Question

In the United States, organ procurement organizations (OPOs), transplant centres, and the medical

professions coordinate the organ donation process. The US government pays for this treatment

through its Medicare program. What price should the US government pay for these organs from the

taxes it collects from all citizens? Often multiple organs are removed from a single donor, meaning

that there are joint costs such as operating room time, surgeons’ fee, and medications to preserve the

organs.

The OPO insist all costs be allocated to each organ, irrespective of whether the organ is actually

collected for transplant. For example, lung and kidney donations may be planned, but the surgeon

discovers post-mortem that the lungs are not viable. A portion of joint costs will still be assigned to

the lungs; otherwise, total costs of the donation would be assigned to the kidneys.

The payer, the US government, does not want to pay the joint costs assigned to the lungs. The

Medicare program pays only for transplanted organs. Over 62% of all kidney transplant are paid for by

Medicare. Six years ago, a government audit revealed that, of the total of $80 million in organ

acquisition costs, $47 million were unallowed and unsupported.

Some organs, such as one kidney, part of a liver, part of a lung, bone marrow, and stem cells, can be

recovered from live donors. The recovery of these organs requires major surgery and patients are

anaesthetized. The surgeon ensures the donor’s organs are suffused with a protective chemical and

removes the organ. The donated organ is preserved in a chemical and placed in a refrigerated

container for immediate transport. The donor often recovers after two to five days in the hospital.

In contrast, stem cells are recovered from live donors who receive medication to increase the number

of stem cells in the blood for four to five days prior to the transplant. The process is similar to a blood

donation. The stem cells are extracted from whole blood removed intravenously from the donor’s

arm. The rest of the blood is returned to the donor while the stem cells are sealed in plastic packs,

placed in a special container, and transported to the recipient. The donor usually returns home to rest

for the remainder of the day before resuming normal life. The stem cells are injected intravenously

into the recipient’s arm.

Required:

1.

Of the reasons to use acceptable methods to allocate joint costs, which ones are relevant in

this

case?

2.

What costs are incurred beyond the split-off point that differs between these two types of

donations?

3.

What would the separable costs be?

4.

In Canada, where all medically necessary care is paid for from tax revenue, of what relevance

is joint cost allocation

Answer 1

Answer:

1. Joint Cost is defined as the costs incurred in a process that yields multiple products simultaneously.

Now, as per the given data all the general cost must be allocated to all the organs that OPO intends to obtain or which he wants to procure without consider the circumstances whether the OPO actually receive the organs for transplant or not. In the above example of Kidney and Lung whether the Lung is viable or not viable the Joint cost must still be assigned to the Lung transplant otherwise the full cost will bear by the kidney recipient.

Therefore, joint product cost is to be allocated when multiple organs are recovered from single donor. If the joint costs are not allocated properly the result would lead to misrepresentation to medicare as well as to the third party payers for the cost of acquiring a specific organs.

2. Split Off point is the point at which two or more products became separately identifiable. Joint Costs are incurred beyond the split-off point and are assignable to individual products. In two types of donation, the live donors medication is separate cost.

3. Separable costs are any cost which are incurred after the split off point in a process that can be assigned to specific products. For example after the multiple organs removed from single donor after allocating the costs jointly between kidney, lungs or other organs it will be split off and individual cost will be shown. Now if any other cost to be added to kidney or liver or other parts it will be shown individually, it will not be allocated.

4. The tax revenue is collected from the citizens only to the government. The revenue should be utilized in proper way except medical there are other fields also where they have to provide services in a best possible manner. In all the fields whether medical, education, or other developments they have to allocate the revenue in a proper way .

Hence, the joint allocation is required for each and every field for country development