An equipment acquisition proposal was being considered by a large health care organization, XYZ Health Care. The array machine will enable the hospital to perform autoimmunity tests (for immunoglobulins G, M, and A and complements C3 and C4) in-house rather than sending them to a reference laboratory. Test turnaround time is expected to decrease by 2 days. The array machine costs $50,000, with a useful life of 5 years. The depreciation schedule will be $10,000/year. The expected volume for tests is one of each of the five autoimmunity tests per day. Having the tests done by the reference laboratory costs the hospital an average of $10/test. The hospital's average charge to patients is $20/test. If the array machine is acquired and the tests done in-house, the costs of reagents would average $2/test. The array machine can run a maximum of 40 patient samples and perform 20 different tests on each sample every 2 hours. Except in extraordinary circumstances, tests would be run Monday thorough Saturday. The machine requires approximately 1 hour of technician time (valued at $15/hour) each day to calibrate it, to conduct a test run for control purposes and to perform general maintenance. This is a fixed cost because it does not vary by volume. Technician setup time to run tests is negligible. Beyond the five autoimmunity tests the laboratory wants to perform in-house, the machine can also perform apolipoprotein cardiac profiles that are currently done on equipment in the clinical chemistry department. The array machine can provide a quantitative measure and not just the positive or negative indicator that the clinical chemistry department's current equipment gives.
Deliverables: The CEO of XYZ Health Care has hired your team as consultants to prepare a report addressing the following questions listed below. Submit one (1) single Microsoft Word document. is a group assignment.
• How many autoimmunity tests per year will have to be performed on the array machine to break even?
• Given the present volume of tests, would there be an annual net contribution and, if so, how much?
• If half of the patients have Medicare coverage (DRG reimbursement includes all tests), would the laboratory break even on the equipment? If not, should the equipment be acquired anyway?