Gapenski, L. C. (2012). Healthcare finance: An introduction to accounting and financial management. Chicago, Ill: Health Administration Press.
Solve the following problems, submit the answers in a Word or Excel document
1. 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?
2. You are considering starting a walk-in clinic. Your financial projections for the first year of operations 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 costs are fixed, except supply costs, 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?