Answer the following questions in a Word or Excel file. Show all work.
- Assume that a certain nursing home has two categories of payers. Medicaid pays $60.00 per day and private pay patients pay the established per diem, but approximately 10 percent of private pay charges are not collected. If 50 percent of the patients are Medicaid and 50 percent are private pay, what rate must be set to generate $150,000 in profit? Variable costs are $45.00 per day and fixed costs are expected to be $1,000,000. Expected volume is 50,000 patient days.
- Using this data and assuming that the nursing home charges $100 per day, what would be the nursing home’s required volume (in patient days) in order to make $150,000 profit?
The key in this homework is to break down the numbers in the problem passage:
This hint is for question #1
- Medicaid pays $60.00
- The private payer has a per diem, but 10% is not collected so, what percentage does the private payer pay at a discounted rate?
- 50% of the patients are Medicaid, and 50% are private care: There are a total of 50,000 patients, how many are Medicaid and how many are Private pay?
- The Variable cost is $45
- The Fixed cost is $1,000,000
- The desired (target) profit is $150,000
- You have to solve for the rate-setting. There is a formula in chapter 14 that fixes this scenario.
This hint is for Question #2
- You have multiple payers Medicaid and Private
- You are to use the data from Question #1 to assist in solving this problem
- You are to solve for the volume. Breakeven analysis is also called cost volume profit analysis
- In the formula for this problem you first have to set the value for the variable e.g. V = variable cost = $45, F = Fixed Cost = $1,000,000, NI = Target cost (what is the target cost?). Once you have identified each variable value, it will be easy to calculate the volume.
- There are variables that have 0 value because the problem does not have values for those variables.
- There is a formula in chapter 14 that fixes this scenario.