CLAIMS PROCESSING

A fraction of all health care claims requires special processing. On any given day at a particular third-party processing company, 500 claims need to be analyzed and processed. There are two types of employees that handle the claims processing; permanent employees that can each process 25 claims a day, and on average make only 2 mistakes per day and temporary employees that can process 20 claims per day but make on average 4 errors. Each permanent employee costs the processing company $80/day while a temporary employee only costs $50.

The company has set a quality goal of no more than 50 errors day. The company has 40 workstations available, each employee needs one.

(a)What is the optimal mix of claims processors needed at the firm?

In order to meet the new quality goal the processing company can hire specially trained checkers, that each catches 10 errors a day, for the cost of

$45/day. (and will require a workstation each)

(b)Should the processing company hire any checkers? If so how many?

Fractional solutions are possible