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Fairbanks Memorial Hospital, an acute care hospital with 300 beds and 160




Fairbanks Memorial Hospital, an acute care hospital with 300 beds and 160;staff physicians, is one of 75 hospitals owned and operated by Health;Services of America, a for-profit, publicly owned company. Although there are;two other acute care hospitals serving the same general population, Fairbanks;historically has been highly profitable because of its well-appointed;facilities, fine medical staff, and reputation for quality care. In addition;to inpatient services, Fairbanks operates an emergency room within the;hospital complex and a stand-alone walk-in clinic, the Better Care Clinic;located about two miles from the hospital.;Todd Greene, Fairbankss chief executive officer (CEO), is concerned about;Better Care Clinics financial performance. About ten years ago, all three;area hospitals jumped onto the walk-in-clinic bandwagon, and within a short;time, there were five such clinics scattered around the city. Now, only three;are left, and none of them appears to be a big money maker. Todd wonders if;Fairbanks should continue to operate its clinic or close it down.;The clinic is currently handling a patient load of 45 visits per day, but it;has the physical capacity to handle more visits--up to 60 a day. Todd has;asked Jane Adams, Fairbankss chief financial officer, to look into the whole;matter of the walk-in clinic. In their meeting, Todd stated that he;visualizes two potential outcomes for the clinic: (1) the clinic could be;closed or (2) the clinic could continue to operate as is.;As a starting point for the analysis, Jane has collected the most recent;historical financial and operating data for the clinic, which are summarized;in Table 1. In assessing the historical data, Jane noted that one competing;clinic had recently (December 2012) closed its doors. Furthermore, a review;of several years of financial data revealed that the Fairbanks clinic does;not have a pronounced seasonal utilization pattern.;Next, Jane met several times with the clinics director. The primary purpose;of the meetings was to estimate the additional costs that would have to be;borne if clinic volume rose above the current January/February average level;of 45 visits per day. Any incremental volume would require additional;expenditures for administrative and medical supplies, estimated to be $4.00;per patient visit for medical supplies, such as tongue blades, rubber gloves;bandages, and so on, and $1.00 per patient visit for administrative supplies;such as file folders and clinical record sheets.;1;Although the clinic has the physical capacity to handle;does not have staffing to support that volume. In fact;visits increased by 11 per day, another part-time nurse;have to be added to the clinics staff. The incremental;increased volume are summarized in Table 2.;60 visits per day, it;if the number of;and physician would;costs associated with;Jane also learned that the building is leased on a long-term basis. Fairbanks;could cancel the lease, but the lease contract calls for a cancellation;penalty of three months rent, or $37,500, at the current lease rate. In;addition, Jane was startled to read in the newspaper that Baptist Hospital;Fairbankss major competitor, had just bought the citys largest primary care;group practice, and Baptists CEO was quoted as saying that more group;practice acquisitions are planned. Jane wondered whether Baptists actions;should influence the decision regarding the clinics fate.;Finally, in earlier conversations, Todd also 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? Overall;Jane must consider all relevant factors--both quantitative and qualitative-and come up with a reasonable recommendation regarding the future of the;clinic.


Paper#25646 | Written in 18-Jul-2015

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