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

Payer. # of Admissions

PennCare. 1000

Medicare. 4000

Commercial. 8000

Average revenue per Admission

$5000

$4500

$7000

Variable Cost per Admission

$3000

$4000

$2500

Fixed costs are $38,000,000

a. What is hospital's net income

b. 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 part of 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%?

d. 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 $2200?