You have been hired as a consultant to recommend a fixed reimbursement amount (the base rate) to propose during the contract negotiations for Phase 4 hospital services. To help in the analysis, the administrative director has indicated that approximately 60 percent of nursing, ancillary, operating room, and laboratory costs are fixed. The remaining costsradiology, drug, and other servicesare predominantly variable. Furthermore, current payers are reimbursing the hospital at roughly $140,000 for Phase 4 services.

The Center has sufficient capacity to handle about 30 more transplants before fixed costs would increase by a meaningful amount. If marginal volume exceeds 30 transplants, the best estimate is that fixed costs would increase somewhere between 15 and 25 percent.

d) Assume that the fixed-cost proportion is only 50 percent. What price must be set to cover variable costs? What if the fixed-cost proportion is 70 percent? e) Return to the original assumption (60/40) regarding fixed-cost percentages. How do contract costs change if additional fixed costs are required when contract volume exceeds 30? Assume first that fixed costs increase by 15 percent, then assume 20 percent, and finally 25 percent. When answering this question, assume contract volumes of 31 and 60. f) What role do the following 2 factors play in the decision to use marginal cost pricing on the new contract? Reimbursement amounts paid by current transplant third-party payers and The amount of excess capacity in the transplant unit

LOS length of stay: OR cperating rocm