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    Opening a walk-in clinic

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    You are considering starting a walk-in clinic. Your financial projections for the first year of operations are as follows:

    Revenues: $400,000
    Wages & Benefits: $220,000
    Rent: $5,000
    Depreciation: $30,000
    Utilities: $2,500
    Medical Supplies: $50,000
    Administrative Supplies: $10,000

    Assume that all costs are fixed, except supply costs, which are variable. Furthermore, assume that the clinic must pay taxes at a 20 percent rate.

    a. Construct the clinic's projected P&L statement.
    b. What number of visits is required to break even?
    c. What number of visits is required to provide you with an after-tax profit of $100,000?

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    Solution Preview

    Total expenses equal $317,500. Profit in this scenario equals $82,500. In order to generate $400, 000 in revenues you have to divide $400,000 by 2080, the number of work hours in a year. This means you have to generate $192/hour.

    The average requested reimbursement for a level III established patient is $75. The clinic physicians would have to see $192/75 or 2.5 patients per hour to reach that. A level III visit should, by law, take 15-30 minutes so this is right on with one doc seeing an average of this many patients per hour, 5 days per week, for one year.

    This is assuming a lot of things that affect reimbursements so I will get into that later.

    In order to make $100,000 ...

    Solution Summary

    Given certain financial parameters, how can you as the administrator of a new walk-in clinic, maintain financial viability in today's health care climate? In this particular problem, expenses are given but these can be changed to fit your own situation since the solution is general enough to apply accordingly. Based on a real clinic, profits and losses are examined using ICD-9 diagnoses and what to expect in terms of reimbursements from the government and private insurance companies. Recommendations are also made to help optimize profits and limit losses.