639 4.1 1,038 422 97 727 Note: Four separate business processes are often bundled together and are known as the Reimbursement processes, and the total of these four processes is noted separately in (a). Two business processes (Sust Bus and Facility) are reallocated to the other processes in the ABC model, rather than directly to cost objects, so the costs of these two processes are included in the other listed processes. The costs of each of these two business processes are listed for information purposes only. ABCIABM Healthcare Case, Part II Siegel, Kaciuba & Mangold Page 5 of 11 Table 5 Breakdown of Service Patients in the Hospital Process Database Practice # 1 FMMG Average Exp. Abbvn Expense Line Items Staff salaries-administrative Staff salaries-clinical (RNS) Staff salaries-clinical (PAS) Sustain business TOTAL $24,803 $39,223 $0 $37,242 $101,268 $10,751 $0 $145,063 $30,950 $186,764 $18,521 Sal-Adm $18,870 Sal-Clin-RNS $101,290 Sal-Clin-PAs $34,511 Sust Bus $173,192 Table 6 Unit Costs Database Average Practice # 1 3 7 FMMG No-charge office visit Charge office visit Charge hospital visit Surgery $1331 $1491 $24 $353 $157 $1871 $82 $666 $236 $330 $178 $1,656 $139 $169 $45 $581 $190 $2271 $66 $505 ABC/ABM in Healthcare Case, Part II Siegel, Kaciuba & Mangold Page 8 of 11 Table 4 Breakdown of Reimbursement Processes Practice # Database Average Exp. Abbyn 1 3 7 FMMG Obtain Insurance Authorization - Expense Line Items Staff salaries-administrative $12,646 $5,1721 Staff salaries-clinical SO $4,351 Office supplies & postage $4,733 $1,264 Sustain business $9,898 $2,814 Maintain facility $14,520 $3,821 TOTAL $41,797 $17.422 $4,803 $0 $324 $1,852 $2,143 $9,122 $21.501 $0 $0 $11,574 $12,855 $45,9301 $8,551 Sal-Adm $2,400 Sal-Clin $4,707 Ofc Sup $6,281 Sust Bus $7,052 Facility $28,9911 Billing - Expense Line Items Staff salaries-administrative Staff salaries-clinical Office supplies & postage Sustain business Maintain facility* TOTAL $18,646 $0 $4,825 $11.723 $16,390 $51,584 $10,102 $0 $1,564 $2,814 $3,738 $11,803 $9,533 $3,783 $7.473 $8,409 $41,001 $29,5641 $0 $6,617 $15,914 $12,855 $64,950 $17,425 Sal-Adm $2,853 Sal-Clin $5,262 Ofc Sup $8,765 Sust Bus $11,047 Facility $45,352 $18,218 Collect Payments - Expense Line Items Staff salaries-administrative $8,2350 Office supplies & postage $563 Sustain business $4,178 Maintain facility $3,790 TOTAL $16,766 $2,512 $0 $1,2421 $2,691 $6,445 $26,435 $323 $3,569 $5,432 $35,759 $26,876 $0 $14,467 $12,856 $54,199 $17,223 Sal-Adm $864 Ofc Sup $3,412 Sust Bus $4,735 Facility $26,234 Resolve Collection Disputes - Expense Line Items Staff salaries-administrative $3,253 $2,8171 Staff salaries-clinical $0 $0 Office supplies & postage $313 $247 Sustain business* $3,743 $1,642 Maintain facility $3,954 $2,045 TOTAL $11,263 $6,751 $17,541 $15,632 $520 $12,678 $14,567 $60,938 $29,564 $0 $0 $15.914 $12,855 $58,333 $12,633 Sal-Adm $1,240 Sal-Clin $890 Ofc Sup $8,765 Sust Bus $9,264 Facility $32,792 * Sustain business and Maintain facility are two business processes that are reallocated to the other business processes, rather than to the final cost objects directly. ABC/ABM Healthcare Case, Part II Siegel, Kaciuba & Mangold Page 7 of 11 Table 7 Breakdown of Unit Costs 1 3 7 Database Average Exp. Abbvn FMMG Practice # Process costs in a no-charge office visit Service Patients in the Office Maintain Medical Records Billing TOTALI $113 $8 $121 $133 $85 $55 $17) $157 $1371 $47 $52 $236 $110 $15 $141 $139 $145 SPO $25 MMR $20 Billing $190 1 3 7 Database Average Exp. Abbyn FMMG Practice # Process costs in a charge office visit Service Patients in the Office Maintain Medical Records Billing Collect Payments Obtain Insurance Authorization TOTAL $113 $8 $ $12 $4 $12 $149 $85 $55 $17 $100 $20 $187 $1371 $47) $52 $80 $14 $330 $1101 $15 $14 $16 $ $14 $169 $145 SPO $25 MMR $20 Billing $21 Collect $16 Auth $227 Practice # 1 3 Database Average Exp. Abbyn 7 FMMG Process costs in a surgery Maintain Medical Records Billing Collect Payments Obtain Insurance Authorization Service Patients in the Hospital Schedule & Coordinate Surgeries Resolve Collection Disputes Provide Information to 3rd Parties Teaching & Research Maintain Professional Education $8 $12 $4 $23 $185 $38 $21 $38 $0 $24 $353 $55 $17 $10 $41 $ $270 $101 $26 $67 $9 $70 $666 $47 $52 $80 $290 $736 $214 $2931 $75 $0 $130 $1,656 $15 $14 $16) $28 $292 $49) $91 $27) sol $49) $581 $25 MMR $20 Billing $21 Collect $31 Auth $238 SPH $50 Sched $45 Disputes $24 3rd pties $0 T&R $51 MPE $505 TOTAL ABC/ABM in Healthcare Case, Part II Siegel, Kaciuba & Mangold Page 9 of 11