Assume that Valley Forge hospital has only the following three payer groups: (see photo)

The hospitals fixed costs are $38 million.

a) What is the hospitals 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 a net income?

c) What overall net income would be produced if the admission rate of the capitated group or 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?

Number of Ad Average Revenue Commercial PennCare Medicare missions per Admission P 1,000 4,000 8,000 $5,000 4,500 7,000 Variable Cost er Admission $3,000 4,000 2,500