HSA6175 Financial Management of Health Systems

| March 24, 2019

 

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.

During the meeting the next day, Janice explains the marketing program and the success it had at the other urgent care center. She also discloses that the Doral center has different demographics and therefore she cannot guarantee the same success.

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 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 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

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