Use the following information to answer questions 2 and 3:
You have been asked to establish a pricing structure for radiology on a per-procedure basis. Present budgetary data is presented below:
Payer Volume % Discount %
Blue Cross 2 4
Unity 15 10
Kaiser 10 10
Self-Pay 5 40
2. If the forecasted volume increased to 12,000 procedures and budgeted costs increased to $440,000, while all other variables remained constant, what price should be established?
3. Assume that the only change in the original example data is that Blue Cross raises their discount to 20 percent. What price should be set?
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2. To establish the price, we first need to calculate the weighted average discount. This is done by multiplying each payer's volume percentage by their discount percentage and then summing these values.
Weighted average discount = (2% * 4%) + (15% * 10%) + (10% * 10%) + (5% * 40%) = 0.08% + 1.5% + 1% + 2% = 4.58%
Next, we need to calculate the price before discount. This is done by dividing the total budgeted costs by the forecasted volume.
Price before discount = $440,000 / 12,000 = $36.67
Finally, we establish the price by dividing the price before discount by one minus the weighted average discount.
Price = $36.67 / (1 - 4.58%) = $38.44
3. If Blue Cross raises their discount to 20 percent, we need to recalculate the weighted average discount.
New weighted average discount = (2% * 20%) + (15% * 10%) + (10% * 10%) + (5% * 40%) = 0.4% + 1.5% + 1% + 2% = 4.9%
Assuming the price before discount remains the same ($36.67), we establish the new price by dividing the price before discount by one minus the new weighted average discount.
New price = $36.67 / (1 - 4.9%) = $38.57.
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