Healthcare Finance: Cost Allocation and Concept - Case Study Example

The paper "Healthcare Finance: Cost Allocation and Concept" is an outstanding example of a case study on finance and accounting. It is not fair for Linda to lose out on her bonus just because the outpatient clinic needs additional space. But looking at the bigger picture, the hospital needs expansion due to the increasing number of patients and in the long run, Linda will have her bonus back as soon as the Dialysis Centre is restored since it would produce the same if not more as it will be operated as a separate entity with more room for improvement and expansion. Therefore Linda just needs to be patient and await the construction of the new Dialysis Centre and with time things will go back to normal and so will her bonus.

The new allocation scheme of assigning true facilities cost for the available space of the new Dialysis Centre is better than assigning cost per square foot because, for one, it would be easier to estimate the yearly facilities cost for the new Dialysis Centre since the specific financial details are known (Gapenski, 2009). But on the other hand, the end of year bonuses of the employees would reduce. Another disadvantage of the square footage allocation is that each space was given an equal share of money regardless of its condition. This means that some areas may have more money than required while others may have less. Even though both methods have their fair share of advantages and disadvantages, the true basis method is fairly better than the footage method because all finances are accounted for.

The total cost of the facilities to be allocated to the dialysis center after the principal and the interest has been cleared is calculated as follows;

Total cost of $4 million + (20 * annual interest of $400,000) = $4 million + $ 8million =$12 million.

Even though plagued with financial uncertainty, the new Dialysis Centre will attract more patients. This is because it will be located in a more convenient area for the patients and the Centre employees in terms of parking. And in case the number of patients increases such that the facility can’t accommodate them comfortably, there’s more room for expansion without having to move to a different location, although this would mean that the hospital would have to cough out a lot more finances than initially anticipated (Gapenski, 2009). Some patients may also find it favorable since it will specialize with kidney patients only which would help avoid confusion whereby one doesn’t know which side deals with kidney dialysis and which one deals with the outpatients.

Though the hospital has one pharmacy, the Dialysis Center uses most of the medication in its dialysis treatments, therefore, bringing back most of the profit. This, however, is not indicated by the pharmacy when drawing up its profit and loss statement which means that the Centre is not acknowledged for the huge profits it accrues to the hospital as a whole. Therefore the new Dialysis Centre should have its own independent pharmacy.  

All issues considered, the pharmacy should be handled as an independent entity so that the pharmacist can keep track of which medication is crucial and which drugs should be stocked so as to avoid circumstances where patients lack crucial medication which could save their lives. Therefore the pharmacy revenues should not be included in the overall profit and loss account of the hospital rather, it should be on its own. That is, there should be a profit and loss account for the pharmacists only.