7.4. Assume that Valley Forge Hospital has only the following three payer groups:

Payer Number of Admissions Average Revenue per Admission Variable Cost per Admission

Commercial 1,000 $5,000 $3,000

Penn Care 4,000 $4,500 $4,000

Medicare 8,000 $7,000 $2,500

The hospital's fixed costs are $38 million

7.4.a. What is the hospital's net income?

7.4 b. What overall net income would be produced if the admission rate of the capitated group were reduced from commercial level by 10 percent