Thetablebelowprovidesrelevantdatafromthelast 12months,bypayer, forMagnoliaHospital.

			Annual	Avg.Revenue	Var.Cost
	Utilization	Members	Admissions	perAdm.	perAdm.
Commercial	0.25	4,000	1,000	4,200	3,000
Medicare	0.75	3,000	2,250	5,400	4,800
BCBS	0.25	4,000	1,000	4,200	3,200
Nopay	0.25	1,000	250	-	1,800

Otherrelevant information:LastyearallofMagnolia'spayercontractswereprospectivepayment based onDRGs.Total fixedcostswere$2,100,000.Magnolia iscurrentlyinacontract negotiationwithBCBS regarding a potential capitated contract.

REQUIRED

Answerthefollowingquestionsandprovideyouranswertoeachquestion separately.Besuretoshow me calculations that you feel are needed to help me understand how you arrived at your answers.

1. Whatwasthetotaloperatingincome ofMagnolialastyear?(Youdon'thavetoanswer thiswitha formal income statement presentation, just show me how you calculated the total operating income).

1. Holding all other factors from the previous year constant, what amount would the capitated contractpermemberpermonth(PMPM)needtobeinordertomakethesameoperatingincome (i.e., the total operating income from all payers) as last year?

1. Basedonyouranswerin#2regardingthePMPMcapitatedamountforBCBS,andholding allelse constantfromtheprevious year,woulditbeworthitifMagnoliaincreaseditsfixedcostsfromthe previous year by $400,000 in order to implement a utilization management program that would decrease utilization for the BCBS members to .22?