5.4. General Hospital, a not-for-profit acute care facility, has the following cost structure for its impatient services:

Fixed Costs:$10,000,000

Variable cost per inpatient day$200

Charge (revenue) per inpatient day$1,000

The hospital expects to have a patient load of 15,000 inpatient days next year.

5.4.a. Construct the hospital's base case projected Profit & Loss (P & L) statement.

5.4.b. What is the hospital's breakeven point?

5.4.c. (1). What volume is required to provide a profit of $1,000,000?

5.4.c. (2). What volume is required to provide a profit of $500,000?

5.4.d. Now assume that 20 percent of the hospital's inpatient days come from a managed care plan that wants a 25 percent discount from charges.Should the hospital agree to the discount proposal?

First, consider what would happen if the managed care patients are lost, that is losing business if the contract is not accepted:

Also consider what would happen if the hospital accepts the discount:

Finally decision should be based on a purely financial standpoint based on this contract, and not based on other future business possibilities.