The Housekeeping Service department of Ruger Clinic, a multispecialty practice in Toledo, Ohio, had $100,000 in direct costs in 2007. These costs must be allocated to Ruger’s three revenue-producing patient services departments using the direct method. Two cost drivers are under consideration: patient services revenue and hours of housekeeping services used. The patient services departments generated $5 million in total revenues in 2007, and to support these clinical activities, they used 5,000 hours of housekeeping services.
1 What is the value of the cost pool? A cost pool consists of all the direct costs of one support department. In this case, the House keeping department of Ruger Clinic had $100,000 as total budgeted costs for …show more content…

If additional fixed costs cause the degree of operating leverage to reach what they consider an unacceptably high level, managers often use variable costs—such as temporary labor—rather than additional fixed costs to meet their operating needs. 4. Compare and contrast the following three methods of developing capitation rates: fee-for-service approach; cost approach; and demographic approach.
Under the fee-for-service method, doctors and hospitals got paid for each service they performed. There were no limits on their treatment decisions; doctors or hospitals could order as many tests as they felt necessary, for example. Doctors and hospitals made a lot of money under this system because they decided the prices charged for every visit. However, patients did not always benefit because their insurance companies would often only pay a percentage of the fees being charged.
The different types of fee-for-service include indemnity plans and reimbursement plans. In an indemnity plan, the insurer sets an amount that it will pay for a specific medical service. In a reimbursement plan, the patient must pay all fees up front and then file claims to be reimbursed by the insurer. Fee-for-service health care is no longer widely in use. Most people today have some kind of managed care insurance.
Under capitation, sometimes doctors reach an