You are considering building a dialysis center for Inwood Hospital, and are trying to estimate costs.  All of your employees work 2,000 hours per year.  You have calculated that each patient visit takes up 30 minutes of a nephrologist’s time ($240,000/year), an hour of nursing time ($80,000/year), and 30 minutes of a janitor’s time ($50,000/year).  Each visit consumes about $5 of electricity and $10 of supplies.  In addition, you believe that the center will take up about 10 percent of administrative effort (total administrative budget is $2 million), and add $400,000 to the annual insurance premium.  Last, the unit will take up a new building which will cost $25 million to build and equip.  You will depreciate the building at 2 percent per year.

A. You get the following reimbursement for a dialysis patient:

Private pay$400   (60 percent of all patients)

Medicare$350   (20 percent of all patients)

Medicaid$200  ( 20 percent of all patients)

What is your break-even number of dialysis patients to cover your fixed costs?

B. If you can serve 40,000 patients annually, what is your expected annual profit off of the dialysis unit?