Apple Valley Family Practice: Case Study

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In today’s fiercely competitive healthcare market, profitability is the end-goal for most, if not all, of the healthcare institutions. If profitability is vital to a healthcare institution, how can it be best assessed or determined, and what happens when specific institutional departments drain the bottom line? The goal of this paper is to identify cost allocation methods that most accurately and effectively determine profitability, specifically related to the details of the Apple Valley Family Practice. In the Apple Valley Family Practice, there are three patient service departments generating revenue: Adult Medicine, Obstetrics, and Pediatrics. In the practice, there are three non-generating profit cost centers that require allocations:…show more content…
As the relative size of the overhead cost pools increase, the Apple Valley group would need to switch to the double apportionment method in order to accurately allocate all overhead costs. Also, the double apportionment method is a more fair and equal allocation method to the patient services departments. As allocation rates increase and become more concentrated in only the patient services departments, the sensitivity improves as costs are directly attributed to profit generating cost centers. These allocations are based on estimates, and absolute patient volume provides the most accurate assessments for profitability. Regardless of the allocation method, Adult Medicine is the most profitable department, and Obstetrics is the next most profitable department. Pediatrics is not profitable for the organization. The Step-down method does not highlight the highest allocation amounts, but our group chooses this method as the best option for the Apple Valley group because the costs are allocated specifically to the departments that use those services. It is also an efficient method for the company to use. Even though Pediatrics is not profitable for the Apple Valley Family Practice, our group chose to keep the department for several

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