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Revenue Determination:

Mike Smith who works for a local well star clinic is given the following task: determine the price to charge for patients who are covered by Managed care # 2 plan in order to meet the margin target. Assumptions are listed as the followings:

Reimbursement Rate

Total Cost


Total Volume


Patient group







Managed Care #1 plan



Managed Care #2 Plan





10% of the charge on Managed Care #2 plan

(Dollar amounts are measured in thousands)

Assume that reimbursement rate from Managed care#2 is 90% of the charges charged by the clinic.

Answer the following questions for Mike:

  1. What price should the clinic charge for Managed Care #2 plan in order to break even?
  2. What price should the clinic charge for Managed Care #2 plan in order to make a profit of 5 million dollars?
  3. How sensitive is the price charge to volume change? (Hint: come up with several scenarios of increased/decreased total volumes, different volume composition in terms of different percentages of client groups etc. BE CREATIVE)
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