Finance And Excel Q


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Case #4 Questions: Tulsa Memorial Hospital

Finance Concept: Breakeven 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 2018 assuming the status quo. With no change in volume (utilization), is the clinic projected to make a profit?


2. 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. 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. The analysis has considered the clinic’s near-term profitability—that is, an average month in 2018. Recast the pro forma (forecasted) profit and loss statement developed in Question 1 for an average month in 2023, 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 effect 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?