You are attempting to develop a breakeven scenario for a capitation contract with a major HMO. Your hospital has agreed to provide all inpatient services for 10,000 covered lives. You will receive $400 per member per month (PMPM) to cover all inpatient services. It is anticipated that 101 admissions per 1000 covered lives will be provided with an average length of stay of 5 days or 505 days per 1000. You anticipate that your hospital will incur fixed costs or readiness to serve costs of $30,000,000 for these 10,000 covered lives. Variable costs per patient day are expected to be $3500.

Calculate the breakeven point in patient days under this contract. Will the revenue change if the number of patient days change?

If the costs, revenues, length of stay and anticipated admissions do not change, does this proposal meet your target of breaking even or better and why?