You have been asked to establish a pricing structure for radiology on a per-proc

Question

You have been asked to establish a pricing structure for radiology on a per-procedure basis. Present budgetary data is presented below: 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 PPO 15 10 Kaiser 10 10 Self-Pay 5 40 50% 1. What rate must be set to generate the required $80,000 in profit in the preceding example?

Explanation / Answer

Calculation of Weighted Discount Payer Volume Equal Volume' Discount Weighted Discount Blue Cross 20% 40% 0.04 0.016 Unity Ppo 15% 30% 0.1 0.03 kaiser 10% 20% 0.1 0.02 Self pay 5% 10% 0.4 0.04 50% 100% 0.106 Weighted Discount rate =0.106 =10.60% Budgeted cost per procedure = $400,000/10000 =$40 Medicare average payment =$38 Average loss per procedure per medicare payment =$40-$38 =$2 Total Loss from medicare payments =$2 *4000=$8000 required profit =$80000 Te loss from medicare and required profit need to be recovered from remaining 50% charge payers (10000*50% =5000) Price Per procedure after Discount = [$400,000/10,000 ]   + [(80000+8000)/5000]   =$40+$17.60 =$57.60 Price Per procedure Before Discount =$57.60 /(1-0.106) =$ 57.60 /0.894 =$64.43

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