3/26/09

Case 4

Better Care Clinic
(Breakeven Analysis)
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, Fairbanks’s chief executive officer (CEO), is concerned about
Better Care Clinic’s 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 whether 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 per day. Todd has asked Jane Adams, Fairbanks’s 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 2008) closed its doors. Furthermore, a