# Help with this health-accounting case study

**Question description**

**Case study of a healthcare organization financial health:**

Assume the following information about projected cost and charges for a hospital in 2016:

· Fixed Costs = $10,000,000

· Variable Cost per Inpatient Day = $200

· Charge per Inpatient Day = $1,000.

· Initial Volume of 15,000 Inpatient Days

Review Nowicki Chapter 6 and Gapenski Chapter 5. From what you have learned in these chapters do the following:

1. Define the contribution margin? What is its economic meaning?

2. What is the contribution margin of this base case?

3. Construct the hospital’s base case projected Profit & Loss statement

4. Break even analysis:

a. What is the hospital’s breakeven point in unit (volume)? Show your work. Interpret the result. (Suppose you need to explain to a health services manager)

b. What is the hospital’s breakeven point in dollar? Show your work. Interpret the result. (Suppose you need to explain to a health services manager)

c. Yes or No. Will the hospital get profit if it operates in a volume higher than this breakeven point?

5. What volume is required to provide a profit of $1 million? Show your work.

6. What volume is required to provide a profit of $500,000? Show your work.

7. Now assume this is a for-profit hospital and the hospital must pay taxes at a 25% rate based on the profit. What volume is required to provide an after-tax profit of $300,000? Show your work.

8. Back to the base case. Now assume that 20% of the hospital’s inpatient days come from a managed care plan that wants a 25% discount from charges.

a. Construct the P&L statement if the hospital accepts the discount.

b. Should the hospital agree to the discounted proposal? Why?

9. Back to the base case. Now assume this hospital has a sole payer, an HMO, which proposes an annual capitation payment of $200 for each of its 75,000 members for the inpatient stays. Past experience indicates the population served will average 0.2 inpatient days per year.

a. What will be the total revenue on this contract?

b. What will be the expected annual inpatient days?

c. Construct the hospitals P&L statement on this contract.

d. What is the hospital’s breakeven point (volume) on this contract? Show your work. Interpret the result. (Suppose you need to explain to a health services manager)

e. Yes or No. Will the hospital get profit if it operates in a volume higher than this breakeven point?

Please add a cover page for this assignment with your name, class/section and instructor’s name.

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