ABC hospital, a not for profit acute care facility, expects to have a patient lo

Question

ABC hospital, a not for profit acute care facility, expects to have a patient load of 20,000 inpatient days next year and has the following cost structure for its inpatient services?

Fixed Cost

$10,000,000

Variable costs per inpatient day

$300

Charge (revenue) per inpatient day

$1,200

Now, assume that 20% of the hospital inpatients come from a managed care plan that demands a 25% discount form charges or it will move its patients to another facility.

Should the hospital agree to the deal?

a) Yes, they will make $2.4 million more with the discount patients than without them

b)No, they will make $4.4 million more without the discount patients

c)It doesnt matter, monies will be the same in either scenario

d)Yes, they will make &4.4 million more with the discount patients

Explanation / Answer

Let there has to be x inpatient services per day.
Cost to hospital = Fixed Cost + Variable Cost
Cost to hospital (C) = $10,000,000 + $300 x
Revenue to hospital from x inpatient (R) = $1200 x

We know Profit = Revenue - Cost
$5,000,000 = $1200 x - ($10,000,000 + $300 x)
$5,000,000 + $10,000,000 = $1200 x - $300 x
=> 900 x = $15,000,000
=> x = $15,000,000 / 900 = 16,666.67
There has to be 16,667 inpatient day to make five million dollar profit -----Answer

Hope this helped

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