Cost allocation in centres, alternative allocation criteria. (15–20 min) 1 Direct costs = €2.40 Indirect costs = €11.52 − €2.40 = €9.12 Overhead rate = € 9.12 € 2.40 = 380% 2 The answers here are less than clear-cut in some cases. Overhead cost item Allocation criteria Processing of paperwork for purchase Supplies room management fee Operating room and patient room handling charge Administrative hospital costs University teaching-related recoupment Malpractice insurance costs Costing of treating uninsured patients Profit component Cause and effect Benefits received Cause and effect Benefits received Ability to bear Ability to bear or benefits received Ability to bear None. This is not a cost. 3 Assuming that McGarrigle’s insurance company is responsible for paying the €4,800 bill, McGarrigle probably can only express outrage at the amount of the bill. The point of this question is to note that even if McGarrigle objects strongly to one or more overhead items, it is his insurance company that is likely to have the greater incentive to challenge the bill. Individual patients have very little power in the medical arena. In contrast, insurance companies have considerable power and may decide that certain costs are not reimbursable – for example, the costs of treating uninsured patients. 5.15
