Now consider the clinic’s situation without the new marketing program.
CASE 6 QUESTIONS
TULSA MEMORIAL HOSPITAL
Break-Even Analysis
1. Using the historical data as a guide, construct a pro forma (forecasted) profit and loss statement for the clinic’s average month for all of 2014 assuming the status quo. With no change in volume (utilization), is the clinic projected to make a profit?
2. Now consider the clinic’s situation without the new marketing program. How many additional daily visits must be generated to break even? Construct a breakeven graph that can be included in your report.
3. Repeat the Question 2 analysis, but now assume that the new marketing program is implemented.
4. Now focus solely on the expected profitability of the proposed marketing program. How many incremental daily visits must the program generate to make it worthwhile? (That is, how many
incremental visits would it take to pay for the marketing program, irrespective of overall clinic
profitability?) Construct a breakeven graph.
5. Thus far, the analysis has considered the clinic’s near-term profitability, that is, an average
month in 2014. Recast the pro forma (forecasted) profit and loss statement developed in
Question 1 for an average month in 2019, five years hence, assuming that volume is
constant over time. (Hint: You must consider likely changes in revenues and costs due to
inflation and other factors. The idea here is to see if the clinic can “inflate” its way to profitability
even if volume remains flat.)
6. Although you are basically satisfied with the analysis thus far, you are concerned about the
uncertainties inherent in the revenue and expense data supplied by the clinic’s director. Assess
each element in your Question 1 pro forma profit and loss statement. Are there any items that
are more uncertain than the others? How could uncertainty be worked into the analysis? Is
there any additional information that you might want to get from the clinic’s director?
7. Suppose you just found out that the $3,215 monthly malpractice insurance charge is based on
an accounting allocation scheme that divides the hospital’s total annual malpractice insurance
costs by the total annual number of inpatient days and outpatient visits to obtain a per episode
charge. Then, the per episode value is multiplied by each department’s projected number of
patient days or outpatient visits to obtain each department’s malpractice cost allocation. Does
this allocation scheme bias your breakeven analysis? (No calculations are necessary.)
8. After all the work thus far in the analysis you suddenly realize that the hospital, as a for-profit
corporation, must pay taxes. What impact does tax status have on your breakeven analysis?
9. Does the clinic have any value to the hospital beyond that considered by the numerical analysis
just conducted? Do the actions by Baptist Hospital have any bearing on the final decision
regarding the clinic?
10. What is your final recommendation concerning the future of the walk-in clinic?
11. In your opinion, what are three key learning points from this case?
Tulsa Memorial excel – no answer
Answer preview now consider the clinic’s situation without the new marketing program.
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