Finance Assignment

HSA6175 Financial Management of Health Systems

Case Assignment

MODULE 4 SUMMER

Dade General Hospital opened the Doral Urgent Care Center in January 2016. The center has been operating with losses for the first three years and the 2019 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 and B. You asked Ellen about the hospital allocation but she 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, you agree that you need to prepare the following for the CEO:

1. Break even analysis to determine 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 given the current growth rate?

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. (400 - 500 words plus Exhibits)

Case should be presented in a professional manner as a document that you would give to your CEO.

Hints in analyzing and preparing the case:

· Separate variable and fixed expenses to do the break even analysis

· Calculate the revenue and costs (variable and fixed) per unit

· If hospital overhead is increasing 3% annually, why would the center's portion of the allocation be a higher percentage? Is this a good piece of information for you to present?

Rubrics:

Problem 1: 30%

Problem 2: 10%

Problem 3: 50%

Case Format: 10%

See following pages for Exhibits A and B

Exhibit A

Exhibit B

20172018Inc% Inc

2019

Projections

Number of Visits14,235 15,330 1,095 7.7%16,790

Net Revenues$540,930$597,870$56,94010.5%$671,600

Expenses:

Salaries and wages$156,870$168,949$12,0797.7%$181,950

Physician fees204,000 219,708 15,708 7.7%236,625

Malpractice insurance32,820 33,805 985 3.0%34,820

Travel and education3,500 5,500 2,000 57.1%5,500

General insurance7,850 8,050 200 2.5%8,200

Subscription252 265 13 5.2%300

Electricity11,153 12,924 1,771 15.9%14,975

Water1,150 1,350 200 17.4%1,500

Equipment rental2,500 2,500 - 0.0%2,500

Building lease168,000 173,040 5,040 3.0%178,236

Total Expenses$588,095$626,091$37,9966.5%$664,606

Income before allocation($47,165)($28,221)$18,944$6,994

Allocation from Hospital$75,000$78,0003,000 4.0%$81,900

Net Profit or Loss($122,165)($106,221)$15,944($74,906)

Dade General Hospital - Doral Urgent Care Center

Statement of Operations

Actual for the years 2017 and 2018, Projections for the year 2019

Additional Operating and Financial Information

Doral Urgent Care Center

The Center had an average of 42 visits per day in 2018 and is projected to see an

average 46 patients per day in 2019. The center has a capacity to see 80 patients

per day

Cancellation of the lease will incur a penalty of 6 months of rent, or $89,118

Incremental volume increases the variable costs proportionately

The hospital overhead expenses are expected to increase by 3% annually

Hospital allocation is based on number of visits

The hospital will continue to incur the same expenses whether the center closes or

not.