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Total volume

1000Average cost

$100Payer volumesMedicare (payment rate = $95)

400Medicaid (payment rate = $75)

100Managed Care # 1 (payment rate = $110)

300Managed Care # 2 (pay 80% of charges)

100Uninsured (pay 10% of charges)

100Total all payers

1000Desired net income

$50001) Medicare and Medicaid presently account for 50% of the volume. The hospital wishes to reduce its dependence on government payers. Assume that Medicare volume is reduced to 380 patients and Medicaid volume is reduced to 90 patients. The volume from managed-care plan #1 rises to 320 patients from 300. The volume from managed-care plan #2 increases to 110 patients. Thus total volume is unchanged at 1000 visits. What is the new price necessary assuming all other factors are unchanged?2) Start with the original assumptions. The hospital is facing pressure from public-interest groups to control the prices it charges to the uninsured. Assume that the hospital is able through various efficiencies to cut its per-visit cost by 5%. It also negotiates a 7% increase with managed-care plan #1. Assuming all other factors are unchanged what is the new required price?3) Start with the original assumptions. Notice that managed care plan #1 receives a much lower price in return for sending a larger volume of patients. Managed care plan #2 (MC#2) wants to pay a lower cost per case and is willing to send 250 more patients (350 total from MC#2) to the clinic in return for a rate of $110 per case. Assume that the average cost per case drops to $90 due to the economies of scale. All other assumptions are unchanged. What is the new required price?4) Start with the assumptions in problem 3. But now assume that the additional volume does not enable enough economies-of-scale to reduce the average cost per case as much as originally anticipated. Assume now that the average cost per case drops only to $95. What is the new required price? Compare the answer to problem 18 to this answer. What does this tell you about the sensitivity of the price to the assumption of the average cost per case?5) Compare the answer to problem 3 with the answer to problem 4. What does this tell you about the sensitivity of the price to the assumption of the average cost per case? If you were the clinic manager what would you do before agreeing to the renegotiated contract with managed care plan #2? Discuss both.