Finance/Accounting

**PART A ALREADY ANSWERED, PLEASE ANSWER PART C ONLY**

CHAPTER 7: SERVICE LINE COSTING AND PRICING, Homework 3.3, Chapter 7

Valley Forge has the following three payor groups:

Payer	Admissions	Avg Revenue per Admission	Variable Cost per Admission
Commercial	2,000	$6,000	$3,000
PennCare	5,000	5,000	3,500
Medicare	9,000	7,000	3,000

The hospitals fixed costs are 40,000,000

a. Complete the following table, and, determine the hospital's net income.

	Admissions	Avg Rev per Admission	Total Revenue by Payer	VC per Admission	Ttl Variable Costs	Contribution Margin
Commercial	2,000	6,000.00	12,000,000.00	3,000.00	6,000,000.00	3,000.00
PennCare	5,000	5,000	25,000,000	3,500	17,500,000	$1,500
Medicare	9,000	7,000	63,000,000	3,000	2,700,000	$4,000
TOTAL	16,000		$100,000,000		$50,500,000

NET INCOME: $9,500,000

b. Now, assume that half of the 100,000 covered lives in the commercial payer group will be moved to a capitated plan. All utlization and cost data remain the same. Complete the table below and determine the PMPM rate the hospital have to charge to retain the same Net Income calculated in part a.

	Admissions	Avg Rev per Admission	Revenue by Payer	VC per Admission	Ttl Variable Costs	Contribution Margin
Commercial FFS
Commercial Capitated
PennCare
Medicare
TOTAL

PMPM rate:

c. What overall net income would be produced if the admission rate of the capitated group were reduced by 10%?

	Admissions	Avg Rev per Admission	Revenue by Payer	VC per Admission	Ttl Variable Costs	Contribution Margin
Comm FFS
Comm Capitated
PennCare
Medicare
TOTAL

NET INCOME: