Business Planning for Health Organizations ID 536 April 25, 2008 - PowerPoint PPT Presentation

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Business Planning for Health Organizations ID 536 April 25, 2008

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... Revenue $ Costs 20 Patients Current Volume Lakeside - Breakeven Analysis ... Dialysis Treatment ... in case: Basic assumptions ... – PowerPoint PPT presentation

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Title: Business Planning for Health Organizations ID 536 April 25, 2008


1
Business Planning for Health OrganizationsID
536 April 25, 2008
  • Paul Campbell
  • Harvard School of Public Health

2
Agenda
  • Q A
  • Breakeven Analysis Lakeside Hospital
  • Business Plan Analysis Asia Renal Care

3
  • Lakeside Hospital

4
Lakeside - Breakeven Analysis
  • Revenue
  • Costs
  • 20 Patients
  • Current Volume

5
Lakeside - Breakeven Analysis
  • Revenue
  • Costs
  • 20 25
  • Volume

6
Lakeside - Breakeven Analysis
  • Revenue
  • Costs
  • 15 20 25
  • Volume

7
Decision-Making Process
  1. Compute breakeven volume with direct costs only
  2. Calculate contribution to allocated costs at
    current volume (50 capacity)
  3. Analyze assumptions underlying projections
  4. Consider allocated costs
  5. Include non-financial considerations

8
Volume Data
  • 40 Patients at full capacity
  • 20 Patients at half capacity
  • 3 Treatments required per patient per week
  • 156 Treatments required per patient per year
    - (3 treatments x 52 weeks
  • 2 Shifts operating, 6 days per week

9
Fixed Costs
  • A. MINOR EQUIPMENT 11,424
  • B. MAJOR EQUIPMENT 13,128
  • C. TOTAL 24, 552
  • KEY CONCEPT SUNK COSTS

10
Sunk Costs
  • DEFINITION Costs which were covered in the past,
    which cannot be changed.
  • APPLICATION In differential cost analysis, only
    costs and revenues which will be encountered in
    the present and foreseeable future should be
    included.

11
Semi-Fixed Costs
  • A. SALARY AND WAGES
  • B. EMPLOYEE EXPENSES
  • COSTS FOR 2 MONTHS (EXHIBIT 3)
  • SALARY AND WAGES 36,400
  • EMPLOYEE EXPENSE 2,350
  • TOTAL 38,750
  • LESS STAFF REDUCTION -6,000
  • TOTAL AT 50 CAPACITY 32,750
  • X6
  • ANNUAL COST AT
  • 50 CAPACITY 196,500

1 NURSE 2 TECHNICIANS
12
Variable Costs
  • A. MEDICAL SUPPLIES
  • TOTAL SUPPY COST Variable Supply Cost per
  • TREATMENTS Treatment
  • 245, 458
  • 5, 736 42.79
  • B. PURCHASED LAB SERVICES
  • 12, 238
  • 5,736 2.13
  • C. WATER USAGE
  • 10,448
  • 5,736 1.82
  • D. VAR. COST PER TR. 46.74

13
Breakeven Computation
  • (AT 50 CAPACITY, 20 PATIENTS)
  • FIXED SEMI-FIXED VARIABLE
  • PRICE (X) COSTS COSTS
    COSTS (X)
  • 138X 11,424 196,500
    46.74X
  • 91.26X 207,924
  • X 2,278 TREATMENTS AT BREAKEVEN
  • ? BREAKEVEN NUMBER OF PATIENTS
  • 156 TREATMENTS REQUIRED BY EACH PATIENT PER
    YEAR
  • 2,278
  • 156 15 PATIENTS TO ACHIEVE
    BREAKEVEN

14
Breakeven Computation
  • AT 50 CAPACITY, 20 PATIENTS,
  • AND ONE SHIFT
  • FIXED SEMI-FIXED VARIABLE
  • PRICE(X) COSTS COSTS
    COSTS (X)
  • 138X 11,424 124,164
    46.74X
  • 91.26X 135,588
  • X 1,486 TREATMENTS AT BREAKEVEN
  • 156 TREATMENTS REQUIRED BY EACH PATIENT PER YEAR
  • 1,486
  • 156 10 PATIENTS TO ACHIEVE BREAKEVEN

15
Contribution
  • AT 50 CAPACITY, 20 PATIENTS
  • REVENUE
  • 20 PATIENTS X 156 TREATMENTS X 138
    430,560
  • DIRECT COSTS
  • FIXED 11,424
  • SEMI-FIXED 196,500
  • VARIABLE 145,829 (46.74 X 20 X 156)
  • TOTAL 353,753
  • CONTRIBUTION TO HOSPITAL OVERHEAD 76,807

16
Contribution
  • AT 50 CAPACITY, 20 PATIENTS
  • AND ONE SHIFT
  • REVENUE
  • 20 PATIENTS X 156 TREATMENTS X 138
    430,560
  • DIRECT COSTS
  • FIXED 11,424
  • SEMI-FIXED 124,164
  • VARIABLE 145,829 (46.74 X 20 X 156)
  • TOTAL 281,417
  • CONTRIBUTION TO HOSPITAL OVERHEAD
    149,143

17
Assumptions Underlying Breakeven Calculations
  • ASSUMPTIONS FORCES
  • COSTS LABOR/MATERIALS
  • SUPPLY/DEMAND
  • INFLATION
  • PRICE POLITICS
  • VOLUME COMPETITION
  • TECHNOLOGY
  • LIFESTYLE
  • AREA POPULATION

18
Full Cost Calculation
  • DIRECT COSTS 353,753
  • (AT 50 CAPACITY)
  • INDIRECT COSTS 277,267 EXHIBIT 3
  • TOTAL COSTS 631,020
  • SURPLUS/LOSS PER TREATMENT
  • NUMBER OF TREATMENTS 3,120 (20 X 156)
  • REVENUE PER TREATMENT 138.00
  • FULL COST PER TREATMENT - 202.25 631,020
  • 3,120
  • LOSS PER TREATMENT (64.25)

19
Cost Analysis Matrix
DIRECT/ASSIGNED
ALLOCATED
FIXED
VARIABLE
20
Asia Renal Care
21
Asia Renal CareWhat do we know?
  • End-Stage Renal Disease (ESRD) -
    life-threatening condition.
  • Dialysis Treatment provided with widely varying
    utilizations rates across countries.
  • ARC proposes to set up a network of dialysis
    clinics in three countries Taiwan, China and
    the Philippines.

22
Asia Renal Care
  • ARC has already identified 2.5 million and wants
    an additional 7.5 million in equity for the
    first round of financing.
  • Based on a three-country plan, ARC plans to have
    45 centers and over 3,100 patients by year 5.
  • ARC also plans to achieve consolidated revenue of
    42 million, and operating income (before
    interest, tax, depreciation and amortization) of
    11 million.

23
Dialysis Center
24
Comparing Providers by Type
United States Asia
Hospitals 30 81
Physician-owned 30 14
Chain 40 5
100 100
25
Reimbursement rate
  • In US
  • Taiwan 156
  • South Korea 126
  • China 53
  • Malaysia 62
  • Thailand 91
  • Indonesia 90
  • India 40
  • Philippines 100

26
Financial Projections
  • Five components provided in case
  • Basic assumptions
  • Consolidated results for 3 countries
  • Single center projection by country
  • All centersprojection by country
  • Worksheets to calculate year-by-year results by
    each country

27
Discussion Questions
  1. How attractive is the dialysis market in Asia?
    Rank the three countries (Taiwan, China and the
    Philippines) in terms of the likelihood of
    success. Explain why.
  2. What are the advantages and disadvantages of ARC
    being a for-profit dialysis center?
  3. Should the investment be made? Why? Why not?

28
Country comparison
Taiwan Philippines China
Highest reimbursement with universal coverage No govt. reimbursement, only private insurance Low govt. reimbursement for 20 of population
High labor cost and high rent Low labor cost Low labor cost and no rent
Matured dialysis market, high prevalence rate, established economy Early dialysis market, low prevalence rate, emerging economy Early dialysis market, low prevalence rate, emerging economy
Strong market knowledge Less stable currency High regulation possibly
29
Being a For-Profit ARC..
  • Disadvantages
  • Growth is an imperative
  • Undue influence (from investors) on performance
  • Taxes
  • Potential loss of grant, contract opportunities
  • Advantages
  • Facilitates access to capital
  • Facilitates monetary incentives for employees
  • Provides attractive opportunity to
    business-minded employees

30
ARC Today
31
ARC now operates in
  • Taiwan
  • Philippines
  • Malaysia
  • Singapore (HQ)
  • Hong Kong
  • Japan

32
Company shareholders
  • Satellite Dialysis Center, a US-based non- profit
    entity based in California.
  • Other equity investors including Fidelity
    Capital, Walden Group, Investor AB, Equitable.
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