CASE STUDY INFORMATION – THE HOPKINS JOHNS HOSPITAL
The Hopkins Johns Hospital is a private hospital operating in Victoria, Australia. The hospital provides a range of elective medical operations (procedures) that differ with respect to their complexity and the type and intensity of patient-care required. As a private hospital, (i.e., a hospital that is not owned or operated by the State Government or otherwise in receipt of State Government funds), the Hopkins Johns Hospital has discretion as to the volume of procedures provided, the price charged, and the mix1of patients they admit.
The costs of medical operations are currently calculated by determining the direct costs for the particular type of operation and estimating overheads at 135% of direct costs.
Estimated direct costs of the hospital for 2018/19 financial year are:
Hopkins Johns has four operating theatres that are used for nine hours a day for 300 days a year. It is expected that 7,200 operations will be performed during the financial year 2018/19. (Assume that every admitted patient has an operation). The hospital has 15 consultant surgeons engaged in operating theatre work and consultancy. It is estimated that each consultant surgeon will work at the hospital for 2,000 hours in 2018/19.
Management of the Hopkins Johns Hospital is currently considering the adoption of an activity-based costing (ABC) system for the year 2018/19. Under the proposed costing system, the indirect costs of the hospital would be grouped into three categories: admissions and record keeping; caring for patients; and facility-sustaining.
Estimated indirect costs of the hospital for 2018/19 are:

Pre-operation costs2

$1,260,000

Operating theatre costs

4,050,000

Consultant surgeon’s fees

5,250,000

Admissions Costs

Updating patient records

$590,000

Patient/bed scheduling

100,000

Invoicing and collections

160,000

1Patient mix in this context refers to the distribution of patient admissions across the different medical operations (procedures) offered by the Hopkins Johns Hopsital.2Pre-operation costs relate to activities in the preoperative phases of a procedure (i.e., just prior to surgery). These include a baseline assessment of the patient’s vital signs, a preoperative interview, and preparation of the patient for both the anaesthetic to be given and the surgery to follow.
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Patient Care Costs

Nursing services and administration

$9,936,000

Linen and laundry

920,000

Kitchen and food costs (3 meals a day)

2,256,000

Medical supplies used in the hospital ward

1,100,000

Pathology laboratory cost

920,000

Facility-Sustaining Costs

Insurance of buildings and general equipment

$ 60,000

Depreciation of buildings and general equipment

520,000

Housekeeping activities, including ward maintenance, widow cleaning etc.

760,000

Management is yet to decide on appropriate cost drivers to use in the allocation of indirect cost pools but have decided that given the difficulties in determining an appropriate allocation base for facility-sustaining costs these costs will be calculated as 15% of direct, patient care and admission costs.
Other information for 2018/19:
Further information relating to two (of many) types of operations that will be performed at the Hopkins Johns Hospital in 2018/19:

Nursing hours

480,000

Number of pathology laboratory tests

8,000

Patient days

44,000

Number of patients

7,200

Procedure

Cholecystectomy

Gastroscopy

Length of stay in hospital

4 days

1 day

Operation time

2 hours

0.5 hour

Consultant surgeon’s time (which includes time in operating theatres)

3 hours

0.85 hour

Nursing time (for entire stay, including time in operating theatres)

21 hours

7 hours

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ASSIGNMENT REQUIREMENTS – 6 Questions [60 Marks] Question 01 – up to one and a half pages [10 Marks]
How is management likely to use cost information in a setting such as the Hopkins Johns Hospital? Is accurate costing information important in this setting? Explain.
Question 02 – up to one page excluding calculations [10 Marks]
Consider the current costing system at the Hopkins Johns Hospital. What assumptions underlie this system? What is the cost of a cholecystectomy under the current costing system? What is the cost of a gastroscopy under the current costing system? What (if any) problems are there with the current costing system? Explain.