case 2
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Case2.docxHSA6175 Financial Management of Health Systems
Case 2
MODULE 5 SPRING
Dade General Hospital opened the Doral Urgent Care Center in January 2016. The center has been operating with losses for the first two years and the 2018 projections still show losses for the year. Hansel Padrón, the CEO of the hospital, is concerned about the financial status of the center and has approached you, the administrator of the center, to recommend whether it should be closed or remain open. If the latter decision, then what is the plan of action to make the center profitable.
You ask your manager, Ellen, to provide you information on the financial statements, any other financial and operational data. She comes to you by the end of the day with exhibits A, B and C. With information in hand, you forward the information to Janice and Elliot, the hospital’s marketing director and financial analyst, respectively. You also schedule a meeting early next morning with them and Ellen to discuss this project.
You asked Elliot about the hospital allocation but he explains that the allocation cannot be changed based on hospital policy. It is also a way to fully price each service. It is based on number of visits and the allocation increases approximately 3% every year.
After some discussion, the four of you agree that you need to prepare the following for the CEO:
1. Break even analysis for the following scenarios:
a. With no marketing efforts, what is the number of visits the center needs to have in a year in order to break even? Will it happen within the next three years?
b. What is the number of visits needed to break even, if the marketing effort is undertaken? Will it happen within the next three years?
c. How many additional visits will the center need in order to cover the cost of the marketing efforts, regardless of the center's overall profitability.
2. Recommendations for actions to take to improve the center's financial performance
3. Prepare a document or power point presentation which includes: executive summary, summary of the analysis performed and conclude with your recommendation to either close the center or remain open and substantiate your decision. (300 - 350 words plus Exhibits)
Case should be presented in a professional manner as a document that you would give to your CEO.
Rubrics:
Problem 1: 30%
Problem 2: 10%
Problem 3: 50%
Case Format: 10%
See following pages for Exhibits A, B and C
Exhibit A
Exhibit B
Exhibit C
20162017Inc% Inc
2018
Projections
Number of Visits14,235 15,330 1,095 7.7%16,909
Net Revenues$540,930$597,870$56,94010.5%$667,906
Expenses:
Salaries and wages$145,250$156,870$11,6208.0%$169,420
Physician fees195,000 204,000 9,000 4.6%214,200
Malpractice insurance32,820 38,580 5,760 17.6%41,666
Travel and education3,500 7,224 3,724 106.4%9,727
General insurance7,850 9,028 1,178 15.0%12,615
Subscription252 265 13 5.2%278
Electricity11,153 12,924 1,771 15.9%14,131
Water1,150 1,668 518 45.0%2,208
Equipment rental2,500 2,500 - 0.0%2,500
Building lease168,000 173,040 5,040 3.0%178,236
Total Expenses$567,475$606,099$38,6246.8%$644,981
Contribution margin($26,545)($8,229)$18,316$22,925
Allocation from Hospital$106,763$110,3763,613 3.4%$125,126
Net Profit or Loss($133,308)($118,605)$14,703($102,201)
Gross Margin-24.6%-19.8%-15.3%
Dade General Hospital - Doral Urgent Care Center
Statement of Operations
Actual for the years 2016 and 2017, Projections for the year 2018
Additional Operating and Financial Information
Doral Urgent Care Center
The Center had an average of 42 visits per day in 2017 and is projected to see an
average 46.3 patients per day in 2018. The center has a capacity to have 80 per
day.
Cancellation of the lease will incur a penalty of 6 months of rent, or $89,118
Incremental volume would incur additional medical supplies and administrative
supplies as shown in Exhibit C
Staffing is currently budgeted for the projected volume. Additional volume will
incur the costs as shown on Exhibit C
Janice provided information on a similar marketing campaign for another Urgent
Care Center of the hospital as presented in Exhibit C
The hospital will continue to incur same expenses whether the center closes or not.
Per visit01-1011-2021-3031-40
Variable costs:
Medical supplies4.25
Administrative supplies1.10
Total variable costs5.35
Semifixed costs:
Salaries and wages$4,800$5,900$7,000$8,100
Physician fees12,500 12,500 15,000 16,500
Total monthly semifixed costs$17,300$18,400$22,000$24,600
Fixed costs:
Marketing assistant's salary$3,000$3,000$3,000$3,000$3,000
Advertising Expenses4,000 4,000 4,000 4,000 4,000
Total Fixed Costs$7,000$7,000$7,000$7,000$7,000
Number of additional visits per day
Dade General Hospital - Doral Urgent Care Center
Monthly Incremental Cost Data
