Use the following information to answer questions You have been asked to establi

Question

Use the following information to answer questions

You have been asked to establish a pricing structure for radiology on a per-procedure basis. Present budgetary data is presented below:

It is estimated that Medicare patients comprise 40 percent of total radiology volume and will pay on average $38.00 per procedure. Approximately 10 percent of the patients are cost payers. The remaining charge payers are summarized below:

20

4

15

10

10

10

5

40

50%

3. What rate must be set to generate the required $80,000 in profit in the preceding example?

Explanation / Answer

Cost per procedure = total cost/no of procedures = 400,000/10,000 = $40

Revenue from Medicare patients = proportion * total no of patients * fee charged = 40%*10,000*38 = 152,000

Revenue from cost payers = 10%*10,000*40 = 40,000 (as they pay actual cost incurred)

Let the rate set for the rest be $ X.

Revenue from Blue Cross = 20%*10,000*X*(1-4%)

Revenue from Unity = 15%*10,000*X*(1-10%)

Revenue from Kaiser = 10%*10,000*X*(1-10%)

Revenue from Self Pay = 5%*10,000*X*(1-40%)

So total revenue from the rest = 2000X*0.96+1500X*0.9+1000X*0.9+500X*0.6

= 4470X

Total revenue from all patients = 152,000+40,000+4470X = 192,000+4470X

As they need to make $80,000 profit, total revenue should be 80,000+cost = 80,000+400,000 = 480,000

So, 192,000+4470X = 480,000, or X = $64.43

Hope this helped with a clear explanation. Let me know in case of any queries.

Related Questions

Navigate

• Browse (All)
• Browse U
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.