Suppose your hospital has the opportunity to acquire a clinic. You are expecting a total of 110,000 patients per year

Suppose your hospital has the opportunity to acquire a clinic. You are expecting a total of 110,000 patients per year. You plan to charge $79 per visit (before any discount). However, 39,000 of these patients come from the HMO XYZ. You are asked to consider entering into a contract with XYZ. The cost of every patient visit is $54, regardless of whether they are XYZ patients or your other patients.

In contract negotiations, the HMO has proposed that its contract with you will contain an 18.25% discount for all XYZ patients on what you normally charge for visits.

If the clinic refuses, XYZ has threatened to take its members elsewhere. Meaning, if you turn down their offer, you will lose 39,000 patients per year.

Your fixed cost, regardless of how many patients you see, is $256,900 per year

QUESTIONS

What is your total profit/loss if you reject XYZ’s proposal?

What is your total profit/loss if you accept XYZ’s proposal?

Based on these results, what is your next step? Explain in detail. If you choose to negotiate, describe in detail what you would propose to XYZ, with exact numbers and figures

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