Tulsa Memorial Hospital (TMH) Break-Even Analysis (Case 6).
Brandon Harley, TMH's CEO is concerned about the Urgent Care Center's overall financial soundness. He has 3 options to consider one of them (1) continue to operate as it; (2) close it down; or (3) continue to operate, accompanied by the expanded marketing effort.
1- TMH has reputation for quality care
2- Urgent care Centers are increasingly visited by patients who need immediate treatment for illness “Wall Street Journal”.
3- One competing center had recently closed.
4- Capacity to see 85 patients/day
5- The center does not have seasonal utilization pattern
6- Expanded marketing program requires no capital investment.
1- The center has been staffed at the bare minimum, so any increase in the number of patient visits would require immediate ...view middle of the document...
7%. But currently the average price per patient is 47,037/1,230 = $38.24, while as it was mentioned in Wall street Journal that the charge per procedure in Urgent care center is between $60 and $200. If profit is calculated as an average price of $60/patient we will have the following
Total revenue = 1230 x 60 = $73,800
Total expenses from the Exhibit = $55,810
Net profit = 73,800 – 55,810 = $17,990
Gross margin = 17,990/73,800 x100 = 24%
How many additional visits per day to break even without marketing program?
From the excel sheet the break- even point is at 30 additional visits per day which will give a net profit of $2,144 per month, gross margin of 2.6% and a total of 71 visits per day (2130 visits/month) which is within the physical capability of the center which can handle up to 85 visits per day. But it is a high increment number to attract without providing new services or advertisement.
How many additional visits per day to break-even with the new marketing program?
From the excel sheet the break-even point is at 40 additional visits per day (2,430 visits/month) which will give a net profit of $117 per month, gross margin of 0.1% and a total of 81 visits per day which is 4 visit below the maximum physical capability of the center to handle and 10 additional visits than without marketing.
How many additional daily visits would the new program have to bring in to make it worthwhile?
Looking at the numbers in the previous answer indicate that this new marketing program will stretch the physical capability of the center to the maximum and it require high number of daily visits just to break-even. It seems that this new program does not worth it.
In conclusion, it seems that the second option of closing the center would be a sounded decision but it still will carry the risk of paying the lease penalty. Or to have a higher charge per visit.