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 hospitals fixed cost are 38 $ million .

1. What is the hospitals net income?
2. 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 part a?
3. What overall net income would be produced if the admission rate of the capitated group were reduced from the commercial level by 10 percent?
4. Assuming that the utilization reduction also occurs, what overall net income would be produced if variable cost per admission for the capitated group were lowered to 2,200 $?