I want to know the information in the questions listed below. I will not be using the tutors answer as my grade.
Please provide the information requested, as I wanted to explain the case study. This is not actually homework. It i an example case study for a different case study.
Better Care Clinic
Fairbanks Memorial Hospital, an acute care hospital with 300 beds and 160
staff physicians, is one of 75 hospitals owned and operated by Health
Services of America, a for-profit, publicly owned company. Although there are
two other acute care hospitals serving the same general population, Fairbanks
historically has been highly profitable because of its well-appointed
facilities, fine medical staff, and reputation for quality care. In addition
to inpatient services, Fairbanks operates an emergency room within the
hospital complex and a stand-alone walk-in clinic, the Better Care Clinic,
located about two miles from the hospital.
Todd Greene, Fairbanks's chief executive officer (CEO), is concerned about
Better Care Clinic's financial performance. About ten years ago, all three
area hospitals jumped onto the walk-in-clinic bandwagon, and within a short
time, there were five such clinics scattered around the city. Now, only three
are left, and none of them appears to be a big money maker. Todd wonders if
Fairbanks should continue to operate its clinic or close it down.
The clinic is currently handling a patient load of 45 visits per day, but it
has the physical capacity to handle more visits--up to 60 a day. Todd has
asked Jane Adams, Fairbanks's chief financial officer, to look into the whole
matter of the walk-in clinic. In their meeting, Todd stated that he
visualizes two potential outcomes for the clinic: (1) the clinic could be
closed or (2) the clinic could continue to operate as is.
As a starting point for the analysis, Jane has collected the most recent
historical financial and operating data for the clinic, which are summarized
in Table 1. In assessing the historical data, Jane noted that one competing
clinic had recently (December 2012) closed its doors. Furthermore, a review
of several years of financial data revealed that the Fairbanks clinic does
not have a pronounced seasonal utilization pattern.
Next, Jane met several times with the clinic's director. The primary purpose
of the meetings was to estimate the additional costs that would have to be
borne if clinic volume rose above the current January/February average level
of 45 visits per day. Any incremental volume would require additional
expenditures for administrative and medical supplies, estimated to be $4.00
per patient visit for medical supplies, such as tongue blades, rubber gloves,
bandages, and so on, and $1.00 per patient visit for administrative supplies,
such as file folders and clinical record sheets.
Although the clinic has the physical capacity to handle 60 visits per day, it
does not have staffing to support that volume. In fact, if the number of
visits increased by 11 per day, another part-time nurse and physician would
have to be added to the clinic's staff. The incremental costs associated with
increased volume are summarized in Table 2.
Jane also learned that the building is leased on a long-term basis. Fairbanks
could cancel the lease, but the lease contract calls for a cancellation
penalty of three months rent, or $37,500, at the current lease rate. In
addition, Jane was startled to read in the newspaper that Baptist Hospital,
Fairbanks's major competitor, had just bought the city's largest primary care
group practice, and Baptist's CEO was quoted as saying that more group
practice acquisitions are planned. Jane wondered whether Baptist's actions
should influence the decision regarding the clinic's fate.
Finally, in earlier conversations, Todd also wondered if the clinic could
"inflate" its way to profitability; that is, if volume remained at its
current level, could the clinic be expected to become profitable in, say,
five years, solely because of inflationary increases in revenues? Overall,
Jane must consider all relevant factors--both quantitative and qualitative--
and come up with a reasonable recommendation regarding the future of the
Better Care Clinic
Historical Financial Data
CY 2012 Jan/Feb13
Number of visits 41 45
Net revenue $1,524 $1,845
Salaries and wages $ 428 $ 451
Physician fees 533 600
Malpractice insurance 87 107
Travel and education 15 0
General insurance 22 28
Utilities 41 36
Equipment leases 4 5
Building lease 400 417
Other operating expenses 288 300
Total operating expenses $1,818 $1,944
Net profit (loss) ($ 294) ($ 99)
Better Care Clinic
Incremental Cost Data
Medical supplies $4.00 per visit
Administrative supplies 1.00
Total variable costs $5.00 per visit
Salaries and wages $ 100
Physician fees 267
Total daily semifixed costs $ 367
The semifixed costs are daily costs that apply when volume increases by
11 visits above the current level of 45. However, the physical capacity of
the clinic is only 60 visits per day.
1. Using the historical data as a guide, construct a pro forma (forecasted)
profit and loss statement for the clinic's average day for all of 2013
assuming the status quo.
With no change in volume (utilization)
, is the
clinic projected to make a profit?
2. How many additional daily visits must be generated to break even?
3. Thus far, the analysis has considered the clinic's near-term
profitability, that is, an average day in 2013. Redo the forecasted profit
and loss statement developed in Question 1 for an average day in 2018,
five years hence,
assuming that volume stays constant (does not increase)
(Hint: You must consider likely changes in revenues and costs due to
inflation and other factors. The idea here is to see if the clinic can
"inflate" its way to profitability even if volume remains at its current
4. Suppose you just found out that the $3,215 monthly malpractice insurance
charge is based on an accounting allocation scheme which divides the
hospital's total annual malpractice insurance costs by the total annual
number of inpatient days and outpatient visits to obtain a per episode
charge. Then, the per episode value is multiplied by each department's
projected number of patient days or outpatient visits to obtain each
department's malpractice cost allocation. What impact does this allocation
scheme have on the clinic's true (cash) profitability? (No calculations
5. Does the clinic have any value to the hospital beyond that considered by
the numerical analysis just conducted? Do the actions by Baptist Hospital
have any bearing on the final decision regarding the clinic?
6. What is your final recommendation concerning the future of the walk-in
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