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

Category of patients % Volume Discount % Specific Rate per procedure Medicare 40 NA $          38.00 Cost payers 10 0 Blue cross 20 4 Unity 15 10 Kaiser 10 10 Self pay 5 40 Total amount to be realized = Desired profit+Budgeted cost = 400000+80000 = $      480,000 Less: Amount to be realized from medicare patients = 10000*40%*$38 = $      152,000 Balance to be realized $      328,000 WEIGHTED AVERAGE PROCEDURES (Medicare excluded): % Volume Discount % % realizable (100-Discount %) Total number of procedures Wt. Average Procedures Cost payers 10 0 100 1000 1000 Blue cross 20 4 96 2000 1920 Unity 15 10 90 1500 1350 Kaiser 10 10 90 1000 900 Self pay 5 40 60 500 300 Note: Weights used are the % realizable from the rate after providing for discount. 5470 Rate chargeable to generate the required profit of $80,000 = 328000/5470 = $          59.96 Answer rounded off to $60.00 per procedure.

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