Problem:

Grandview Clinic has fixed costs of $2 million and an average variable cost rate of $15 per visit. Its sole payer, an HMO, has proposed an annual capitation payment of $150 for each of its 20,000 members. Past experience indicates that the population served will average two visits per year.

Required:

Question 1: Construct the base case projected P&L statement on the contract.

Question 2: What profit gain can be realized if the clinic can lower per member utilization to 1.8 visits? Please provide full description and show your all calculation