Question

HSA, a local hospital system has set up a new vaccination facility for a virus that is causing serious illness in the region.

The total cost for the set up is $300,000. The hospital system services patients with all types of insurance. They would like to make $10,000 extra income at the end of the year. In terms of the number of patients, they have Medicare (30%), and Medicaid (25%), Managed Care Type I (5%), Managed Care type II (35%), and Uninsured (5%).

The first three categories have fixed payment rates, for Medicare $180, Medicaid $170, and Managed care Type I $225. The other two pay based on the hospital charges (or prices). Managed Care Type 2 pays 80% of the charges and the Uninsured pay on an average 10% of the charges.

The expected annual volume is 2000.

1. Determine the price (charges) the hospital system can charge for the vaccination to obtain the desired extra income.
2. Using the price obtained in part (a) compute the total income the hospital can get, and show that with the targeted price, it can get the $10,000 extra income.

Answer 1

Number of Patients

Total Number of Patients = 2,000

Number of Medicare patients = 30% of total i.e. 600 patients

Number of Medicaid patients = 25% of total i.e. 500 patients

Number of Managed Care Type I = 5% of total i.e. 100 patients

Number of Managed Care Type II = 35% of total i.e. 700 patients

Number of Uninsured Patients = 5% of total i.e. 100 patients

Target revenue

Target Revenue to be acheived = Total Cost + Additional Income

Target Revenue to be achieved = $300,000 + $10,000 i.e. $310,000

Revenue

Revenue from predetermined prices

Revenue from Medicare patients = 600 patients @ $180 i.e. $108,000

Revenue from Medicaid patients = 500 patients @ $170 i.e. $85,000

Revenue from Managed Care Type I = 100 patients @ $225 i.e. $22,500

Total Revenue from predetermined prices = $215,500

Revenue to be earned from remaining 2 categories of patients = Target revenue - Revenue from predetermined prices

= $310,000 - $215,500 i.e. $94,500

Price to be charged

Let Price to be charged from remaining patients be X

Revenue received from Managed Care Type II patients is 80% i.e. 0.8X

Revenue received from uninsured patients is 10% i.e. 0.1X

Revenue to be earned from remaining categories = $94,500

Revenue from Managed Care Type II patients + Revenue from uninsured patients = $94,500

(700 patients @ 0.8X) + (100 patients @ 0.1X) = $94,500

560X + 10X = $94,500

570X = $94,500

X = $165.78947

Price to be charged = $165.78947

Notes:

1. Be careful while reading numbers (with commas)
2. I have provided the price up to 5 decimal places just for your understanding. You can rouund off as per your requirement.
3. I have explained question in detail. Of you still have any doubt, feel free to ask in comment section.