7.4 ASSUME THAT VALLEY FORGE HOSPITAL HAS ONLY THE FOLLOWING THREE PAYER GROUPS: NUMBER OF AVERAGE REVENUE VARIABLE COST PAYER ADMISSIONS PER ADMISSIONS

7.4 Assume that Valley Forge Hospital has only the following three payer groups:

Number of                  Average Revenue              Variable Cost

Payer                      Admissions                 per Admissions                  per Admissions

Penn Care                   $1,000                              $5,000                             $3,000

Medicare                       4,000                               4,500                                4,000

Commercial                  8,000                               7,000                                2,500

C. What overall net income would be produced if the admission rate of the capitated group were reduced from the commercial level by 10 percent?

D. Assuming that the utilization reduction also occurs, what overall net income would be produced if the variable cost per admission for the capitated group were lowered to $2,200