Posted: August 24th, 2016

Should the hospital agree to the discount proposal?

5.4) General Hospital, a not-for-profit acute care facility, has the following cost structure for its inpatient services:
Fixed costs $10,000,000
Variable cost per inpatient day $200
Charge (revenue) per inpatient day $1,000
The hospital expects to have a patient load of 15,000 inpatient days next year.
a. Construct the hospital’s base case projected P&L statement.
b. What is the hospital’s breakeven point?
c. What volume is required to provide a profit of $1,000,000? A profit of $500,000?
d. Now assume that 20 percent of the hospital’s inpatient days come from a managed care plan that wants a 25 percent discount from charges. Should the hospital agree to the discount proposal?