General Hospital, a non-for-profit acute care facility, has the following cost structure for its inpatients services:
Fixed costs $9,000,000
Variable cost per inpatient day $250
Charge (revenue) per inpatient day $1,000
The Hospital expects to have a patient load of 15,000 inpatient days next year.
a. Construct the Hospital's base case projected P&L statement.
b. What is the Hospital's breakeven point?
c. What volume is required to provide a profit of $1,000,000? A profit of $500,000?
d. Now, assume that 20 percent of the hospital's inpatients come from a managed care plan that wants a 25 percent discount from charges. Should the hospital agree to the discount proposal?