Laureate Education Inc: Healthcare Financial Management

2020 Laureate Education Inc Page 1 Of 1healthcare Financial Manage

Given the above information, use the “Week 8 Assignment 2 Break Even Excel Template” to answer these items as a Department: A. Solve for monthly volume to break even. B. Solve for monthly volume needed to break even at desired $5,000 per month profit level. C. Solve for volume needed to break even at new reimbursement of $55 per screen and no profit. D. Solve for volume needed to break even with one(1) additional aide.

Paper For Above instruction

The financial management of healthcare organizations is pivotal in ensuring sustainability, efficiency, and the capacity to deliver quality patient care. A fundamental aspect of financial planning and decision-making is understanding and calculating the break-even point, which signifies the level of activity at which total revenues equal total costs, resulting in neither profit nor loss. For the Northern Plains Imaging Center, accurate computation of the break-even point and related volume analyses enables the administration to evaluate current operations and make informed decisions regarding staffing, reimbursement rates, and expansion efforts.

The Northern Plains Imaging Center operates with two analogue film or screen units, staffed by two Certified Technologists, one aide, and utilizing two mammography units. Its current financial parameters include reimbursement of $85 per screen, equipment lease costs of $800 per machine per month totaling $1,600, and variable costs per mammography procedure of $10, along with technologist costs of $25 per mammography and aide costs of $5 per mammography. Additionally, equipment maintenance costs amount to $700 per machine monthly, totaling $1,400. These figures establish the foundational data needed to evaluate the financial breakeven point and explore various scenarios.

To calculate the monthly volume required to break even, it is essential to consider total fixed and variable costs. Fixed costs encompass equipment leases and maintenance, wages, and overhead expenses, which do not fluctuate directly with patient volume. Variable costs include technologist and aide wages per mammography, as well as materials used per procedure. The primary revenue is derived from reimbursement per mammography, which covers these costs up to a point—and beyond which profit is realized.

Calculating the breakeven volume involves delineating fixed costs and variable costs specifically. Fixed costs include equipment lease payments of $1,600 per month and maintenance costs of $1,400 per month, totaling $3,000. Variable costs per mammography are $10 for materials, $25 for technologists, and $5 for aides, summing to $40 per procedure. The per-unit revenue is $85. The breakeven point is thus determined by dividing total fixed costs by the contribution margin per procedure, which is the difference between revenue per procedure and variable cost per procedure ($85 - $40 = $45).

Mathematically, the formula for the breakeven volume (V) is:

V = Fixed Costs / Contribution Margin per Mammography = $3,000 / $45 ≈ 66.67 procedures.

This indicates that approximately 67 mammography procedures per month are needed to cover all fixed and variable costs, with any additional procedures generating profit. This figure informs the current operational adequacy—if current volumes are below this threshold, the center may be operating at a loss; above it, the center is profitable.

When considering an increase in profit to $5,000 per month, the calculation adjusts to include the desired profit target. The revised formula becomes:

V = (Fixed Costs + Target Profit) / Contribution Margin per Mammography = ($3,000 + $5,000) / $45 ≈ 177.78 procedures.

This suggests the center needs to perform approximately 178 mammographies monthly to attain a $5,000 profit margin, assuming other costs and reimbursement rates stay constant. Such data is essential for planning staffing and operational capacity to meet revenue goals.

In the scenario where reimbursement per mammography decreases to $55—possibly due to contractual renegotiations or policy changes—the contribution margin diminishes. Here, the variable cost per mammography remains at $40, but revenue drops, resulting in a new contribution margin of $15. The new breakeven volume is calculated as:

V = Fixed Costs / New Contribution Margin = $3,000 / $15 = 200 procedures.

This increase in procedures at the lower reimbursement underscores the criticality of re-evaluating operational efficiency and exploring avenues for cost reduction or revenue enhancement.

Finally, the impact of staffing changes, specifically adding an additional aide, alters both fixed and variable costs. With an extra aide, additional wages of $5 per procedure are incorporated into variable costs, raising them to $45. Fixed costs may also increase slightly due to staffing expenses; for simplicity, assume fixed costs remain constant or increase marginally. The new variable cost per mammography is $45, and contribution margin becomes $85 - $45 = $40. The breakeven volume with an extra aide is therefore:

V = Fixed Costs / Contribution Margin = $3,000 / $40 = 75 procedures.

This illustrates how staffing adjustments directly influence financial thresholds and can be optimized for operational efficiency.

In sum, applying precise financial calculations to determine breakeven and profit-oriented volumes allows healthcare administrators to make data-driven decisions. Whether adjusting staffing levels, reconsidering reimbursement strategies, or setting performance targets, understanding these financial metrics supports sustainable operations that align with organizational goals and community health needs.

References

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