Use the following information to answer questions You have been asked to establi
ID: 2701386 • Letter: U
Question
Use the following information to answer questions
You have been asked to establish a pricing structure for radiology on a per-procedure basis. Present budgetary data is presented below:
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:
20
4
15
10
10
10
5
40
50%
3. What rate must be set to generate the required $80,000 in profit in the preceding example?
Explanation / Answer
Cost per procedure = total cost/no of procedures = 400,000/10,000 = $40
Revenue from Medicare patients = proportion * total no of patients * fee charged = 40%*10,000*38 = 152,000
Revenue from cost payers = 10%*10,000*40 = 40,000 (as they pay actual cost incurred)
Let the rate set for the rest be $ X.
Revenue from Blue Cross = 20%*10,000*X*(1-4%)
Revenue from Unity = 15%*10,000*X*(1-10%)
Revenue from Kaiser = 10%*10,000*X*(1-10%)
Revenue from Self Pay = 5%*10,000*X*(1-40%)
So total revenue from the rest = 2000X*0.96+1500X*0.9+1000X*0.9+500X*0.6
= 4470X
Total revenue from all patients = 152,000+40,000+4470X = 192,000+4470X
As they need to make $80,000 profit, total revenue should be 80,000+cost = 80,000+400,000 = 480,000
So, 192,000+4470X = 480,000, or X = $64.43
Hope this helped with a clear explanation. Let me know in case of any queries.