St. Elsewhere Hospital has net patient service revenues of $160 million. Assume that it has three major third-party payers – Medicare, Medicaid, and Private Insurance Company (PIC). The paying behavior of these payers on average is displayed below. Payer % Total Revenue Average Days to Payment Medicare 50 63 Medicaid 20 85 PIC 30 40
(A) What is St. Elsewhere’s average collection period, assuming 365 days in a year? $
(B) What is the hospital’s current receivable balance? $
(C) Assume the hospital cost of carrying receivables is 5%. If a new billing and collection system could reduce PIC’s average days by 5 days and cost $50,000, should the hospital invest in it?
1. Yes 2. No [Write the number corresponding to the correct option e.g. 1 or 2]