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?

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