Posted: July 14th, 2016

What is the hospital’s breakeven point?

5.4
General Hospital, a not-for-profit acute care facility, has the following cost structure for its inpatient services:

Fixed Costs: $10,000,000
Variable cost per inpatient day: $200
Charge (revenue) per inpatient day: $1,000

The hospital expects to have a patient load of 15,000 inpatient days next year.
a. Construct the hospital’s base case projected P&L statement.
b. What is the hospital’s breakeven point?
c. What volume is required to provide a profit of $1,000,000? A profit of $500,000?
d. Now assume that 20 percent of the hospital’s inpatient days come from a managed care plan that wants a 25 percent discount from charges. Should the hospital agree to the discounted proposal?

5.5
You are considering starting a walk-in clinic. Your financial projections for the first year of operations are as follows:

Revenues: $400,000
Wages & Benefits: $220,000
Rent: $5,000
Depreciation: $30,000
Utilities: $2,500
Medical Supplies: $50,000
Administrative Supplies: $10,000

Assume that all costs are fixed, except supply costs, which are variable. Furthermore, assume that the clinic must pay taxes at a 20 percent rate.
a. Construct the clinic’s projected P&L statement.
b. What number of visits is required to break even?
c. What number of visits is required to provide you with an after-tax profit of $100,000?