1. Assume that Memorial Hospital has only the three payer groups listed in the table below.

	Number of Admissions	Average Revenue per Admission	Variable Cost per Admission
Commercial	2,000	$7,000	$3,500
PennCare	5,000	$5,500	$4,750
Medicare	7,000	$6,000	$2,700

1. The hospital's fixed costs are $38 million.
2. Answer the following questions:
   • What is the hospitals' net income?
   • Assume that half of the 100,000 covered lives in the commercial payer group will be moved into a capitated plan. All utilization and cost data remain the same. What PMPM rate will the hospital have to charge to retain its net income calculated in the previous step?
   • What overall net income would be produced if the admission rate of the capitated group were reduced from the commercial level by 10 percent?
   • Assuming that the utilization reduction also occurs, what overall net income would be produced if the variable cost per admission for the capitated group were lowered to $2,500?