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Case Study #2 Tulsa Memorial Hospital CPT Hoffman and MAJ Ochoa 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? The below pro forma profit and loss statement states that the clinic is currently operating at a loss of $3,173 per month, considering that subtraction of fixed and variable costs. The contribution margin per month totals $48,138 or divided out equals to $35.67 per visit. The hospital is not sustaining itself at this point or even paying for its fixed costs. Pro Forma Average Month:???????Number of visits?1,350 ????Net revenue??$54,888 ????Salaries and wages?$13,542 Physicians fees?18,000 Malpractice insurance?3,215 Travel and education?602 General insurance?843 Subscriptions?0 Electricity??1,077 Water??139 Equipment rental?105 Building lease?12,500 Other operating expenses?8,038 Total operating expenses?$58,061 ????Net profit (loss)?($3,173)????Gross margin (%)?-5.8%Total Revenue? $ 54,888.00 Total variable costs (1350*5) $ 6,750.00 Total CM?? $ 48,138.00 Total Fixed Costs? $ 51,518.00 Profit?? $ (3,380.0)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.Without the new marketing plan, the clinic will need an additional 19.8 to (or rounded) 20 patients each day to break even. (see math below)40.66(net revenue per visit)X =7,9059X= total number of visits that are needed to break evenX= 1944.39/ avg # JanFeb 1,350 visits3. Repeat the Question 2 analysis, but now assume that the new marketing program is implemented.With the new marketing plan, the breakeven point is at an additional 32 patients visits per day.40.66(net revenue per visit)X =93,861(92,511-1,350,)/30days= 31.94patients per day or rounded to 324. Now focus solely on the expected profitability of the proposed marketing plan. 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.In order for the clinic to not operate at more of a loss than they were from before the marking program, the additional 25 visits per day are needed. The marketing costs of $7000 are paid for through the incremental analysis.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 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 revenue and costs due to inflation and other factors. The idea is to see if the clinic can “inflate” its way to profitability even if volume remains flat.)Using a set 3.0% inflation rate over the next 5 years, the clinic is still losing money. The building lease was kept at a set price since it was a long term lease and subscriptions were not changed.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 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?The more uncertain elements in the pro forma data in our opinion are:Baptist’s acquisition of healthcare facilities may impact TMH’s market share. With overworked employees in the clinic, they may seek out Baptist positions to have better work schedules.What does the “other operating expense” category include? Knowing the composition of this category may allow for other financial adjustments.Visit numbers may fluctuate with Baptist coming in to the market to compete with TMH.Due to staffing shortages, the facility may have the likelihood of having more accidents in patient care; this may impact the cost of malpractice insurance coverage.Questions we would ask the clinic director.What caused the other area clinics to go out of business? In the other markets that Health Services of America owns are any other the other urgent care clinics flourishing and what has made them flourish?7) 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?This does not have an impact at this time. The clinic is operating at a loss so they would not have to pay taxes at this time. Taxes would come into factor once the facility starts operating at a profit. At that point they would have to account for state and federal tax expenses.8) What is your final recommendation concerning the future of the walk-in clinic?Based the pro forma forecast from 2015-2019 the clinic will need to increase it per vist charges to make a profit. The current per visit charge is below the $60-200 per visit average referenced in the Wall Street Journal article. Based on the current staffing and volume the clinic needs to charge $43 per visit. If the clinic were to charge $61 per visit they could cover the cost of the marketing and the additional fixed caused incurred. However based on the current market these prices may be too high. A market analysis would have to be done to see if the market will bear these higher prices. If a patient has alternatives for minor medical procedures they will be inclined to drive a relatively short distance. If Baptist opens locations nearby and is able to provide care for a lower rate this will negatively impact the ability of the clinic to stay open. If the market can bare $65 per visit we suggest they stay open for another year to see how the clinic does. It must also be kept in mind that an early termination of the lease will cost Health Services of America $37,500. ................
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