Purpose

The purpose of this assignment is to develop break-even analysis skills, an essential aspect of financial management in healthcare organizations. This analysis helps determine the number of patient visits required annually for a new outpatient fertility clinic to become cost-neutral or profitable. By conducting a break-even analysis, you can provide stakeholders with critical information on the financial viability of this new service.

Requirements

Complete the following calculations and written responses, following proper grammar and syntax. For calculation-based questions, show all work clearly and adhere to the format provided in the Week 5 lesson.

Break-Even Analysis Case Study

You and your colleagues have decided to establish an outpatient fertility clinic in your service area. Based on a comprehensive market analysis, there is a significant need for this service, and you are confident in the business setup and associated costs. To convince stakeholders of the viability of this endeavor, you must demonstrate how many patient visits will be necessary for the clinic to reach a break-even point.

Data for Break-Even Analysis

  • Fixed Costs: $9,788,000 (includes start-up costs, salaries for specialty physicians, anesthesiologists, APNs, staff nurses, other staff, specialty equipment, and miscellaneous expenses)
  • Variable Costs: $500 per patient visit (includes costs for specialty equipment, oxygen supplies, and other miscellaneous expenses)
  • Clinic Days: Monday to Saturday, totaling 312 days per year

Step 1: Contribution Margin Calculation

The contribution margin is the difference between the revenue generated per patient visit and the variable cost per visit. It is calculated for each patient acuity category. Let’s assume the clinic offers services at three acuity levels with different charges:
  • Simple Cases (20% of total visits): $2,000 per visit
  • Moderate Cases (70% of total visits): $6,500 per visit
  • Complex Cases (10% of total visits): $10,000 per visit

Contribution Margin for Each Acuity Level

  1. Revenue per Visit−Variable Cost per Visit=$2,000−$500=$1,500\text{Revenue per Visit} - \text{Variable Cost per Visit} = \$2,000 - \$500 = \$1,500Revenue per Visit−Variable Cost per Visit=$2,000−$500=$1,500
  2. Revenue per Visit−Variable Cost per Visit=$6,500−$500=$6,000\text{Revenue per Visit} - \text{Variable Cost per Visit} = \$6,500 - \$500 = \$6,000Revenue per Visit−Variable Cost per Visit=$6,500−$500=$6,000
  3. Revenue per Visit−Variable Cost per Visit=$10,000−$500=$9,500\text{Revenue per Visit} - \text{Variable Cost per Visit} = \$10,000 - \$500 = \$9,500Revenue per Visit−Variable Cost per Visit=$10,000−$500=$9,500

Step 2: Weighted Average Contribution Margin (WACM)

The Weighted Average Contribution Margin (WACM) accounts for the different proportions of patient visits at each acuity level. Calculate the WACM using the following formula: \text{WACM} = (\text{Simple %} \times \text{Simple CM}) + (\text{Moderate %} \times \text{Moderate CM}) + (\text{Complex %} \times \text{Complex CM})WACM=(0.2×1,500)+(0.7×6,000)+(0.1×9,500)\text{WACM} = (0.2 \times 1,500) + (0.7 \times 6,000) + (0.1 \times 9,500)WACM=(0.2×1,500)+(0.7×6,000)+(0.1×9,500)WACM=300+4,200+950=$5,450\text{WACM} = 300 + 4,200 + 950 = \$5,450WACM=300+4,200+950=$5,450

Step 3: Break-Even Point in Patient Visits

The break-even point is calculated by dividing the total fixed costs by the WACM: Break-Even Point (visits)=Fixed CostsWACM\text{Break-Even Point (visits)} = \frac{\text{Fixed Costs}}{\text{WACM}}Break-Even Point (visits)=WACMFixed Costs​Break-Even Point (visits)=9,788,0005,450≈1,796 visits\text{Break-Even Point (visits)} = \frac{9,788,000}{5,450} \approx 1,796 \text{ visits}Break-Even Point (visits)=5,4509,788,000​≈1,796 visits

Step 4: Break-Even Point in Days

To calculate the break-even point in days, divide the break-even visits by the number of clinic days: Break-Even Point (days)=1,796 visits312 days/year≈5.76 days\text{Break-Even Point (days)} = \frac{1,796 \text{ visits}}{312 \text{ days/year}} \approx 5.76 \text{ days}Break-Even Point (days)=312 days/year1,796 visits​≈5.76 days This result indicates that the clinic will break even after approximately 5.76 days of operation each year.

Conclusion

The break-even analysis for the proposed outpatient fertility clinic shows that approximately 1,796 patient visits are required annually for the clinic to cover its fixed and variable costs. This translates to approximately 5.76 days of operation. By achieving this volume, the clinic can become cost-neutral, ensuring its financial viability. This analysis provides a clear and compelling case to present to stakeholders, demonstrating the feasibility of the new service.

References

Finkler, S. A., Jones, C. B., & Kovner, C. T. (2013). Financial management for nurse managers and executives (4th ed.). Saunders. https://www.saunderspublishing.com/financial-management-nurse-managers Mennella, H., & Heering, H. (2017). The importance of accurate budgeting in healthcare. Nursing Management, 48(2), 45-50. https://www.nursingmanagement.com/importance-budgeting-healthcare