Related Experiment Videos
The use of a break-even analysis: financial analysis of a fast-track program
R M Saywell1, W H Cordell, A W Nyhuis
1School of Public and Environmental Affairs, Bowen Research Center, Indiana University, Indianapolis, USA.
Objective:
To calculate the financial break-even point and illustrate how changes in third-party reimbursement and eligibility could affect a program's fiscal standing.
Methods:
Demographic, clinical, and financial data were collected retrospectively for 446 patients treated in a fast-track program during June 1993. The fast-track program is located within the confines of the emergency medicine and trauma center at a 1,050-bed tertiary care Midwestern teaching hospital and provides urgent treatment to minimally ill patients. A financial break-even analysis was performed to determine the point where the program generated enough revenue to cover its total variable and fixed costs, both direct and indirect.
Results:
Given the relatively low average collection rate (62%) and high percentage of uninsured patients (31%), the analysis showed that the program's revenues covered its direct costs but not all of the indirect costs.
Conclusions:
Examining collection rates or payer class mix without examining both costs and revenues may lead to an erroneous conclusion about a program's fiscal viability. Sensitivity analysis also shows that relatively small changes in third-party coverage or eligibility (income) requirements can have a large impact on the program's financial solvency and break-even volumes.