For the following problem, start with the price-setting example from the text. The initial assumptions are provided in the table below:

Total cost	$100,000
Total volume	1,000
Average cost	$100
Payer volumes
Medicare (payment rate = $95)	400
Medicaid (payment rate = $75)	100
Managed Care # 1 (payment rate = $110)	300
Managed Care # 2 (pay 80% of charges)	100
Uninsured (pay 10% of charges)	100
Total all payers	1,000
Desired net income	$5,000

1. Medicare and Medicaid presently account for 50% of the volume. The hospital wishes to reduce its dependence on government payers. Assume that Medicare volume is reduced to 380 patients and Medicaid volume is reduced to 90 patients. The volume from managed-care plan #1 rises to 320 patients from 300. The volume from managed-care plan #2 increases to 110 patients. Thus, total volume is unchanged at 1,000 visits. What is the new price necessary assuming all other factors are unchanged?

2. Start with the original assumptions. The hospital is facing pressure from public-interest groups to control the prices it charges to the uninsured. Assume that the hospital is able through various efficiencies to cut its per-visit cost by 5%. It also negotiates a 7% increase with managed-care plan #1. Assuming all other factors are unchanged, what is the new required price?

3. Start with the original assumptions. Notice that managed care plan #1 receives a much lower price in return for sending a larger volume of patients. Managed care plan #2 (MC#2) wants to pay a lower cost per case and is willing to send 250 more patients (350 total from MC#2) to the clinic in return for a rate of $110 per case. Assume that the average cost per case drops to $90 due to the economies of scale. All other assumptions are unchanged. What is the new required price?

4. Start with the assumptions in problem 3. But now assume that the additional volume does not enable enough economies-of-scale to reduce the average cost per case as much as originally anticipated. Assume now that the average cost per case drops only to $95. What is the new required price?

Please note: You just need to submit the 4 tables for this assignment. No need to send me this whole Instructions doc!!!

Word Tables: You can use this same table from the Practice Exercise doc. Create 4 different tables-- input all the fields just like the example in the Practice Exercise doc.

Excel Tables: Another option is to use Excel. I included an Excel doc with 4 tables (and the Practice Exercise example). These are autocalculated, so you just need to input your numbers.

You can upload that Excel doc with your Word doc when you submit. Or copy and paste in the tables to this doc from Excel doc

Here is the table: (scroll down)

Medicare and Medicaid presently account for 50% of the volume. The hospital wishes to reduce its dependence on government payers. Assume that Medicare volume is reduced to 380 patients and Medicaid volume is reduced to 90 patients. The volume from managed-care plan #1 rises to 320 patients from 300. The volume from managed-care plan #2 increases to 110 patients. Thus, total volume is unchanged at 1,000 visits. What is the new price necessary assuming all other factors are unchanged?

Payers	Computation
Medicare	$95 x 380	$36,100
Medicaid	$75 x 90	$6,750
MC #1	$110 x 320	$35,200
Subtotal		$78,050
MC #2	110 x 80% x 275	$24,200
Uninsured	100 x 10% x 275	$2,750
Total		$105,000
Less costs		$100,000
Total profit		$5,000

Managed care plan #2 (MC#2) wants to pay a lower cost per case and is willing to send 250 more patients (350 total from MC#2) to the clinic in return for a rate of $110 per case. Assume that the average cost per case drops to $90 due to the economies of scale. All other assumptions are unchanged. What is the new required price?

Payers	Computation
Medicare
Medicaid
MC #1
MC #2	110 x 80% x 275 + 250	$46,200
Uninsured
Total
Less costs
Total profit

Payers	Computation
Medicare
Medicaid
MC #1
MC #2
Uninsured
Total
Less costs
Total profit

Payers	Computation
Medicare
Medicaid
MC #1
MC #2
Uninsured
Total
Less costs
Total profit