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.
(see math below)
40.66(net revenue per visit)X =7,9059
X= total number of visits that are needed to break even
X= 1944.39/ avg # JanFeb 1,350 visits
3. 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 32
4. 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:
1) Baptist’s acquisition of healthcare facilities may impact TMH’s market share. With overworked employees in the clinic, they may seek out Baptist...