50 Cases in Healthcare Finance
requires a marketing assistant who will run the clinic’s OHS program. costs Additionally, the new marketing program would incur advertising for newspaper, radio, and TV ads as well as for brochures and handouts. The incremental costs associated with the new marketing program are also summarized in Exhibit 6.7. (To learn more about OBS, start at the American College of Occupational and Environmental Medicine website, www.acoem.org.) With a blank spreadsheet on her computer screen, Nicole began to construct a model that would provide the information needed to help the board make a rational, informed decision. At first, Nicole planned to conduct a standard capital budgeting analysis that focused on the profitability of the clinic as measured by net present value or internal rate of return. Then she realized that the expanded marketing program requires no capital investment. She also realized that no valid data are available on the incremental increase in visits that would be generated by either an increasing population base or the expanded marketing program. Finally, she remembered that Brandon requested that the analysis consider the inherent profitability of the clinic with-out the expanded marketing program. With these points in mind, Nicole thought that a break-even analysis would be very useful in making the final decision. Specifi-cally, she wanted to develop answers to the following questions posed by Brandon:
1. What is the projected profitability of the urgent care center for the entire year if volume continues at its current level? 2. How many adslitionaliisitsperday would be required to break even without the new marketing program? 3. How many additional visits per day would be required to break even assuming that the new marketing program is undertaken? 4. How many additional daily visits would the new program have to bring in to make it worthwhile, regardless of the overall profitability of the clinic?
In addition, Nicole wondered if the clinic could “inflate” its way to profitability; that is, if volume remained at its current level, could the clinic be expected to become profitable in, say, five years, solely because of inflationary increases in revenues? Finally, Nicole was