Week 5_Break-Even Analysis_Riddick.

Week 5 Assignment: Break-Even Analysis Chamberlain College of Nursing Nicole Riddick August 12th, 2020 Break-Even Analysis Case Study This study source was downloaded by from CourseH on :10:31 GMT -05:00 You and several of your colleague business partners have decided to establish an outpatient fertility clinic in your service area. All of you are very familiar with this patient population base, have completed an extensive market analysis that demonstrated a great need for the service, and are comfortable with setting up a business and the costs associated with this special group of patients. As part of the business plan, you and your partners will need to convince stakeholders that this new service endeavor will be viable. They will want to know how many patients visits annually will need to occur and how long it will take for the service to be at least cost neutral or profitable. To provide them with this information you will perform a break-even analysis. Use the following data, conduct the analysis accounting for the contribution margin of each patient acuity category.  Fixed Costs: $9,788,000 (start-costs, specialty physicians, anesthesiologists, APNs, staff nurses and other staff salaries, specialty equipment, other miscellaneous)  Variable costs: $500/patient visit (specialty equipment, oxygen supplies, other miscellaneous)  Clinic days: Monday-Saturday- 310 days/year  Projected patient visits per year: 7480  Patient charges by patient acuity category: o Simple (10%)------------$2000/visit o Moderate (70%)--------$6500/visit o Complex (20%)---------$10,000/visit Break-even Analysis Data Table Acuity Category Percentage % Charge per Visit Visits per Year Charges per Year Visits per Day Charges per Day Contribution Margin Simple 10% $2000 748 $1,496,000 2 $4,000 $3,000 Moderat e 70% $6500 5,236 $34,034,000 17 $110,500 $102,000 Complex 20% $10,000 1,496 $14,960,000 5 $50,000 $47,500 Expected Total Daily Charges $164,500 Expected Total Daily Revenue $164,500 Break Even point in days 66 Break Even point in visits 1,584 1. Describe your approach to this case study. In addition to the numbers given, what do you need to know before you can calculate the break-even analysis? This study source was downloaded by from CourseH on :10:31 GMT -05:00 According to Leger and Dunham _Taylor (2018), the number that is ultimately necessary prior to doing the calculations of the breakeven point is the number of patients necessary and in-house average to be able to come to a breakeven point. There also needs to be a determination of what the patient census needs to be based on the percentages given of each patient category. The data given that was given did not provide me with the contribution margin to be able to determine the break-even. The break-even occurs when: revenues/patient day x census= fixed cost + variable costs/patient day x census 2. Perform the calculations needed for the break-even analysis. Show your work, formulas used, and reference the formula. When calculating the patient visits per day, round to the nearest whole. After you’ve completed the calculations, record your results in the appropriate place in the table.  Projected patient visits per year: 7480  Clinic days: 310  Patient charges by patient acuity category: o Simple 10% *Simple patient charge per visit $2,000 7,480 (visits per year) x .10 = 748 simple patients per year 748 x $2,000 = $$1,496,000 charges per year 748 / 310= 2 simple patient visits per day 2 simple patient visits per day x 2,000 = $4,000 charges per day o Moderate 70% *moderate patient charge per visit $6,500 7,480 x .70 = 5,236 moderate patients per year 5,236 x $6,500 = $34,034,000 charges per year 5,236 / 310 = 17 moderate patient visits per day This study source was downloaded by from CourseH on :10:31 GMT -05:00 17 moderate patient visits per day x $6,500 = $110,500 o Complex 20% *complex patient charge per visit $10,000 7,480 x .20 = 1,496 complex patients per year 1,496 x $10,000 = $14,960,000 charges per year 1,496/ 310 = 5 complex patient visits per day 5 complex patient visits per day x $10,000 = $50,000 3. How many patient visits are expected per day? 2 simple, 17 moderate and 5 complex 4. What is the contribution margin of each category of patient? The contribution margin is the difference between revenue (which is variable) and variable cost Leger, J.M. & Dunham-Taylor, J. (2018). Financial management for nurse managers: Merging the heart with the dollar, 4th Ed. Burlington, MA: Jones-Bartlett.  Variable costs: $500/patient visit (specialty equipment, oxygen supplies, other miscellaneous) Simple: 2 visits per day x $500 in variable costs per visit = $1,000 variable costs per day 2 x 2,000 charge per visit = $4,000 charges per day $4,000 charges per day - $1,000 variable costs = $3,000 contribution margin This study source was downloaded by from CourseH on :10:31 GMT -05:00 Moderate: 17 visits per day x $500 in variable costs per visit = $8,500 variable costs per day 17 x 6,500 charge per visit = $110,500 charges per day $110,500 charges per day - $8,500 variable costs = $102,000 contribution margin Complex: 5 visits per day x $500 in variable costs per visit = $2,500 variable costs per day 5 x 10,000 charge per visit = $50,000 charges per day $50,000 charges per day - $2,500 variable costs = $47,500 contribution margin 5. Based on the data and your calculations, what is the expected daily revenue? Based on the data and calculations above, the expected daily revenue is $164,500, as follows: Simple patients’ daily revenue: 2 x 2,000 charge per visit = $4,000 charges per day Moderate patients’ daily revenue: 17 x 6,500 charge per visit = $110,500 charges per day Complex patients’ daily revenue: 5 x 10,000 charge per visit = $50,000 charges per day $4,000 + $110,500 + $50,000 = $164,500 total 6. How long (in days, months, or years) will it be before the return on investment begins? Leger, J.M. & Dunham-Taylor, J. (2018). Financial management for nurse managers: Merging the heart with the dollar, 4th Ed. Burlington, MA: Jones-Bartlett. Fixed costs: $9,788,000 Revenues per patient day: $154,500 Variable costs per patient day = $1,000 simple; $12,500 moderate; $2,500 complex Variable costs per day = $1,000 + $12,500 + $2,500 complex = $16,000 Breakeven = Fixed costs Revenues per patient day – variable costs per patient day $9,788,000 $164,500 – $16,000 Breakeven = $9,788,000 $148,500 This study source was downloaded by from CourseH on :10:31 GMT -05:00