Backstory: emphasizes the role of managerial accounting in pricing decisions and profit analysis in healthcare. It distinguishes between price takers and setters, where some providers accept market prices, while others can influence prices. The chapter introduces full$-$cost and marginal cost pricing, highlighting the recovery of variable costs. Target costing is discussed as a strategy to align costs with given service prices. Profit analysis $($CVP$)$ helps understand the impact of volume changes on profits, while breakeven analysis estimates the volume needed to achieve profit goals. Contribution margin, marginal analysis, and capitated environments are also key topics, emphasizing effective cost management and aligning cost and revenue structures for financial success.

Discussion Questions

$1.$ What is target costing? Suppose a hospital offered a capitation rate for a covered population of $$100$ per member per month $($PMPM$).$ Briefly explain how target costing would be applied in this situation.

$2.$ Consider two primary care physician groups in Dallas: Uptown Physicians and Metro Doctors. Uptown Physicians is paid on a capitation basis by all of the members in its plan. Metro Doctors is paid based on Fee$-$for$-$Service, including a payment for every office visit, lab test ordered, and so forth. In March, $2020,$ a pandemic hits and there is a widespread lockdown that lasts for months. What will happen to the revenue streams of Uptown and Metro? Which of the two is more likely to furlough its workforce or even close its business permanently? Based on this, should the group practice prefer capitation over fee$-$for$-$service?