Assume the following information about projected cost and charges for a hospital in 2016: Fixed Costs = $10,000,000 Variable Cost per Inpatient Day = $200 Charge per Inpatient Day = $1,000. Initial Volume of 15,000 Inpatient Days

Back to the base case. Now assume this hospital has a sole payer, an HMO, which proposes an annual capitation payment of $200 for each of its 75,000 members for the inpatient stays. Past experience indicates the population served will average 0.2 inpatient days per year. What will be the total revenue on this contract? What will be the expected annual inpatient days? Construct the hospitals P&L statement on this contract. What is the hospitals break-even point (volume) on this contract? Show your work. Interpret the result. (Suppose you need to explain to a health services manager) Yes or No. Will the hospital get profit if it operates in a volume higher than this break-even point?