Consider the following information for Rosebud Lane Hospital. 

The number of admissions for the year are expected to equal 1000, but could vary from 750 to 1250. 

Rosebud's fee-for-service is $2,000 under a prospective payment system. 

Under a capitation reimbursement system, Rosebud must cover 1000 patients at a capitation payment of $2,000. 

Rosebud's annual fixed costs are $500,000 and it variable cost per admission is $1,500.

1a. Calculate Rosebud's net profit under the Fee For Service Reimbursement method if admissions are only 750.

1b. Calculate Rosebud's net profit under Capitation if admissions are only 750.

1c. Calculate Rosebud's net profit under the Fee For Service Reimbursement method if admissions are 1250.

1d. Calculate Rosebud's net profit under Capitation if admissions are 1250.

1e. Given Rosebud Lane's cost structure, which reimbursement method is less risky for the hospital?

A) Fee for Service

B) Capitation

C) They create an equal amount of risk for Rosebud Lane.

D) We cannot tell from the information provided

Answer rating: 100% (QA)

SOLUTION 1a Under the Fee For Service Reimbursement method if admissions are only 750 the hospital will earn revenue of 750 x 2000 1500000 The variabl... View the full answer