Problem
Consider the following scenario: Suppose your hospital has the opportunity to acquire a clinic. You are expecting a total of 110,000 patients per year. You plan to charge $79 per visit (before any discount). However, 39,000 of these patients come from the HMO XYZ. You are asked to consider entering into a contract with XYZ. Cost of every patient visit is $54, regardless of whether they are XYZ patients, or your other patients. A. In contract negotiations, the HMO has proposed that its contract with you will contain a 18.25% discount for all XYZ patients on what you normally charge for visits.
B. If the clinic refuses, XYZ has threatened to take its members elsewhere. Meaning, if you turn down there offer, you will lose 39,000 patients per year.
C. Your fixed cost, regardless of how many patients you see, is $256,900 per year
Fill in the information below:
A. Total Expected Visits including XYZ patients:
B. Number of XYZ patients:
C. Revenue per visit non-XYZ patients:
D. Revenue per visit from XYZ patients:
E. Revenue per year from non-XYZ patients:
F. Revenue per year from XYZ patients:
G. Fixed Cost:
H. Variable Cost per visit:
I. Total Variable Cost per year without XYZ patients:
J. Total Variable Cost per year with XYZ patients:
Answer these questions:
A. How much money would you lose per XYZ patient?
B. What is the total loss from XYZ patients?
C. What is your total profit/loss if you reject XYZ's proposal?
D. What is your total profit/loss if you accept XYZ's proposal?
E. Based on these results, what is your next step? Explain in detail. If you choose to negotiate, describe in detail what you would propose to XYZ, with exact numbers and figures.