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

Number of Admissions

Average Revenue per Admission

Variable Cost per Admission

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

PennCare 4,000 $4,500 $4,000

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

The hospital's fixed costs are $38 million.

Assume that half of the commercial payer group will be moved into a capitated plan. The new capitated group will consist of 100,000 covered lives. All utilization and cost data remain the same. What PMPM rate will the hospital have to charge to retain its net income?

$2.08

$4.17

$10.00

$65.83