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The North Island Hospital Case Exercise

Robert Johnston, Warwick Business School, and Table 9.3 Charges to patients
Elaine Palmer, University of Auckland, New Zealand

Traditional treatment
Rod Dowling is the chief executive of the North
Island Hospital (NIH) in New Zealand. His clinical Radiography services 15 mins @ $500lhr
directors had just submitted a report for some Use of operating theatre 60 mins @ $1000lhr
new laser technology that treats kidney stones. Anaesthetist 60 mins @ $900/hr
• This would require a capital outlay of NZ Urologist 60 mins @ $1100/hr
$1,500,000, for equipment that would only be Theatre nursing 90 mins @ $100/hr
Post-op care 6 days @ $900/day
needed two and a half hours per week. While this
seemed to make little financial sense, the med-
Laser trreatment
ical case was compelling.
Laser technician 60 mins @ $500/hr
Lithotripsy is the diagnosis and treatment of
Use of operating theatre 60 mins @ $1000/hr
kidney stones. The traditional treatment involves
Theatre nursing 90 mins @ $100/hr
radiography to locate precisely the stone or
Post-op care 4 hours @ $900/day
stones in the patient's kidney and then surgical
removal under a full anaesthetic. Both these
treatments are not without risk and require four around NZ $8,500 (UK £2,600). (The theatre
to eight days' post-operative recovery. However, charge is a standard charge, which covers the
these operations can be carried out routinely use of the facilities and equipment depreciated
using the existing theatres, urologists, nursing over three years.)
staff and equipment.
Although the new laser equipment is compact,
The new laser treatment represents a significant theatre space is at a premium at the NIH and Rod
advance on previous treatment. It is non-invasive Dowling is already under pressure to build a new
and in essence 'explodes' the kidney stones theatre (at an estimated cost of NZ $500,000).
through precisely directed laser beams. The Rod is aware that the four other hospitals on the
resultant particles are then small enough for the Island are using the traditional treatment for
patient to pass with their urine. The procedure kidney stones. (The five hospitals lie around the
does not require any anaesthetic. After treatment perimeter of the Island at about 320-kilometre
patients need to be observed for an hour or so in intervals.) Rod starts to wonder if ~e could pro-
a post-operative area and then spend three vide laser treatment to all patients on the North
hours in a day unit, where they are encouraged Island - maybe he could zap patients by internet
to drink quantities of water. Patients can go or use 'star wars' technology?
home the same day. The specialist laser equip-
ment needs to be operated by a technician.
Current numbers of patients requiring treatment
1 Assess the advantages and disadvantages of
for kidney stones at the NIH are running at just
investing in the new technology for the hospi-
less than 100 per year. The hospital charges its
tal and its patients.
patients for treatment as per Table 9.3, with the
average costs for removal of kidney stones being 2 What advice would you give Rod?