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5.7 General Hospital, a not-for-profit acute care facility, has the following cost structure for its...

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Finance

5.7 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 hospitals base case projected P&L statement.

b. What is the hospitals breakeven point (in number of inpatient days)?

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 hospitals inpatient days come from a managed care plan that requests a 25 percent discount from charges. Should the hospital agree to the discount proposal? Assume that the managed care plan will contract with a different provider if the hospital does not agree to the discount (i.e., the hospital will lose the inpatient days associated with the contract).

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