Week 5: Break-even Analysis
Scenario: You and several of your colleague business partners have decided to establish an outpatient fertility clinic in your service area. All of you are very familiar with this patient population base, have completed an extensive market analysis that demonstrated a great need for the service, and are comfortable with setting up a business and the costs associated with this special group of patients.
As part of the business plan, you and your partners will need to convince stakeholders that this new service endeavor will be viable. They will want to know how many patients visits annually will need to occur and how long it will take for the service to be at least cost neutral or profitable. To provide them with this information you will perform a break-even analysis.
Use the following data, conduct the analysis accounting for the contribution margin of each patient acuity category.
Fixed Costs: $9,788,000 (start-costs, specialty physicians, anesthesiologists, APNs, staff
nurses and other staff salaries, specialty equipment, other miscellaneous)
Variable costs: $500/patient visit (specialty equipment, oxygen supplies, other
miscellaneous)
Clinic days: Monday-Saturday- 312 days/year
Projected patient visits per year: 7488
Patient charges by patient acuity category:
Simple (15%)————$2000/visit
Moderate (60%)——–$6500/visit
Complex (25%)———$10,000/visit
Break-even Analysis Data Table
Acuity Category Percentage % Charge per Visit Visits per Year Charges per Year Visits per Day Charges per Day Contribution Margin
Simple 15% $2000
Moderate 60% $6500
Complex 25% $10,000
Expected Total Daily Charges
Expected Total Daily Revenue
Break Even point in days
Break Even point in visits
Describe your approach to this case study. In addition to the numbers given, what do you need to know before you can calculate the break-even analysis?
Perform the calculations needed for the break-even analysis. Show your work, formulas used, and reference the formula.
When calculating the patient visits per day, round to the nearest whole. After you’ve completed the calculations, record your results in the appropriate place in the table.
How many patient visits are expected per day?
What is the contribution margin of each category of patient?
Based on the data and your calculations, what is the expected daily revenue?
How long (in days, months, or years) will it be before the return on investment begins?
How many patient visits will be required to reach the break-even point?
Discuss your analysis. Is the project viable and profitable service? Does the analysis support moving forward with the business? Cite specific data from you analysis to support your interpretation.
