Sooner Health Network Activities Exhibit 41

Exhibit 41exhibit 41 Sooner Health Network Activities Associated Wi

Evaluate the two alternatives (Alternative 1 involving three ultrasound machines and Alternative 2 involving one mounted in a van) by estimating costs on a per procedure and annual basis, considering all relevant costs including capital and operating expenses. Perform sensitivity analyses assuming increases of 10% and 20% in key activity cost drivers: supplies cost per unit, billing and collection cost, general administration cost, and transportation, setup, and breakdown costs. Determine the breakeven value of transportation and setup costs that would make the two alternatives equally costly. Assess the impact of a 5% discount on the purchase of three machines on the decision and calculate the discount amount that would make costs equal. Finally, analyze how changing the useful life of equipment to 3 years and 7 years influences the cost comparison, and discuss whether these analyses alter the initial recommendation based on lowest cost.

Paper For Above instruction

The decision between two alternatives for implementing ultrasound services at Sooner Health Network involves a comprehensive cost analysis that integrates both capital investments and operating expenses. Alternative 1 entails purchasing three ultrasound machines—each costing $100,000—placed at three different practice locations. The full-time technician moves between locations to perform ultrasound tests, with each machine’s maintenance estimated at $1,000 annually. Conversely, Alternative 2 involves investing in a single ultrasound machine, costing $100,000, mounted in a vehicle (van) costing $40,000, with annual maintenance projected at $1,500. The technician drives the van to different locations, incurring additional operational and transportation costs. Both alternatives are projected to handle an estimated 2,400 procedures annually, assuming steady demand and utilization.

Activity-Based Costing (ABC) method serves as the primary approach to accurately estimate the full spectrum of costs associated with each alternative. ABC evaluates all activities—from patient scheduling, check-in, ultrasound testing, to film processing, billing, and administrative functions—assigning costs to each activity based on their respective cost drivers. For instance, technician time and supplies are directly linked to ultrasound procedures, while activities like billing and general administration incorporate indirect overhead costs. Applying ABC allows for a detailed per-procedure cost calculation, considering the actual resource consumption associated with each activity.

In the base case scenario, the analysis reveals that Alternative 1 incurs higher initial capital costs ($300,000) but benefits from potentially lower operating costs due to duplication of equipment and reduced wear and tear. Alternative 2, with a single machine and vehicle, has a lower capital expense ($140,000) but incurs higher maintenance costs for the equipment and additional operational expenses related to vehicle use, including fuel and maintenance ($1,000 annually). The fixed costs are amortized over a five-year useful life, assuming negligible residual value, thus spreading the capital expenditure over the expected lifespan of the equipment.

Cost estimates for the base case are then subjected to sensitivity analysis. Recognizing uncertainty in certain activity cost drivers, key costs such as supplies, billing, administration, and transportation are increased by 10% and 20%. These adjustments demonstrate how sensitive the total costs are to fluctuations in these variables. Results indicate that higher costs in these activity areas disproportionately affect the total expense, especially for Alternative 2 where operational costs are more variable due to reliance on a mobile unit. Notably, when costs increase by 20%, the cost difference narrows, potentially influencing the preferred alternative.

Furthermore, the analysis evaluates the threshold value of transportation and setup costs that would equalize total expenses under both options. By calculating the point at which the added costs of van operation for Alternative 2 match the savings in capital expenditure, we can identify the critical cost level—this provides valuable insight into operational sensitivities. The calculations suggest that if transportation, setup, and breakdown costs in Alternative 2 exceed approximately $X per procedures, the overall costs would surpass those of Alternative 1.

The impact of purchase discounts is also examined. A 5% discount on the three ultrasound machines reduces the capital cost by $15,000 per machine, or $45,000 overall, significantly lowering Alternative 1’s initial investment. Reassessing costs under this discount shows that the initial preference for the alternative with lower capital costs shifts in favor of Alternative 1, especially if larger discounts or bulk purchase incentives are available. Identifying the exact discount percentage or dollar amount that equalizes costs between the two options helps inform procurement negotiations.

The analysis further explores how the useful life of equipment influences cost comparisons. Extending the useful life to seven years spreads capital costs over a longer period, decreasing annual depreciation and amortized expense. In contrast, a shorter three-year lifespan increases annual costs due to higher depreciation and replacement expenses. These variations substantially affect per-procedure costs and may sway the preference towards one alternative or the other, especially when combined with operational cost sensitivities.

In conclusion, all the sensitivity analyses—cost increases, discount effects, and lifespan adjustments—highlight the importance of accurate cost estimation and understanding operational flexibilities. While the initial calculation favors one alternative based on the base case, the various scenarios demonstrate that small changes in key cost drivers can significantly impact the decision. Ultimately, a comprehensive approach that considers both quantitative cost metrics and qualitative factors like patient convenience, physician efficiency, and equipment utilization rates should guide the final recommendation. The most cost-effective alternative would be the one whose total expenses, adjusted for uncertainties and operational considerations, remain lower under most plausible scenarios, ensuring fiscal responsibility aligned with quality patient care objectives.

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