You have been asked to establish a pricing structure for radiology on a per-proc
ID: 2652353 • Letter: Y
Question
You have been asked to establish a pricing structure for radiology on a per-procedure basis. Present budgetary data is presented below:
Number of Budgeted Procedures
10,000
Budgeted Cost
$400,000
Desired Profit
$ 80,000
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:
Payer
Volume %
Discount %
Blue Cross
20
4
Unity
15
10
Kaiser
10
10
Self-Pay
5
40
50%
Your supervisor recommends the following method to set the rate per procedure in order to generate the required $80,000 in profit:
Weighted Discount = (0.4 × 0.04) + (0.30 × 0.10) + (0.20 × 0.10) + (0.10 × 0.40)
= 0.106
Price = ($400,000 ÷ 10,000) + [($80,000 + 4,000 ($40.00 – $38.00)) ÷ 5,000]
1 – 0.106
=($40.00 + $17.60)/.894 = $64.43
3. Assume that the only change in the original example data is that Blue Cross raises their discount to 20 percent. What price should be set?
Number of Budgeted Procedures
10,000
Budgeted Cost
$400,000
Desired Profit
$ 80,000
Explanation / Answer
3. Price = ($400,000 / 10,000) + [($80,000 + 4,000 x ($40.00 – $38.00)) / 5,000] / (1 – 0.20)
= (40.00 + 17.60)/0.80 = $72.00
Related Questions
drjack9650@gmail.com
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.