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Utilization Estimates

The SLD Imaging Center is currently negotiating with an MCO to provide diagnostic imaging services to 225,000 covered lives. SLD has fixed costs of $750,000 and capacity for an additional 75,000 patient encounters per year. They have two types of services MRI and CT Scans. MRI's have a variable cost of $495 and CT Scan's have a variable cost of $375. The MCO is currently offering $100 per covered life.

SLD has come up with the following utilization estimates:

- 4% of covered lives will need MRIs
- 6% of covered lives will need CT Scans
- Of those needing either service, 27% will require 3 encounters, 56% will require 2 encounters and the remaining 17% will require 1 encounter.

a. Based on SLD's estimates, how much will they be making or losing if they accept the MCO's offer of $100 per covered life?

b. How many total encounters from the covered lives can SLD take on before they start losing money?


Solution Summary

This solution looks at potential loses or gains of providing a service with given utilization estimates.