Midland Medical Center (MMC) operates a general hospital. MMC also rents space and beds to separately owned entities rendering specialized services such as Pediatric and Psychiatric Care. Midland charges each such entry for common services such as patient meals and laundry, and for administrative services such as billings and collections. Midland charged the following costs to the Pediatrics Unit for the year ended June 30, 2011

The Pediatrics unit charged each patient $400 per day to recover the above occupancy and support costs. A patient was charged based on the midnight census (i.e., a bed had been assigned at midnight). During the year ended June 30, 20x1 (assume 365 days), the Pediatrics unit had a capacity of 60 beds and had 20,000 patient days. The Pediatrics unit directly employed personnel with the following annual salary costs per employee: supervising nurses, $75,000; nurses, $50,000; and aides, $30,000. Staffing levels followed medical guidelines as described in the table below. Pediatrics employs only the minimum number of required personnel.

Pediatrics operated at 100 percent capacity for 90 days during the year ended June 30, 20x1, Administrators estimate that on each of these 90 days, Pediatrics could have filled another 20 beds above capacity. (Usually, these overflow patients would be sent to other hospitals in the area.) Looking ahead to 2012, the Pediatrics unit expects similar volumes and occupancy rates. It also believes that prices, costs, and operating policies will remain the same as for the year ended June 30, 2011.

Required: 1. For the Pediatrics unit, calculate the number of patient days required to break even for the year ending June 30, 20x2. 2. MMC indicates that it has excess beds available for rent for the year ending June 30, 20x2. Further, MMC indicates that it will rent these beds, on an as needed basis, to the Pediatrics unit, at cost. a. Determine the net increase or decrease in Pediatrics earnings if Pediatrics rents this extra capacity from Midland Medical Center. b. Suppose that the Pediatrics unit decides to accommodate all patient demand, renting beds from MMC as needed. How does this decision change the number of patient days required for breakeven? 3. Suppose MMC indicates that a bed rental must be for a minimum period of 120 days. a. Determine the net increase or decrease in Pediatrics earnings if Pediatrics rents 20 extra beds from MMC. What additional data, if any, do you need to answer this question? b. Suppose the Pediatrics unit decides to accommodate all patient demand, renting beds from MMC. How does this decision change the number of patient days required for breakeven? 4. Suppose the physicians in the Pediatrics unit wish to keep some patients for an additional day, for observation. Such patients are not included in current operations because insurance firms will only pay $200 per patient day for such days, and Pediatrics currently disallows this practice. These patients will not incur any costs for laboratory or the pharmacy. Assume that there are 300 such patient days with 50 of these days overlapping with the 90 days of peak demand. a. What is the increase in profit if the additional beds can be rented from MMC on an as needed basis? b. What is the increase in profit if the additional beds from MMC are subject to the 120-days minimum requirement?