INPUT DATA:

Historical Financial Data:

CASE $4$ QUESTIONS

TULSA MEMORIAL HOSPITAL

Breakeven Analysis

$1.$ Using the historical data as a guide, construct a pro forma $($forecasted$)$ profit and loss

statement for the clinic's average month for all of $2018$ assuming the status quo.

With no change in volume $($utilization$),$ is the clinic projected to make a profit?

$2.$ The analysis has considered the clinic's near$-$term profitability$$that is$,$ an average

month in $2018.$ Recast the pro forma $($forecasted$)$ profit and loss statement

developed in Question $1$ for an average month in $2023,$ five years hence, assuming

that volume is constant over time. $($Hint: You must consider likely changes in

revenues and costs due to inflation and other factors. The idea here is to see if the

clinic can "inflate" its way to profitability even if volume remains flat.$)$

$3.$ Although you are basically satisfied with the analysis thus far, you are concerned

about the uncertainties inherent in the revenue and expense data supplied by the

clinic's director. Assess each element in your Question $1$ pro forma profit and loss

statement. Are there any items that are more uncertain than the others? How could

uncertainty be worked into the analysis? Is there any additional information that you

might want to get from the clinic's director?

$4.$ Suppose you just found out that the $$3,215$ monthly malpractice insurance charge is

based on an accounting allocation scheme that divides the hospital$$s total annual

malpractice insurance costs by the total annual number of inpatient days and

outpatient visits to obtain a per episode charge. Then, the per episode value is

multiplied by each department's projected number of patient days or outpatient visits

to obtain each department's malpractice cost allocation. Does this allocation scheme

bias your breakeven analysis? $($No calculations are necessary.$)$

$5.$ Does the clinic have any value to the hospital beyond that considered by the

numerical analysis just conducted? Do the actions by Baptist Hospital have any

bearing on the final decision regarding the clinic?