Problem 2. Based on the information below, what rate must be set to generate the required $80,000 in profit in the preceding example? You have been asked to establish a pricing structure for radiology on a per-procedure basis. Present budgetary data is presented below: It is estimated that Medicare patients comprise 40 percent of total radiology volume and will pay on average $38.00 per procedure. Approximately 10 percent of the patients are cost payers. The remaining charge payers are summarized below: Step \#1: Anticipated revenue = Budgeted cost + Anticipated profit Step \#2: Budgeted cost per procedure =NumberofProceduresBudgetedcost Next, we are going to figure how much revenue will come from three different groups of payers (Medicare patients, cost payer patients, all other patients.) Step \#3: Revenue from our Medicare patients: Total procedures X% that are Medicare X the $ rate that Medicare will pay= Revenue from Medicare patients. [The X indicates multiplication.] 6 Step \#4: Revenue from cost payers: Total procedures X% that are cost payers X the $ rate charged by each procedure= Revenue from cost payer patients. Step \#5: Balance revenue to be targeted from remaining charge payers: Anticipated Revenue - Medicare Revenue (step 3) - Cost Payer Revenue (step 4) = Balance revenue to be targeted from remaining charge payers. Step \#6: Net revenue per procedure = Balance revenue to be targeted from remaining charge payers. Number of Procedures X50% We do have our charge rate now per procedure to get our desired profit but we have one more task to factor in the discounts. Discounts = Blue Cross discount 4\%, Unity PPO discount 10\%, Kaiser discount 10\%, Self Pay discount 40% Step \#7. How to calculate the weighted discount offered to charge payers: 10,00020%+10,00015%+10,00010%+10,0005%10,00020%%+10,00015%%+10,00010%%+10,0005%%=% weighted discount When you completing this weighted discount formula, follow this algebra rule below. Multiply or Divide before you Add or Subtract 2+53=2+15=17>2+53=73=21(wrong) [this weighted formula above works because (10000 times 20%)/(10000 times 20%) equals 1.] Step \#8. Rate to be charged = Net revenue per procedure ( step 6) /(1 - weighted discount (step 7) Problem 2. Based on the information below, what rate must be set to generate the required $80,000 in profit in the preceding example? You have been asked to establish a pricing structure for radiology on a per-procedure basis. Present budgetary data is presented below: It is estimated that Medicare patients comprise 40 percent of total radiology volume and will pay on average $38.00 per procedure. Approximately 10 percent of the patients are cost payers. The remaining charge payers are summarized below: Step \#1: Anticipated revenue = Budgeted cost + Anticipated profit Step \#2: Budgeted cost per procedure =NumberofProceduresBudgetedcost Next, we are going to figure how much revenue will come from three different groups of payers (Medicare patients, cost payer patients, all other patients.) Step \#3: Revenue from our Medicare patients: Total procedures X% that are Medicare X the $ rate that Medicare will pay= Revenue from Medicare patients. [The X indicates multiplication.] 6 Step \#4: Revenue from cost payers: Total procedures X% that are cost payers X the $ rate charged by each procedure= Revenue from cost payer patients. Step \#5: Balance revenue to be targeted from remaining charge payers: Anticipated Revenue - Medicare Revenue (step 3) - Cost Payer Revenue (step 4) = Balance revenue to be targeted from remaining charge payers. Step \#6: Net revenue per procedure = Balance revenue to be targeted from remaining charge payers. Number of Procedures X50% We do have our charge rate now per procedure to get our desired profit but we have one more task to factor in the discounts. Discounts = Blue Cross discount 4\%, Unity PPO discount 10\%, Kaiser discount 10\%, Self Pay discount 40% Step \#7. How to calculate the weighted discount offered to charge payers: 10,00020%+10,00015%+10,00010%+10,0005%10,00020%%+10,00015%%+10,00010%%+10,0005%%=% weighted discount When you completing this weighted discount formula, follow this algebra rule below. Multiply or Divide before you Add or Subtract 2+53=2+15=17>2+53=73=21(wrong) [this weighted formula above works because (10000 times 20%)/(10000 times 20%) equals 1.] Step \#8. Rate to be charged = Net revenue per procedure ( step 6) /(1 - weighted discount (step 7)