Reference no: EM131628247

Researchers associated with South Miami Hospital (SMH) developed a new experimental laser treatment for heart patients. Its development team and the physicians who use the laser consider it to be a lifesaving advance. It should be noted that the physicians who are touting the laser hold a significant stake in the company that produces the laser.

To offer a substitute for a balloon angioplasty to treat heart blockages, the experimental laser was developed at a cost of $250,000. SMH estimates that it will cost $20,000 to install the laser. The procedure requires a nurse at $50 per hour, a technician at $30 per hour, and a physician who is paid $750 per hour. Patients are billed $3,000 for the procedure compared to $1,500 for the traditional balloon treatment.

The break-even quantity is

Fixed cost = 250,000 + 20,000 = 270,000

Variable cost = 50 + 30 + 750 = 830 per hour

Cash Break-Even = 250,000 / (3,000 - 830) = 115.2 hours or approximately 116 patients (assuming a one-hour procedure per patient)

This procedure is considered experimental; therefore, it would not be covered under most insurance plans. The experimental nature of the procedure means that part of the development costs are being paid by the patient. Is it ethical for the patient to pay for R&D costs prior to the introduction of the final product? Is it proper for physicians to recommend this procedure when they have a vested interest in its usage?