Healthcare Finance

Assignment 3-1

M. Isaac Ripple

Breakeven Analysis of Better Care Clinic

Based on the provided information regarding the Better Care Clinic

associated with the Fairbanks Memorial Hospital, I have arrived at the following
conclusions, in tandem with the assigned questions:

1. By taking the data provided in table 1 of the case study, and factoring
the numbers to reflect data points over the course of a calendar year, it
became evident that, at the current rate of 45 patient visits per day, the
clinic would see a net profit loss of $24,750 in 2018. I arrived at this
number by taking each provided data point from table 1 and multiplying
it by 250 (number of working days in 2018, with 12 months in the year).

Number of Visits 11,250

Net Revenue $ 461,250.00

Salaries and wages $ 112,750.00

Physician fees 150,000.00
Malpractice insurance 26,750.00
Travel and education -
General insurance 7,000.00
Utilities 9,000.00
Equipment leases 1,250.00
Building lease 104,250.00
Other operating 75,000.00
expenses
Total operating $ 486,000.00
expenses

Net profit (loss) $ (24,750.00)

 2. In order to break even, the clinic would either need to increase daily
visits by 3-10, or 12-15. Based on the information provided in the case
study, however, my recommendation would be to attempt to increase the
number of visits by 3-10, as this would not require the hiring of
additional clinical staff and therefore would not incur additional semifixed
costs.

Visits Net Base Semifixed Variable Total

Added Total Revenue Costs Costs Costs Costs Profit
3 48 $ $ 19.00
1,968.0 1,944.00 - 5.00 1,949.00
0
4 49 $ $ 60.00
2,009.0 1,944.00 - 5.00 1,949.00
0
5 50 $ $ 101.00
2,050.0 1,944.00 - 5.00 1,949.00
0
6 51 $ $ 142.00
2,091.0 1,944.00 - 5.00 1,949.00
0
7 52 $ $ 183.00
2,132.0 1,944.00 - 5.00 1,949.00
0
8 53 $ $ 224.00
2,173.0 1,944.00 - 5.00 1,949.00
0
9 54 $ $ 265.00
2,214.0 1,944.00 - 5.00 1,949.00
0
10 55 $ $ 306.00
2,255.0 1,944.00 - 5.00 1,949.00
0
 3. Without any change to visit volume (number of visits per day to the
clinic), and using the data provided for 2018, factored by the appropriate
inflation rates to predict costs in 2023, the clinic would still not be able
to generate a profit on a day-to-day basis.

2018 Inflation 2023

Average Factor Average Day
Day
Number of Visits 45
45
Net $ 1.04 $ 1,918.80
Revenue 1,845.00

Salaries and wages $ 1.04 $ 469.04

451.00
Physician 1.04 624.00
fees 600.00
Malpractice 1.04 111.28
insurance 107.00
Travel and education 1.02 -
-
General insurance 1.02 28.56
28.00
Utilities 1.02 36.72
36.00
Equipment leases 1.02 5.10
5.00
Building 1.02 425.34
lease 417.00
Other operating 1.02 306.00
expenses 300.00
Total operating $ $ 2,006.04
expenses 1,944.00

Net profit (loss) $ $ (87.24)

(99.00)

4. Given the information regarding how the amount of malpractice insurance

is determined for the Fairbanks Memorial Hospital and its affiliated sites,
the impact that the allocation scheme has a very minor impact on the
clinic’s true cash profitability, as the cost incurred per visit is roughly
$3.42. In the event that the clinic was to add between 4-10 additional
visits per day, the clinic would still see a net profit, and would not be
losing money.

5. As a walk-in, urgent-care style facility, the Better Care Clinic does have
value to the hospital aside from financial and numerical analysis by
enabling members of the community to receive first-rate medical care
when they need it, without making an appointment in advance. While the
actions of the competitor, Baptist Hospital, might seem alarming to the
leadership of Fairbanks Memorial, they must realize that their clinic still
serves an important role in the community.

6. My final recommendation regarding the future of the Better Care Clinic

can be summarized as follows:
- Attempt to increase the visibility and awareness of the services offered
by the clinic through increased marketing of the clinic throughout the
community. As this is a walk-in style facility, it is difficult to increase
the average number of daily visits because each visit is for an acute
issue and more visits cannot simply be scheduled. With an increased
 community awareness, the is a chance for greater profitability as more
visits might arise.
- If the clinic does not increase visits and profit margins in 5 years, the
total amount of money lost would be $109,050. The data file shared
that in order to cancel the lease on the property, $37,500 must be
paid. Therefore, after 2 years, the performance and financial metrics
need to be closely reviewed to determine the trend of the clinic. If
there are no changes or increases in profitability after 2 years, then
executive leadership needs to reassess the situation and seriously
consider paying out the lease and closing the clinic so as not to lose
more money.