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

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?