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Transcript of CMH
Oby Agbu The marketing director, Rose Daniels, believes that an expanded marketing effort focused on occupational health services could be used to bring in the number of new patients needed to make the clinic a financial success.
The new marketing program would incur additional fixed costs for newspaper, radio, TV and Internet ads as well as for brochures and handouts.
Another fixed cost to take on would be that of a marketing assistant to be hired. For Outcome #3… Building is leased on a long-term basis
Columbia could cancel the lease, but the lease contract calls for a cancellation penalty in order to close the walk-in-clinic
Cancellation penalty of 3 months rent ($37,500) at a current lease rate Outcome #1: Canceling the Lease Outcome #1: clinic could be closed.
Outcome #2: continue operating the clinic as is.
Outcome #3: continue operating the clinic, but with an expanded marketing effort. The 3 Potential Outcomes With the new marketing program Conclusion Review
In order to offset the additional fixed cost associated with the new marketing plan, the break even volume must be greater than without the plan.
The clinic will break even at 24 additional visits, or a total of 69 daily patients.
The clinic will see a profit of $183 if it reaches at least 69 patients per day. Summary of Outcome #3 With the new marketing program Operating with the new marketing program Outcome #3
Also, these 17 additional visits are necessary to gain a profit of $380. Summary of Outcome #2 Graph for Outcome #2 Without the new marketing program Continue operating without an expanded marketing program Outcome #2 Competition with Baptist Hospital
Baptist just bought the city’s largest primary care group practice
Baptist’s CEO said that more group practice acquisitions are planned
Brent wondered whether Baptist’s actions would influence the decision regarding the clinic’s fate. Outcome #1 Projected
Employees are overworked Current Status of the Walk-in Clinic
In order to best evaluate the 3 outcomes discussed in their meeting Brent began by collecting the most recent financial and operating historical data. For Outcome #1… Closing the Walk-in Clinic Outcome #1 Columbia’s CEO does not know whether to continue operating the walk-in clinic or have it closed down. What can be done? Columbia's chief executive officer (CEO), Mike Reynolds, is concerned about the overall financial soundness of the clinic due to the lack of revenue generated. Current Challenge Profitable
Fine Medical staff
High reputation for quality care
Operates with a complex emergency department, and walk-in-clinic Columbia Historical Information This case illustrates the use of break-even analysis to help make operating and financial decisions for Columbia Hospital.
Columbia Memorial Hospital:
Acute Care Hospital
For profit organization
160 Staff Physicians
1 of 75 hospitals owned and operated by Health Services of America Overview Graph for Outcome #3 Columbia Walk-In Clinic: Monthly Incremental Cost Data Columbia Walk-In Clinic: Historical Financial Data The goal of the walk-in clinic is to fill the gap between the growing shortage of primary care physicians and the already crowded emergency departments. Walk-in clinics Mike consulted with Columbia's chief financial officer, Brent Williams, in regards to the best course of action for the clinic.
Mike also took into account the fact that his Marketing director has been pushing for an expanded marketing program in order to bring in more patients CMH clinic, on average, serves a patient load of 45 visits per day, but it has the physical capacity to handle up to 85 visits a day. Outcome #1: Closing the clinic
CMH will incur a $37,000 penalty on canceling the lease.
At current profitability Columbia would lose the same amount of money after 10.4 months of operation.
Outcome #2: Continue operating as is
CMH needs at least 17 additional patients per day to break even.
Baptist Memorial Hospital just opened up a new clinic. Without the new marketing program Review After evaluating the pertinent information for each outcome, our group has determined that outcome #3 would be the preferable option.
Outcome #3: Implement new marketing program
Outcome #3 allows CMH to attract new patients and avoids the guaranteed loss from canceling the lease. Outcome#3: Continue operating with the expanded marketing program
Marketing program will add a total of 7000 dollars to fixed cost
Requires 24 additional patients per day to break even
Specially tailored to pursue OHS patients from local businesses