COST ALLOCATION Medicare legislation limits reimbursement to hospitals for the costs of treating Medicare patients. Given the large sums involved, it is not surprising that hospitals have an incentive to recover as much cost allowed by law as possible. Hospital departments may be divided into two categories: (1) revenue producing departments and non-revenue producing departments. Costs of non-revenue producing departments must be allocated to revenue-producing departments using either the step method or a simultaneous solution method. When the step method is used, Medicare specifies that the costs of non-revenue producing departments are to be the allocated according to the following order Non-revenue Department Depreciation -- buildings Depreciation -- movable equipment Employee health & welfare Administrative & general Maintenance & repairs Operation of plant Laundry & linen service Housekeeping Dietary Maintenance of personnel Nursing administration Central supply Pharmacy Medical records Social services Nursing school Allocation Basis Square feet in each department Dollar value of equipment in each department Gross salaries in each department Accumulated costs by department Square feet in each department Square feet in each department Pounds used in each department Hours of service to each department Meals served in each department Number of employees in each department Hours of supervision in each department Costs of requisitions processed Costs of drug orders processed Hours worked for each department Hours worked for each department Assigned time by department Parent's Hospital is a small rural health care facility located in the Southwest. As the cost analyst, you are to prepare an allocation of the cost of non-revenue producing departments to the revenue producing departments and calculate the Medicare reimbursement. During the past year, departmental costs were Non-revenue Producing Revenue Producing $ 1,450,000 160,000 125,000 2,800,000 $ 250,000 830,000 Laundry & Linen Depreciation -buildings Employee health & welfare 375,000 Maintenance of personnel210,000 Central supply Operating Room Radiology Laboratory Patient rooms 745,000 Percentage usage of services by one department from another department and the proportional usage of producing COST ALLOCATION Medicare legislation limits reimbursement to hospitals for the costs of treating Medicare patients. Given the large sums involved, it is not surprising that hospitals have an incentive to recover as much cost allowed by law as possible. Hospital departments may be divided into two categories: (1) revenue producing departments and non-revenue producing departments. Costs of non-revenue producing departments must be allocated to revenue-producing departments using either the step method or a simultaneous solution method. When the step method is used, Medicare specifies that the costs of non-revenue producing departments are to be the allocated according to the following order Non-revenue Department Depreciation -- buildings Depreciation -- movable equipment Employee health & welfare Administrative & general Maintenance & repairs Operation of plant Laundry & linen service Housekeeping Dietary Maintenance of personnel Nursing administration Central supply Pharmacy Medical records Social services Nursing school Allocation Basis Square feet in each department Dollar value of equipment in each department Gross salaries in each department Accumulated costs by department Square feet in each department Square feet in each department Pounds used in each department Hours of service to each department Meals served in each department Number of employees in each department Hours of supervision in each department Costs of requisitions processed Costs of drug orders processed Hours worked for each department Hours worked for each department Assigned time by department Parent's Hospital is a small rural health care facility located in the Southwest. As the cost analyst, you are to prepare an allocation of the cost of non-revenue producing departments to the revenue producing departments and calculate the Medicare reimbursement. During the past year, departmental costs were Non-revenue Producing Revenue Producing $ 1,450,000 160,000 125,000 2,800,000 $ 250,000 830,000 Laundry & Linen Depreciation -buildings Employee health & welfare 375,000 Maintenance of personnel210,000 Central supply Operating Room Radiology Laboratory Patient rooms 745,000 Percentage usage of services by one department from another department and the proportional usage of producing