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You are attempting to develop a break-even for a capitation contract with a major HMO

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You are attempting to develop a break-even for a capitation contract with a major HMO. Your hospital has agreed to provide all inpatient hospital services for 10,000 covered lives. You will receive $38 per member per month to cover all inpatient services. It is anticipated that 93 admissions per 1,000 covered lives will be provided with an average length of stay equal to 5.0, or 465 days per 1,000.

You anticipate that your hospital will incur fixed costs, or readiness to serve costs, of $1,860,000 for these 10,000 covered lives. Variable costs per patient-day are expected to be $600. Calculate the break-even point in patient days under this contract.

Break-even point = Fixed cost/ contribution marginal or Fixed cost/Revenue - variable cost

Also, remember that while viewing the graph, the space to the left of the point is a loss and the space to the right is a profit.  See the example below:

 

                                                                                               

If utilization is above 4,500 patient-days, the hospital will lose money. Figure 14–10 illustrates this concept.