Empatica Medical Centre Ltd.

In London's West-End, you will find the private hospital Empatica Medical Centre, established in 1985. The hospital's five main departments are:

General Health Care

Accident and Emergency (treatment of acute problems)

Surgery and post-operative unit

Medical Support (laboratories, x-ray radiology, cardiology, MR and CT Scanning, pharmacy and

various medical equipment)

Administration (management, finance and accounting, ICT, marketing, customer service and

customer booking)

Empatica offers a wide variety of medical services. In recent years, the profitability of the medical center has dropped, and management has decided to look more into one particular service, the Annual Health Check Program, offered by the General Health Care Department.

Empatica Medical Centre has 13,200 members, who pay an annual membership fee of 109.00. This gives them access to the Empatica's doctors and therapists, and the members pay additionally for the various services rendered. Currently, 7,000 of Empatica's clients choose instead to pay 439.00 for their membership and in addition get one annual comprehensive medical check-up. This is the Annual Health Check Program, internally referred to as AHCP.

The consulting firm Young & Moody was recently commissioned to gather relevant information for a cost analysis of this program. Here is a summary of their conclusions:

AHCP should be treated as an internal profit center in Empatica's accounting system, and

relevant revenues and costs should be coded and registered so that we can see how this product

contributes to the company's financial value creation.

There are nine medical doctors who are involved in this program, all full time. According to their

contracts each have signed up to work 160 days per year.

Their average annual salaries including National Insurance Contribution and other social costs are

$ 185 000 each.

The average time spent of each consultation is 45 minutes, and with a 15-minute break between

patients and a one-hour lunch break, the medical doctor can handle seven patients each per day.

In addition to the 45-minute consultation, the subscribers to the AHCP also get services carried

out by the Medical Support Department, such as blood tests and cardiography. These services

take on average 30 minutes to render.

The Medical Support Department charges AHCP for the services they carry out, including cost for

test equipment and other medical supplies. For 2023 the rate is 65.00 per patient.

AHCP is also charged for a portion of Empatica Medical Centre's costs for the premises. These

costs are split according to the actual use of square meters. The budget for 2023 suggests a fixed annual cost for Empatica's premises of totally 1 600 000, and AHCP currently uses 400 of a total of 8 000 square meters.

AHCP is also charged for administrative costs in the General Health Care Department. The budgeted administrative costs in 2023 is 902 400, of which 20 per cent is allocated to AHCP. These costs can also be considered fixed. No other costs are currently allocated to AHCP.

Question 2 Calculate the costs of excess capacity in the General Health Care Department, with regards to the Annual Health Check Program. Discuss what Empatica Medical Centre Ltd. could do to reduce these costs.

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Empatica's marketing team was recently contacted by the HR Department of the London City-based private banking firm Greedy Paine Wealth Management. They are currently searching for a new supplier of medical services to their 900 employees, and Empatica is now approaching this company with a fixed price offer for membership, including the Annual Health Check Program.