Use the following information to answer questions 2, and 3: You have been asked
ID: 3290249 • Letter: U
Question
Use the following information to answer questions 2, and 3:
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%
2. If the forecasted volume increased to 12,000 procedures and budgeted costs increased to $440,000, while all other variables remained constant, what price should be established?
3. Assume that the only change in the original example data is that Blue Cross raises their discount to 20 percent. What price should be set?
Explanation / Answer
Q2. total price charged = cost + profit = $440,000+$80,000=$520,000.
Total price paid by Medicare paties = new volume*40%*$38 = 12,000*.4*38= $182,400.
Total price paid by cost payers = new volume*10%*(440,000/12000)=$44,000.
Let's assume, price charged per procedure = $x.
Then Blue Cross patients pay = 12,000*20%*(1-.04)*x = $2304x
Unity patients pay = 12,000*15%*(1-.1)x = $1620x
Kaiser patients pay = 12,000*10%*(1-.1)x = $1080x
Self-pay patients pay = 12,000*5%*(1-.4)x = $360x.
We must have 2304x+1620x+1080x+360x + 182,000 + 44,000 = 520,000
or, 5364x = 294,000, or x = 294,000/5364 = $54.81 approximately. This is the new price that should be charged per procedure.
Q3. If Blue cross raises the discount to 20%, then Blue cross patients now pay = 12,000*20%*(1-.2)*x = $1920x.
We now have 1920x+1620x+1080x+360x + 182,000 + 44,000 = 520,000.
Or, 4980x = 294,000, or x = 294,000/4980 = $59.04 approximtely. This is the new price that should be charged per procedure.