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Tulsa Memorial Hospital

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Kim Hoang

on 18 September 2015

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Transcript of Tulsa Memorial Hospital

Tulsa Memorial Hospital
Break-Even Analysis
Presented by: Kim Hoang, Asia Holloway, Delta Humphries, Ross Smith


Overview on TMH
Acute Care Hospital
300 beds and 160 staff physicians
1 of 75 hospitals that are publicly owned and operated for-profit by Health Services of America
Offers inpatient services, operates an ER within the hospital, and a stand-alone urgent care center
Employees overworked
Staffed at bare minimum
Averages 45 visits/day
Potential to handle 85 visits/day
Potential Outcomes
With TMH’s current state, there are three possible options to consider:
1. Close the clinic
2. Continue to operate the clinic as is – without the addition of the new marketing program
3. Continue to operate the clinic, but with the new expanded marketing program, as suggested by the Marketing Director, aimed at local businesses
References
http://ycharts.com/indicators/us_inflation_rate_hcpi
http://ycharts.com/indicators/us_health_care_inflation_rate
Outcome for #1
Close the clinic
Outcome for #3
Continue to operate the clinic, but with the new expanded marketing program, as suggested by the Marketing Director, aimed at local businesses
Financial Analysis
Outcome for #2
Continue to operate the clinic as is – without the addition of the new marketing program
Historical Background Info
Profitable
Well-appointed facilities
Fine medical staff
Reputation for quality care
Underlying Key Issues
Urgent Care Center is in Question

Goal of urgent care centers: To fill the gap between the growing shortage of primary care physicians and the already crowded emergency departments

Tulsa Memorial Hospital’s CEO, Brandon Harley, is concerned about the overall financial soundness of the urgent care center and due to lack of revenue.
What can be Done?
TMH’s CEO, Brandon Harley, does not know whether to continue to operate the clinic or have it closed down
Brandon consults with TMH’s chief financial officer, Nicole Williams, in regards to the best course of action for the clinic.
Brandon also took into account the fact that the Marketing Director, Amanda Daniels, has been pushing for an expanded marketing program in order to bring in more patients.

Impact of Tax Status
TMH is required to pay taxes on PROFITS
But takes a tax deduction for LOSSES
While operating at a loss, revenue and cost remain unaffected by tax status
Thus breakeven point will is not impacted at a loss

Consideration for Outcome #1
Questions?
Graphical Interpretation for Outcome #3
Financial Statement for Outcome #3
Summary of Outcome #3
With the addition of the marketing program, the fixed cost would total to be an additional $7,000 (marketing assistant’s salary + advertising expense)
In order to offset the additional fixed cost associated with the new marketing program, the breakeven volume must be greater than without the program.
Therefore, TMH would have to produce at least an additional 28 visits/day to breakeven to gain a profit of $782.
Historical Financial Data
Projected Profitability
Inflation’s Profitability
Monthly Malpractice Insurance Charge
Inpatient versus outpatient
Unfairly allocated among all departments
Results in higher breakeven point

Additional Considerations
Could the clinic “inflate” itself to profitability?
Does monthly malpractice insurance charge allocation scheme bias the breakeven analysis?
What impact does tax status have on breakeven analysis?
Conclusion
Short-term plan:
Based on our breakeven analysis, we have determined that Tulsa’s Urgent Care Center should continue to operate as is, without the addition of the expanded marketing program.
Recommendation to increase patient volume: Referrals from ER dept. and primary care physicians, analyze the cost structure to incorporate more variable cost over fixed cost.

Long-term plan:
Due to Healthcare Reforms proposed by the ACA, insurance will gravitate towards coverage of primary care. Therefore, in the future TMH can possibly phase out the urgent care center and transform it into a primary care center, which will allow TMH to concentrate on a more profitable area.
Graphical Interpretation for Outcome #2
Financial Statement for Outcome #2
Summary of Outcome #2
TMH would have to produce an additional 20 visits/day to breakeven with a profit of $224 per day

Based on Jim Harvey's speech structures
Current Status of the Urgent Care Center
Building is leased on long-term basis therefore there is a cancellation fine of 3 months’ rent ($37,500)
Loss of potential patients for the hospital
Largest competitor, Baptist Memorial Hosptial is focusing on primary care. Is this an indicator of decline in urgent care centers?
Outcome #1: Closing the clinic
TMH will incur a $37,500 fine for canceling the lease
Outcome #2: Without new marketing program
TMH would have to produce at least an additional 20 visits/day to breakeven with a profit of $224
Outcome #3: With new marketing program
TMH would have to produce at least an additional 28 visits/day to breakeven with a profit of $782.

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