Question

Capitol are Center Patient analysis • 25 Medicare patients, who pay $1,200 per diagnosis • 25 Medicaid patients, who pay $925 per diagnosis • 25 managed care patients, who pay charges minus a 25% discount • 5 managed care patients, who pay charges minus a 20% discount • 3 private-insurance patients, who pay charges • 8 charity-care patients, who pay nothing • 9 bad-debt patients, who pay nothing Next year, Capitol's costs will be $1,250 per patient. If that charge per patient exceeds the limit of $1,750 imposed by payers that pay charges or a discount from charges, calculate the reduction in costs per patient necessary to break even.

Answer 1

Answer

Let’s Take Charges = X

Patients	Charges	Total Cost
25 Medicare	1,200.00	30,000.00
25 Medicaid	925.00	23,125.00
25 Managed	X - 20%	20X – 20% = 16X
5 Managed Care	X - 25%	5X – 25% = 3.75x
3 Private	X	3X
8 Charity	-	-
9 Bad Debt	-	-

It is mentioned that Cost per patient is 1,250 and there are total of 100 patients (25 +25 +25 +5 +3 +8 +9)

Total Cost of Patients = 125,000 (100 patients * $1,250 per patient)

So we will have to find Breakeven before the change first,

Breakeven point is where the profit is equal to Zero, or we can say that Revenue = Cost

Total Cost of Patients = 30,000 + 23,125 + 16x + 3.75x + 3x

125,000 = 53,125 + 22.75x

X = (125,000 - 53,125) / 22.75

X = $3,159.4

Charge = $3,159.4

2.

If charge is 1,750 per patient, then

Cost Equation = 53,125 + 22.75x

Where x = 1,750

$53,125 + (22.75 * $1,750)

Total cost if Charge is $1,750 = $92,937.5

And Total Cost is 125,000

So we have less revenue than cost.

So for Breakeven we need Additional Revenue of $32,062.5 (125,000 - 92,937.5) to cover cost or we can say for Breakeven.

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