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Rate Obtained From Desired Profit

Activity: You have been asked to establish a pricing structure for radiology on a per-procedure basis. Present budget data is presented below:

Budgeted procedures: 10,000
Budgeted cost $400,000
Desired profit $80,000

It is estimated that Medicare patients comprise 40 percent of total radiology volume and will pay on average $38 per procedure. Approximately 10 percent of the patients are cost payers. The remaining charge payers are summarized below:

Payer Volume% Discount %
Blue Cross 20 4
Unity PPO 15 10
Kaiser 10 10
Self-pay 5 40
___
50%

Question: What rate must be set to generate the required $80,000 in profit in the preceding example?

Solution Preview

Please see the attached file for detailed solutions.

2. Question: What rate must be set to generate the required $80,000 in profit in the preceding example?

Desired revenue = Budgeted Cost + Desired profit = $400,000+$80,000=$480,000
Budgeted cost per procedure = $400,000/10,000=$40.00
Revenue from Medicare patients =10000*40%*$38= $152,000
Revenue from cost payers = 10000*10%*$40=$40,000
Balance ...

Solution Summary

The rate obtained from desired profits is determined.

$2.19