(a)
Introduction: Profit & loss statement is a statement which presents the revenues and expenses of the company in a structured way to reflect the net income/loss earned the company. Primarily, there are two methods of presenting the profit & loss statement i.e. condensed and detailed.
To construct: The base case projected P&L statement for G hospital.
(b)
Introduction: Break-even point refers to a point where total expenses and total revenue of a company are equal. Break-even point can be described as a situation where there is no net profit or loss.
To find: Breakeven point of G hospital.
(c)
Sales volume at which G hospital can earn a profit of $1,000,000 and $500,000.
(d)
Whether proposal of managed care plan for 25% discount in charges(revenue) should be agreed or not.
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EBK HEALTHCARE FINANCE: AN INTRODUCTION
- The hospital’s fixed costs are $38 million: What is the hospital’s net income? 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 their Part a net income? What overall net income would be produced if the admission rate of the capitated group were reduced from the commercial level by 10 percent? 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?arrow_forwardLutheran Regional Hospital uses a planning process to define a new radiology service line. The decision matrix gave it a high priority, and administrators want to evaluate its financial feasibility. Estimated fixed costs are $1 million, and the estimated net reimbursement level is $1,500 per procedure. Physician and other provider salaries on a direct basis are $340 per procedure, and total operating expenses will add another $160 per procedure. Calculate the breakeven point for this potential new service line.arrow_forwardAssume that the manager of the rehabilitation department of Getwell Hospital is setting the price on a new outpatient service for electrical stimulation of muscles. Here are the relevant data estimates: Variable cost per visit: $15.00 Annual direct fixed costs: $650,000 Annual overhead allocation: $75,000 Expected annual visits: 8,000 What price per visit must be set for the service to breakeven?arrow_forward
- Assume that Valley Forge Hospital has only the following three payer groups: Number of Average Revenue Variable Cost Admissions per Admission per Admission Commercial 1,000 $5,000 $3,000 PennCare 4,000 4,500 4,000 Medicare 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 percent? 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?arrow_forwardCharity Hospital, a not-for-profit, has a maximum capacity of 15,000 discharges per year. Variable patient service costs are $495 per discharge. Variable general and administrative costs are $5 per discharge. Fixed hospital overhead costs are $4,000,000 per year. The current reimbursement rate is $1,000 per discharge. a. What is Charity’s breakeven volume in number of discharges? b. Now assume Charity’s total discharges for 2014 totaled 10,000. In late 2014, a specialty cardiac hospital opened near Charity, so that discharges in 2015 will reach only 8,500. Management is planning cut fixed costs so that the total for 2015 will be $1,000,000 less than in 2014. Management is also considering reducing variable staffing costs in order to earn a target profit that will be the same dollar amount as the profit earned in 2014. Charity has already had 4,000 discharges in 2015 at a reimbursement rate of $1,000 per discharge with variable costs unchanged. What contribution margin per unit is…arrow_forward. A hospital director is considering two alternative investment programs. Both have costs of $5,000 in year 1 only. Project 1 provides benefits of $2,000 in each of the first 4 years only. Project 2 provides benefits of $ 2,000 for years 6 to 10 only. a. Compute the net benefits using a discount rate of 6 percent. b. Knowing that the calculations are dependent on the discount rate, conduct a sensitivity analysis by re - calculating with a discount rate of 12 percent. Based on your calculations, which investment program should the director choose?arrow_forward
- Problem 1c: Consider the following information for Rosebud Lane Hospital. The number of admissions for the year are expected to equal 1000, but could vary from 750 to 1250. Rosebud's fee-for-service is $2,000 under a prospective payment system. Under a capitation reimbursement system, Rosebud must cover 1000 patients at a capitation payment of $2,000. Rosebud's annual fixed costs are $500,000 and it variable cost per admission is $1,500. 1c. Calculate Rosebud's net profit under the Fee For Service Reimbursement method if admissions are 1250. (Answer to the nearest dollar. Do not include the dollar sign in your answer.) 1d. Calculate Rosebud's net profit under Capitation if admissions are 1250. (Answer to the nearest dollar. Do not include the dollar sign in your answer.)arrow_forwardThe hospital and the health insurance carrier has agreed that the hospital will receive $6000 for every day the consumer is in the hospital. This is an example of what unit of payment? A)Hospital DRG B)FFS C)Global budget D)Capitation E)Per diemarrow_forwardLutheran Regional Hospital uses a planning process to define a new radiology service line. The decision matrix gave it a high priority, and administrators want to evaluate its financial feasibility. Estimated fixed costs are $1 million, and the estimated net reimbursement level is $1,500 per procedure. Physician and other provider salaries on a direct basis are $340 per procedure, and total operating expenses will add another $160 per procedure. If Lutheran Regional discovered a way to reduce the total initial investment to $600,000, causing the average pricing level to fall to $1,200 and the other assumptions to stay the same, how many procedures would be required to break even?arrow_forward
- Bluegrass Community Hospital (BCH) has the following payer groups: Number of Admissions Average Revenue per Admission Variable Cost per Admission Commercial 1,000 $5,000 $3,000 BCBS 4,000 $4,500 $4,000 Medicare 8,000 $7,000 $2,500 Given: BCH annual fixed costs are $38M What is BCH’s net income? If half of the 100,000 covered lives in the Commercial group moved to a capitated rate and utilization and cost data remained the same, what PMPM rate should be charged to maintain the Commercial group net income share? What would BCH net income be if the Commercial capitated group admissions decreased by 10%? What would BCH net income be if the Commercial capitated group admissions decreased by 10% and variable costs for the Commercial capitated group decreased to $2,200?arrow_forwardTo estimate the monthly maintenance cost for the maintenance department in a hospital, the following monthly costs are available: Monthly Expense Supervisor Salary Expense Depreciation Expense-Maintenance Equipment Repairs Expense-Maintenance Equipment Supplies Expense Wages Expense-Maintenance Workers $10,000 The Supervisor Salary Expense and the Depreciation Expense are fixed costs. The remaining expenses are variable costs. There are 1,000 patient days in a month, which is the cost driver for maintenance costs. Estimate the cost function where Y is the monthly maintenance cost and X is the variable cost per patient day. OY-58+$22X OY $30,000 $22.000x OY-$8,000-$22,000x OY-$8,000 $22X $5,000 Costs $3,000 $5,000 $7,000arrow_forwardThe Two Cost Systems Sacred Heart Hospital (SHH) faces skyrocketing nursing costs, all of which relate to its two biggest nursing service linesthe Emergency Room (ER) and the Operating Room (OR). SHHs current cost system assigns total nursing costs to the ER and OR based on the number of patients serviced by each line. Total hospital annual nursing costs for these two lines are expected to equal 300,000. The table below shows expected patient volume for both lines. Calculate the amount of nursing costs that the current cost system assigns to the ER and to the OR.arrow_forward
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