Hospitals measure their volume in terms of patient-days. We calculate patient- days by multiplying the number of patients by the number of days that the patients are hospitalized. Suppose Elwafa hospital has fixed costs of $54 million per year and variable costs of $600 per patient- day. Daily revenues vary among classes of patients. For simplicity, assume that there are two classes: (1) self-pay patients (S) who pay an average of $1,000 per day and (2) non-self-pay patients (G) who are the responsibility of insurance companies and government agencies and who pay an average of $800 per day. Twenty percent of the patients are self-pay.
1. Compute the break-even point in patient-days, assuming that Elwafa hospital maintains its planned mix of patients.
2. Suppose that the hospital achieves 225,000 patient-days but that 25% of the patient-days were self-pay (instead of 20%). Compute the net income.