You are attempting to develop a break-even for a capitation contract with a major HMO. Your hospital has agreed to provide all inpatient hospital services for 10,000 covered lives. You will receive $38 per member per month to cover all inpatient services. It is anticipated that 93 admissions per 1,000 covered lives will be provided with an average length of stay equal to 5.0, or 465 days per 1,000.
Answer the following questions:
- What is the role provided by break-even point and how would you calculate this point?
- Please calculate break-even point in patient days under the provided contract.
- What are the limitations of using break-even point and how would you incorporate this point with management strategic planning?