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Rate to Generate Profit

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Assume that a certain nursing home has two categories of payers. Medicaid pays $65.00 per day and private pay patients pay the established per diem, but approximately 10 percent of private-pay charges are not collected. Variable costs are $50.00 per day and fixed costs are expected to be $2,000,000. Expected volume is 100,000 patient days.

a. If 50 percent of the patients are Medicaid and 50 percent are private pay, what rate must be set to generate $300,000 in profit?

From the information used to answer part a. change the charges and profit amount to whats described in part b.
b. Assume that the nursing home charges $150 per day, what would be the nursing home's required volume (in patient days) in order to make $150,000 profit?

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a) Medicaid Private Pay
Number of Days 50, 000 45, 000
Fees $65 ...

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Chidi Ngene, M. Sc.
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  • B. Sc., University of Nigeria
  • M. Sc., London South Bank University
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