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Grandview Clinic has fixed costs of $2million and an average variables cost rate of $15 per visit.
Its sole payer, an HMO, has proposed an annual capitation payment of $150 for each of its
20,000 members. past experience indicates the population served will average two visits per
year. a) construct the base case projected P&L statement on the contract. b) sketch two CVP
analysis graphs for the clinic-one with number of visits on the X axis and one with number of
members on the X axis. Compare and contrast these graphs with the one in problem5.3d. c) what
is the clinic's contribution margin on the contract? how does this value compare with the value
in problem 5.3.b? d) what profit gain can be realized if the clinic can lower per-member
utilization to 1.8 visits?
Solution
Note: Annual capitation fee of $150 Per member will result in constant sales figure irrespective
of the number of members visited. The number of visites per member and the variable cost per
visit are key factors determing the profitability .
Ans 1
Q4
Projected P&L
Details Details Amount
Service revenue $ 150 for one member -20000 Members $30,00,000.00
Variable cost $ 15 Per Visit $6,00,000.00
Contribution Margin $24,00,000.00
Less Fixed Cost $20,00,000.00
Operating Margin $4,00,000.00
Grandview Clinic has fixed costs of $2million and an average variables.docx

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Grandview Clinic has fixed costs of $2million and an average variables.docx

  • 1. Grandview Clinic has fixed costs of $2million and an average variables cost rate of $15 per visit. Its sole payer, an HMO, has proposed an annual capitation payment of $150 for each of its 20,000 members. past experience indicates the population served will average two visits per year. a) construct the base case projected P&L statement on the contract. b) sketch two CVP analysis graphs for the clinic-one with number of visits on the X axis and one with number of members on the X axis. Compare and contrast these graphs with the one in problem5.3d. c) what is the clinic's contribution margin on the contract? how does this value compare with the value in problem 5.3.b? d) what profit gain can be realized if the clinic can lower per-member utilization to 1.8 visits? Solution Note: Annual capitation fee of $150 Per member will result in constant sales figure irrespective of the number of members visited. The number of visites per member and the variable cost per visit are key factors determing the profitability . Ans 1 Q4 Projected P&L Details Details Amount Service revenue $ 150 for one member -20000 Members $30,00,000.00 Variable cost $ 15 Per Visit $6,00,000.00 Contribution Margin $24,00,000.00 Less Fixed Cost $20,00,000.00 Operating Margin $4,00,000.00