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

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?

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