I have a case where a CFO of a hospital is questioned by her CEO and board about the cost and pricing for outpatients colonoscopy procedures. A new physician owned ambulatory surgery center opened near by within the last 12 month and the hospital volumes for selective outpatient procedures have dropped dramatically as outpatient surgery cases have migrated to the surgery center. The hospital have been doing About 4,000 outpatient colonoscopy procedures per year but the volume has dropped to less than 2000. The board has atthe hospital to consider reducing their prices from approximately $3500 per hour patients colonoscopy to $1750 which is the current price at the surgery center.The CFO performed some simple revenue analysis and determined that 60% of the current volume is either Medicare or other payers that have fixed free arrangement. A reduction in price would therefore not affect the ultimate level of profit because the hospital prices for colonoscopy procedures would not affect pricing. For the remaining 25% of their current book of business, payment is directly related to price.

How do our needs for cost information relate to existing costing systems and how can I relate the case to this question??