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Fixed Costs, Net Income, Capital Plan, & Utilization Reduction

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Fixed Costs, Net Income, Capital Plan, & Utilization Reduction

Assume that Valley Forge hospital has only the following three payer groups:
Payer # of Admissions Avg. revenue/admission Variable cost/admission
PennCare 1,000 $5,000 $3,000
Medicare 4,000 4,500 4,000
Commercial 8,000 7,000 2,500

The hospital's fixed costs are $38 million. a.) What is the hospital's net income? b.) Assume that half of the 100,000 covered lives in the commercial payer group will be moved into a capitated plan. All utilization and cost data remain the same. What PMPM rate will the hospital have to charge to retain its Part a net income? c.) What overall net income would be produced if the admission rate of the capitated group were reduced from the commercial level by 10%? d.) Assuming that the utilization reduction also occurs, what overall net income would be produced if the variable cost per admission for the capitated group were lowered to $2,200?

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Solution Summary

The Solution analyzes the hospital's fixed costs, net income, capital plan and utilization reduction.

$2.19