Monthly Averages 2017 Juleb 2018 Total Number of visits Net revenue 1.230 $47.037 1210 $45.729 $12.854 16,000 2.620 Current Year 2013 14,522 $518,747 $154,250 192.000 31.440 5,365 8.112 189 11.820 1,260 1,260 156,745 103.779 $665,220 $12.952 16.286 2.705 469 Salaries and wages Physician fees Malpractice insurance Travel and education General insurance Subscriptions Electricity Water Equipment rental Building lease Other operating expenses Total operating expenses Jan 2018 1.365 $56,028 $13,540 18.000 3215 538 813 0 1.124 135 105 12,500 8.152 $58, 152 Feb 2018 1.335 $54.748 $13,544 18000 3.215 665 813 0 1,029 142 105 12,500 7.923 $57.966 676 16 985 1,350 $54,888 $13,542 18,000 3215 602 843 0 1,077 139 105 12,500 8,038 $58,059 700 14 998 105 105 12.979 8,648 $55,435 110 105 12.910 8.561 $55.810 $116,473) $ 3,124) 5 3.2181 $ 9,706) $ 3,173) $ 8.773 Net profit loss Gross margin 1%) -21.2% 5.7% -5.9% -212% -5.8% -18.7% EXHIBIT 4.1 Historical Financial Data TMH Urgent Care Center: 32 Cases in Healthcare Finance Number of Additional Visits per Day 0 18-20 21-30 31-40 EXHIBIT 4.2 MH Urgent Care Center: Monthly Incremental Cost Data Variable Costs Medical supplies Administrative supplies $5.00 per visit 2.00 per visit Total variable costs per visit $700 per visit Semitixed Costs Salaries and wages Physician fees S 5,000 S 6,000 S 7000 S 8.000 12,000 12,000 12.000 16,000 Total monthly semifixed costs . O $17,000 $18,000 319,000 $24,000 Fixed Costs Marketing assistant's salary Advertising expenses $ 3,000 $3,000 $3,000 $3,000 $3,000 4,000 4,000 4,000 4,000 4,000 Total monthly fixed costs $ 7,000 $ 7.000 $ 7,000 $ 7,000 $ 7,000 . Using the historical data as a guide (Exhibit 4.1), construct a pro forma (forecasted) profit and loss statement for the center's average month for all of 2018 assuming the status quo. With no change in (volume) utilization, what profit (loss) is the clinic projected to make? o Consider the clinic's situation without the new marketing program. How many additional daily visits must be generated to break even? o Consider the clinic's situation with the new marketing program. How many additional daily visits must be generated to break even? o Focus solely on the expected profitability of the proposed marketing program. How many incremental daily visits must the program generate to make it worthwhile? (In other words, how many incremental visits would it take to pay for the marketing program, irrespective of overall clinic profitability?) Construct a graph showing the expected profitablilty of the proposed program versus incremental daily visits. . Thus far, 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 profitablity even if volume remains flat.) 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 center's director. Assess each element in your Question 1 pro forma profit and loss statement. Are any items more uncertain than the others? How could uncertainty be worked into the analysis? What additional information, if any, might you want to obtain from the center's director? o 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 break-even analysis? Explain. (No calculations are necessary.) . After all the work performed thus far in the analysis, you suddenly realize that the hospital, as a for-profit corporation, must pay taxes. What impact does tax status have on your break-even analysis? 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? . What is your final recommendation concerning the future of the urgent care center? Monthly Averages 2017 Juleb 2018 Total Number of visits Net revenue 1.230 $47.037 1210 $45.729 $12.854 16,000 2.620 Current Year 2013 14,522 $518,747 $154,250 192.000 31.440 5,365 8.112 189 11.820 1,260 1,260 156,745 103.779 $665,220 $12.952 16.286 2.705 469 Salaries and wages Physician fees Malpractice insurance Travel and education General insurance Subscriptions Electricity Water Equipment rental Building lease Other operating expenses Total operating expenses Jan 2018 1.365 $56,028 $13,540 18.000 3215 538 813 0 1.124 135 105 12,500 8.152 $58, 152 Feb 2018 1.335 $54.748 $13,544 18000 3.215 665 813 0 1,029 142 105 12,500 7.923 $57.966 676 16 985 1,350 $54,888 $13,542 18,000 3215 602 843 0 1,077 139 105 12,500 8,038 $58,059 700 14 998 105 105 12.979 8,648 $55,435 110 105 12.910 8.561 $55.810 $116,473) $ 3,124) 5 3.2181 $ 9,706) $ 3,173) $ 8.773 Net profit loss Gross margin 1%) -21.2% 5.7% -5.9% -212% -5.8% -18.7% EXHIBIT 4.1 Historical Financial Data TMH Urgent Care Center: 32 Cases in Healthcare Finance Number of Additional Visits per Day 0 18-20 21-30 31-40 EXHIBIT 4.2 MH Urgent Care Center: Monthly Incremental Cost Data Variable Costs Medical supplies Administrative supplies $5.00 per visit 2.00 per visit Total variable costs per visit $700 per visit Semitixed Costs Salaries and wages Physician fees S 5,000 S 6,000 S 7000 S 8.000 12,000 12,000 12.000 16,000 Total monthly semifixed costs . O $17,000 $18,000 319,000 $24,000 Fixed Costs Marketing assistant's salary Advertising expenses $ 3,000 $3,000 $3,000 $3,000 $3,000 4,000 4,000 4,000 4,000 4,000 Total monthly fixed costs $ 7,000 $ 7.000 $ 7,000 $ 7,000 $ 7,000 . Using the historical data as a guide (Exhibit 4.1), construct a pro forma (forecasted) profit and loss statement for the center's average month for all of 2018 assuming the status quo. With no change in (volume) utilization, what profit (loss) is the clinic projected to make? o Consider the clinic's situation without the new marketing program. How many additional daily visits must be generated to break even? o Consider the clinic's situation with the new marketing program. How many additional daily visits must be generated to break even? o Focus solely on the expected profitability of the proposed marketing program. How many incremental daily visits must the program generate to make it worthwhile? (In other words, how many incremental visits would it take to pay for the marketing program, irrespective of overall clinic profitability?) Construct a graph showing the expected profitablilty of the proposed program versus incremental daily visits. . Thus far, 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 profitablity even if volume remains flat.) 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 center's director. Assess each element in your Question 1 pro forma profit and loss statement. Are any items more uncertain than the others? How could uncertainty be worked into the analysis? What additional information, if any, might you want to obtain from the center's director? o 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 break-even analysis? Explain. (No calculations are necessary.) . After all the work performed thus far in the analysis, you suddenly realize that the hospital, as a for-profit corporation, must pay taxes. What impact does tax status have on your break-even analysis? 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? . What is your final recommendation concerning the future of the urgent care center