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         15,000

Budgeted Cost               $600,000

Desired Profit                $120,000

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%

Question # 13

What rate must be set to generate the required $120,000 in profit in the preceding example?

Question # 14

If the forecasted volume increased to 18,000 procedures and budgeted costs increased to $684,000, while all other variables remained constant, what price should be established?

Question # 15

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?

Answer 1

Q13.

Volume % * Discount % = 0.40*0.04 + 0.30*0.1 + 0.2*0.1 + 0.1*0.40 = 0.106

Required rate to be set to generate $120,000 profit =

600000/15000 + { (120000 + 15000*0.4 ( $[600,000/15,000] - $38)) / 15000*0.5 } / (1 - 0.106) = 40 + (120000+12000)/7500 / 0.894

= (40 + 17.6) / 0.894 = $64.43

Q14.

New Price = [ $684000 / 18000 + (120000 + 18000*0.4 (684000/18000 - 38) / 18000*0.5 ] / (1-0.106)

= [ 38 + (120000 + 7200*(38-38)) / 9000 ] / 0.894 = (38 + 13.33) / 0.894 = $57.42

Q15.

Volume % * Discount % = 0.40*0.20 + 0.30*0.1 + 0.2*0.1 + 0.1*0.40 = 0.17

600000/15000 + { (120000 + 15000*0.4 ( $[600,000/15,000] - $38)) / 15000*0.5 } / (1 - 0.17) = { 40 + (120000+12000)/7500 } / 0.83 = (40+17.6) / 0.83 = $69.40