Capitated environment

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Review the CVP-graph PDF for more information on CVP graphs and how to read them. Assuming the graphs are drawn to the same scale, consider the break-even charts—cost-volume-profit (CVP) graphs—below for two competing providers operating in a fee-for-service environment. On the basis of your understanding of variable cost rate, per-unit revenue, contribution margin, fixed costs, and the CVP graphs above, answer the following questions:

  • Explain how the CVP graphs would change if the providers were operating in a discounted fee-for-service environment.
  • Explain how the CVP graphs would change in a capitated environment. Evaluate which provider is in the best position to grow its business.
  • Provide reasons for and evidence in support of your responses.