Break-Even Analysis

XXX Chamberlain College of Nursing NUR 533: Financial Management of Healthcare Organizations Dr. S. Welling June 7, 2020

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Introduction

In this research, we present a detailed break-even analysis for the proposed fertility clinic, a project initiated after extensive research by our team. The fertility clinic is expected to fulfill a significant demand for specialized reproductive services in our community. To ensure the financial viability of this endeavor, a thorough break-even analysis is essential to illustrate its potential success to stakeholders. This paper outlines the key financial metrics and calculations that demonstrate the feasibility of opening this clinic.

Fixed and Variable Costs

Fixed Costs are the expenses that do not vary with the volume of patients. For our fertility clinic, the fixed costs amount to $9,788,000 annually. These include start-up costs, salaries for specialty physicians, anesthesiologists, Advanced Practice Nurses (APNs), staff nurses, other essential staff, specialty equipment, and miscellaneous expenses.

Variable Costs are those that fluctuate depending on the number of patients served. For our clinic, the variable cost per patient visit is estimated at $500. This cost covers expenses related to specialty equipment, oxygen supplies, and other miscellaneous needs that arise during patient care.

Patient Volume and Revenue Projections

The clinic will operate six days a week, totaling 305 operational days per year. We project an annual patient volume of 7,480 visits, categorized by patient acuity:

1. Simple Cases: Representing 20% of total visits, with a charge of $2,000 per visit.
2. Moderate Cases: Comprising 70% of visits, with a charge of $6,500 per visit.
3. Complex Cases: Accounting for 10% of visits, with a charge of $10,000 per visit.

Break-Even Analysis Data

Below is a breakdown of expected visits, revenue, and contribution margins by acuity category:

Acuity CategoryPercentage (%)Charge per Visit ($)Visits per YearCharges per Year ($)Visits per DayCharges per Day ($)Contribution Margin ($)Simple20%2,0001,4962,992,000510,0007,500Moderate70%6,5005,23634,034,00017110,500102,000Complex10%10,0007487,480,000220,00019,000

Total Expected Daily Charges: $140,500

Total Expected Daily Revenue: $140,500

Break-Even Point Calculation

The break-even point is the level of output or sales at which total revenues equal total costs, meaning the clinic will neither earn a profit nor incur a loss. To calculate the break-even point, we need to determine the revenue per patient day, variable costs per patient day, and fixed costs per year.

Break-Even Point in Patient Days: To determine the break-even point in days, we use the following formula:

Break-Even Point (days)=Fixed CostsContribution Margin per Day\text{Break-Even Point (days)} = \frac{\text{Fixed Costs}}{\text{Contribution Margin per Day}}Break-Even Point (days)=Contribution Margin per DayFixed Costs​Break-Even Point (days)=9,788,000140,500−(7,480×500)/305=76 patient days\text{Break-Even Point (days)} = \frac{9,788,000}{140,500 - (7,480 \times 500)/305} = 76 \text{ patient days}Break-Even Point (days)=140,500−(7,480×500)/3059,788,000​=76 patient days

Break-Even Point in Visits: The break-even point in patient visits is calculated as follows:

Break-Even Point (visits)=Fixed CostsContribution Margin per Visit\text{Break-Even Point (visits)} = \frac{\text{Fixed Costs}}{\text{Contribution Margin per Visit}}Break-Even Point (visits)=Contribution Margin per VisitFixed Costs​Break-Even Point (visits)=9,788,000140,500/305=1,824 visits\text{Break-Even Point (visits)} = \frac{9,788,000}{140,500/305} = 1,824 \text{ visits}Break-Even Point (visits)=140,500/3059,788,000​=1,824 visits

Conclusion

The break-even analysis for the proposed fertility clinic indicates that the clinic will need to achieve at least 1,824 patient visits or operate for 76 patient days to cover its fixed and variable costs. With the projected volume of 7,480 patient visits per year, the clinic is expected to surpass the break-even point and generate a profit. This analysis demonstrates the financial feasibility of the fertility clinic and provides a solid foundation for stakeholders to make informed decisions regarding the investment.