Posted: April 6th, 2016

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 discount proposal?

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

Revenues (10,000 visits) $400,000

Wages and benefits $220,000

Rent $ 5,000

Depreciation $ 30,000

Utilities $ 2,500

Medical supplies $ 50,000

Administrative supplies $ 10,000

Assume that all cost fixed, except supply cost, which are variable. Furthermore, assume that the clinic must pay taxes at a 30 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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