Question

Your hospital faces considerable revenue uncertainty because you have to negotiate contracts with several health insurance companies. You forecast a 10% chance your total inpatient revenue from Florida blue will be $456,000, a 20% chnace that your inpatient revenue from Medicare will be 575,634, a 30 percent chance that your inpatient revenue from Medicaid is 300,000, a 40 percent chance that your will get 60% back of your bad debt (600,000) from Medicaid disproportionate share dollars program. Your costs are also uncertain, as the prices of your supplies fluctuate considerably. You forecast a 40 percent chance that your costs will be $400,000 and a 60 percent chance that your costs will be $250,000. Use Excel to set up a decision tree for your profit forecast (it does not matter whether costs or revenues come first).

Answer 1

Please see the Excel table below:

Expected Cost= 0.6 * 250,000 + 0.4* 400,000

			Expected Revenue
Florida Blue	10%	456000	45,600.00
Medicare	20%	575634	1,15,126.80
Medicaid	30%	3,00,000	90,000.00
Bade Debt from Medicaid	40%	360000	1,44,000.00
	Total Expected Revenue		3,94,726.80
	Expected Costs		3,10,000.00
	Profit Forecast		84,726.80