What is the new price necessary assuming all other factors are unchanged?

Total cost


Total volume

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Average cost


Payer volumes

Medicare (payment rate = $95)


Medicaid (payment rate = $75)


Managed Care # 1

(payment rate = $110)


Managed Care # 2

(pay 80{0e601fc7fe3603dc36f9ca2f49ef4cd268b5950ef1bbcf1f795cc00e94cdd119} of charges)


Uninsured (pay 10{0e601fc7fe3603dc36f9ca2f49ef4cd268b5950ef1bbcf1f795cc00e94cdd119} of charges)


Total all payers


Desired net income


1. Medicare and Medicaid presently account for 50{0e601fc7fe3603dc36f9ca2f49ef4cd268b5950ef1bbcf1f795cc00e94cdd119} of the
volume. The hospital wishes to reduce its dependence on government payers.
Assume that Medicare volume is reduced to 380 patients and Medicaid volume is
reduced to 90 patients. The volume from managed-care plan #1 rises to 320
patients from 300. The volume from managed-care plan #2 increases to 110
patients. Thus, total volume is unchanged at 1,000 visits. What is the new
price necessary assuming all other factors are unchanged?

2. Start with the initial assumptions. The hospital is
facing pressure from public-interest groups to control the prices it charges to
the uninsured. Assume that the hospital is able through various efficiencies to
cut its per-visit cost by 5{0e601fc7fe3603dc36f9ca2f49ef4cd268b5950ef1bbcf1f795cc00e94cdd119}. It also negotiates a 7{0e601fc7fe3603dc36f9ca2f49ef4cd268b5950ef1bbcf1f795cc00e94cdd119} increase with managed-care
plan #1. Assuming all other factors are unchanged, what is the new required

3 .Start with the original assumptions. Notice that managed
care plan #1 receives a much lower price in return for sending a larger volume
of patients. Managed care plan #2(MC#2)
wants to pay a lower cost per case and is willing to send 250 more patients
(350 total from MC#2) to the clinic in return for a rate of $110 per case.
Assume that the average cost per case drops to $90 due to the economies of
scale. All other assumptions are unchanged. What is the new required price?

4. Start with the assumptions in problem 3. But now assume
that the additional volume does not enable enough economies-of-scale to reduce
the average cost per case as much as originally anticipated. Assume now that
the average cost per case drops only to $95. What is the new required price?

5. Compare the answer to problem 3 with the answer to
problem 4. What does this tell you about the sensitivity of the price to the
assumption of the average cost per case? If you were the clinic manager, what
would you do before agreeing to the renegotiated contract with managed care
plan #2?

6. An uninsured patient receives services with charges of
$15,000 from a hospital.The
hospitalstaff bills the patient $5,000
and records $2,000 as charity care.If
the hospital’s ratio of cost to charges is 50{0e601fc7fe3603dc36f9ca2f49ef4cd268b5950ef1bbcf1f795cc00e94cdd119}, what amount would the hospital
recognize as charity care in Schedule H of IRS Form 990?

7. A hospital incurs $30 million of cost to treat Medicaid
patients and receives $12 million in payment.
Actual charges for these Medicaid patients were $40 million.The net community benefit expense that would
be reported in Schedule H of IRS Form 990 would be?

8. A not-for profit nursing home has total expenses of $50
million.Sales tax in the state is
7{0e601fc7fe3603dc36f9ca2f49ef4cd268b5950ef1bbcf1f795cc00e94cdd119}.Expenses are broken down into
salaries ($25 million), supplies ($16 million), and pharmacy ($9 million).The benefit received by the nursing home from
the sales tax exemption assuming that pharmacy items are exempt from state
sales tax is?


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