Assume that Valley Forge Hospital has only the following 3 payer groups:

Payer	number of Admission	avg Revenue per Adm	Variable Cost per Adm
PennCare	1000	5000	3000
Medicare	4000	4500	4000
Commercial	8000	7000	2500

The hospital's fixed costs are 38million.

a. What is the hospital's net income?

b. Assume that half of the 100,000 covered lives in the commerical 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 Part a net income?

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

d. Assuming that utilization reduction also occurs, what overall net income would be produced if the variable cost per admission for the capitated group were lowered to $2,200?