Scenario

NLMS, like many hospitals, owns a number of primary care physician practices. To take advantage of some possible economies of scale, NLHS is considering the consolidation of their out-patient practices and relocating them to a single building close to the hospital.

The building under consideration is a 20,000 square foot existing facility and will be more that adequate to accommodate the physician practices. At a rental cost of $20 per square foot, the total annual rent will be $400,000. (This rent payment is considered a fixed cost.)

There will be three (3) physicians located in the facility on a daily basis. On average, each physician will see approximately 15 patients per day, with each patient generating an average of $110 per visit. Additionally, there will be two (2) Physician Assistants (PAs) in the facility. The PAs are averaging ten (10) patients per day, and according to CMS rules, they can only bill at 85% of the physicians fee.

In addition to the above patient care providers, there will be one (1) nurse (LPN), and two (2) Medical Assistants (MAs) in the facility to assist the doctors and the PAs. Because NLHS cannot bill for non-provider staff, their salaries are part of the overhead for operating the clinic.

The base physician salary is $185,000, with an additional 35% for taxes and benefits. The P.A.s salary is $80,000, with an additional 30% for taxes and benefits, the LPN salary is $35,000, and the 2 MA salaries are $21,500 each. Both the LPN and the MAs also have an additional 30% for taxes and benefits.

The physicians and PAs are exempt employees, and they all just renewed a 5-year employment contract.

The facility is open 235 days/year, and has a general operating cost (electricity, water and sewer, medical waste disposal, and supplies) which averages 40% of total payroll, including taxes and benefits. Said another way, this cost is 40% of everything NLHS will spend on the payroll in this project. (Just as a note, operating costs are typically considered variable costs, however for the purposes of this exercise, they are constant as described here.)

The question NLHS needs to answer is, how much revenue must the clinic produce to cover the operating cost of the clinic, including the facility fees. For this, you must prepare an Excel spreadsheet to assist Michelle with her report to the hospital CEO to determine if the project is viable.

Steps

1. Create a spreadsheet Download spreadsheet that evaluates, and clearly illustrates, your analysis using the following inputs.
   • Projected revenue from the physicians
   • Projected revenue from the physicians assistants
   • Projected total revenue
   • Projected cost of the physician payroll?
   • Projected cost of the physician assistant payroll
   • Projected cost of the nursing payroll?
   • Projected cost of the Medical Assistants payroll
   • Given debt service of $400,000, operating costs of 40% of total payroll, the total projected expense of operating the clinic, including all payroll costs?
   • Projected profit/loss for this proposed clinic
2. Create a second spreadsheet that should include all of the above with your recommendations being inputted as appropriate.
3. Create a modified business plan