Question

You are the manager of the Gastroenterology Department and you are being asked to develop a new budget for a procedure involving a series of diagnostic tests. The current cost is $2,000 per procedure but at this rate, your department is losing over $100,000.

You are being asked to identify a new price point for this procedure so that there will be a $50,000 surplus. What is the new charge per procedure?
You have 50 Medicare patients who pay $1,500 per procedure; 60 Medicaid patients who pay $1,200 per procedure, 20 Managed Care patients who pay a negotiated 25% less per procedure and another group of 50 Managed Care patients who pay 15% less per procedure; 10 private insured patients who pay the full amount; 5 Charity care patients who pay nothing and 5 patients who have bad debts and pay nothing.
For each patient group: what are the total costs, the total charges, the amount that you will be able to collect, and the total profit?

Answer 1

To identify a new price point for the procedure, calculate the total costs, charges, amount collectible, and profits for each patient group and adjust charges to achieve the desired surplus. The new charge per procedure should be $2,250.

Step-by-step explanation:

To identify a new price point for the procedure, we need to calculate the total costs, charges, amount collectible, and profits for each patient group. Let's calculate each of them:

• Medicare patients (50): Total Charges = 50 x $1,500 = $75,000
  Amount Collectible = 50 x $1,500 = $75,000
  Total Costs = 50 x $2,000 = $100,000
  Total Profit = Amount Collectible - Total Costs = $75,000 - $100,000 = -$25,000 (negative profit)
• Medicaid patients (60): Total Charges = 60 x $1,200 = $72,000
  Amount Collectible = 60 x $1,200 = $72,000
  Total Costs = 60 x $2,000 = $120,000
  Total Profit = Amount Collectible - Total Costs = $72,000 - $120,000 = -$48,000 (negative profit)
• Managed Care patients (20, discounted by 25%): Total Charges = 20 x ($2,000 - 25%) = $30,000
  Amount Collectible = $30,000
  Total Costs = 20 x $2,000 = $40,000
  Total Profit = Amount Collectible - Total Costs = $30,000 - $40,000 = -$10,000 (negative profit)
• Managed Care patients (50, discounted by 15%): Total Charges = 50 x ($2,000 - 15%) = $85,000
  Amount Collectible = $85,000
  Total Costs = 50 x $2,000 = $100,000
  Total Profit = Amount Collectible - Total Costs = $85,000 - $100,000 = -$15,000 (negative profit)
• Private insured patients (10): Total Charges = 10 x $2,000 = $20,000
  Amount Collectible = $20,000
  Total Costs = 10 x $2,000 = $20,000
  Total Profit = Amount Collectible - Total Costs = $20,000 - $20,000 = $0 (break-even)
• Charity care patients (5): Total Charges = 5 x $2,000 = $10,000
  Amount Collectible = $0 (they pay nothing)
  Total Costs = 5 x $2,000 = $10,000
  Total Profit = Amount Collectible - Total Costs = $0 - $10,000 = -$10,000 (negative profit)
• Patients with bad debts (5): Total Charges = 5 x $2,000 = $10,000
  Amount Collectible = $0 (they pay nothing)
  Total Costs = 5 x $2,000 = $10,000
  Total Profit = Amount Collectible - Total Costs = $0 - $10,000 = -$10,000 (negative profit)

To achieve a $50,000 surplus, we need to adjust the charges for each patient group accordingly. Let's assume a single charge for simplicity. The total costs for all patient groups are $100,000 + $120,000 + $40,000 + $100,000 + $20,000 + $10,000 + $10,000 = $400,000. To have a $50,000 surplus, the total charges should be $400,000 + $50,000 = $450,000. We have a total of 50 + 60 + 20 + 50 + 10 + 5 + 5 = 200 patients. Therefore, the new charge per procedure should be $450,000 / 200 = $2,250.