Question

A Hospital has a budget of 75,795,000 and must reduce expenses by 12,000,000 in the upcoming year so service lines must be eliminated.One group of board members want to prioritize lines by financial performance. (cut something ) and the second group want to maximize the number of patients served. Make two program budgets. A-Rank programs by the financial performance, what program (s) should be cut B-Rank the programs by the cost per patient, What programs(s) should be cut to get the most patients seen
		Total	Total
	Patients	Revenue	Cost
Pediatrics	500	$3,500,000	$3,400,000
Cardiology	400	12,000,000	11,800,000
Medicine	1,400	18,200,000	17,920,000
General surgery	500	11,500,000	11,375,000
Oncology	800	20,800,000	20,600,000
Psychiatry	500	4,000,000	4,250,000
Obstetrics	600	6,000,000	6,450,000
	4,700	$76,000,000	$75,795,000
		Total	Total
	Patients	Revenue	Cost
Pediatrics	500	3500000	3400000
Cardiology	400	12000000	11800000
General surgery	500	11500000	11375000
Psychiatry	500	4000000	4250000
Obstetrics	600	6000000	6450000
Oncology	800	20800000	20600000
Medicine	1400	18200000	17920000
	4700	76000000	75795000

Answer 1

Analysis and ranking of both the options are as below:

A. On the basis of financial performance, it is clear that Psychiatry (rank 4) and Obstetrics (rank 5) should be removed as these are contributing negatively to the margins. by cutting these two service lines, total cost cut would be $10.7m. which is short to desired cost cut. next ranking (rank 3) is a tie between Pediatrics and Medicine and therefore, Pediatrics should be removed as this service line generates lesser overall margins then Medicine program. Revised numbers would be as below:

B. On the basis of cost per patient, highest cost is of Cardiology (Rank 7). However, removing Cardiology will not serve the purpose as  total cost cut would be $11.8m. which is little short to desired cost cut. Therefore, next costiest programe per patient which is Oncology (Rank 6) should be removed as total cost cut would be $20.6m. which is more then required cost cut. Revised numbers would be as below: