TULSA MEMORIAL HOSPITAL

Breakeven Analysis

Using the historical data as a guide, construct a pro forma (forecasted) profit and loss statement for the clinic’s average month for all of 2018 assuming the status quo. With no change in volume (utilization), is the clinic projected to make a profit?

Although you are basically satisfied with the analysis thus far, you are concerned about the uncertainties inherent in the revenue and expense data supplied by the clinic’s director. Assess each element in your Question 1 pro forma profit and loss statement. Are there any items that are more uncertain than the others? How could uncertainty be worked into the analysis? Is there any additional information that you might want to get from the clinic’s director?

Suppose you just found out that the $3,215 monthly malpractice insurance charge is based on an accounting allocation scheme that 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. Does this allocation scheme bias your breakeven analysis? (No calculations are necessary.)

After all the work thus far in the analysis, you suddenly realize that the hospital, as a for-profit corporation, must pay taxes. What effect does tax status have on your breakeven analysis?

What is your final recommendation concerning the future of the walk-in clinic?

In your opinion, what are three key learning points from this case?