Assume that Valley Forge Hospital has only the following three payergroups:

Number ofAverage RevenueVariable Cost
Payer Admissionsper Admissionper Admission
PennCare1,000$5,000 $3,000
Medicare4,0004,5004,000
Commercial8,0007,000 2,500
The hospital's fixed costs are $38 million,
What is the hospital's net income?

Assume that half of the 100.000 covered lives in the commercial payer group will be moved into a capitated plan. All utilization andcost data remain the same. What PMPM rate will the hospital haveto charge to retain its Part a net income?

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

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?