SOLUTION: Activity: You have been asked to set a rate for a Surgical-center. Costs are budgeted to be $4,000,000. Per year for projected surgical procedures of 7,000. The Surgical-center exp

Question 1080709: Activity: You have been asked to set a rate for a Surgical-center. Costs are budgeted to be $4,000,000. Per year for projected surgical procedures of 7,000. The Surgical-center expects that 50 percent of its procedures will be Medicare and that Medicare will pay $550 per procedure. The remainder will be charge payers at an expected discount rate of 29 percent.
Question: If a profit of $400,000 is required, what rate per procedure is required?
I am unsure of what I need to do to solve this equation.
Needed amount is 4,400,000
4,000,000 per year with 7,000 procedures = 571.43 per procedure
Medicare pays 550.00 x 3500 procedures = 1,925,000
571.43 break even point minus 550.00 Medicare payers = 21.43 deficit
29% discount of 571.43 = 165.68 , so I added 165.68+571.43+21.43 = 758.54
3500 procedures at 550.00 = 1,925,000
3500 procedures at 758.54 = 2,654,890
total 4,579,890 ....this number is too high, what am I doing wrong?
Answer by Boreal(15235) (Show Source): You can put this solution on YOUR website!
Medicare will contribute $1,925,000
The amount missing is 4,400,000-1,925,000=2,475,000
That has to be made from 3500 procedures.
$x per procedure nets them 0.71x, so 3500*0.71x=2,475,000
0.71x=$707.14
x=$995.97 or $996.
Check with $1000, since it is easier
29% discount is $710
$710*3500=$2,485,000
The exact amount is $995.97.
It is easier to do it this way. If the amount is divided by 7000, the number given is for two different costs, and that makes it a lot more difficult.
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