DNP 840 Module 5 Break-Even and Cost Behavior Analysis Example

How Many Families Does It Take? A Break-Even Analysis of a Nurse-Led Dementia Care Program

Student Name

Doctor of Nursing Practice Program, Aspen University

DNP 840: Strategic Planning and Financial Management

Instructor Name

Month Day, Year

How Many Families Does It Take? A Break-Even Analysis of a Nurse-Led Dementia Care Program

A budget shows whether a service is expected to cover its costs at one planned volume. Break-even analysis asks a related but more useful question: at what volume do revenues just equal costs? Answering it means knowing which costs move with enrollment and which stay put, which is why the two ideas are taught together (Finkler et al., 2013). This paper applies break-even analysis to the composite health system's dementia care program, using its year-two budget of $1,700,640 in expenses at an average of 550 enrolled patients, and draws out what the result means for program leaders.

How the Program's Costs Behave

Fixed costs stay the same across a relevant range of volume. For the program, these include the program director, the geriatrician's time, the social workers, the program coordinators and software, training and supplies. Together, with benefits, they total $622,320 in year two. Variable costs rise with each patient served. The largest are the registered nurse care managers and bilingual care navigators, whose numbers are set by caseload rules of one care manager per 100 families and one navigator per 200, together with respite vouchers and mileage for home visits. In year two, these total $1,078,320, or about $1,960.58 per patient-year.

Care manager costs are strictly step-fixed rather than variable: the program cannot hire a fraction of a nurse for each new family, so costs rise in steps of about $125,000 every 100 families. Treating them as variable per patient is a reasonable simplification across the planning range, but it hides the jumps, a point that matters when enrollment sits just above a threshold.

Contribution Margin

Contribution margin is what a unit of service earns once its own variable costs are paid, the amount each additional patient contributes toward fixed costs. Revenue per patient-year from direct sources, the monthly navigation payment, care planning visits and follow-up visits, is $1,635,500 divided by 550, or about $2,973.64. Subtracting variable cost gives a contribution margin of about $1,013.05. If the cautious estimate of shared savings is included, revenue per patient-year rises to $3,198.64 and the contribution margin to $1,238.05. The margin deserves close watching, because any change in payment rates, caseload rules or respite spending moves it directly and, through it, the number of families the program must serve before it stops losing money.

The Break-Even Point

Dividing the fixed costs by the contribution margin gives the break-even volume. Without shared savings, the program breaks even at $622,320 divided by $1,013.05, or about 615 average enrolled patients. With shared savings, it breaks even at about 503. The planned year-two average of 550 therefore sits between the two: the program covers its costs only if shared savings arrive as expected.

The table shows how the result changes under different assumptions.

What the Result Means

The break-even analysis reveals a dependence that the budget alone did not make obvious. The program relies on shared savings to cover its costs at planned volume, and shared savings depend on enrolled patients using less hospital and nursing home care. The evidence on that point is mixed. A randomized trial of collaborative dementia care led by an advanced practice nurse within primary care improved behavioral and psychological symptoms and reduced caregiver distress, but found no differences in hospitalization or nursing home placement (Callahan et al., 2006). A later comprehensive program was associated with fewer long-term care admissions and was roughly cost neutral for Medicare after program costs were counted (Jennings et al., 2019). Savings are possible, then, but not assured, and they arrive a year late.

The analysis is also highly sensitive to the monthly navigation payment, which provides most of the program's revenue. A payment $30 lower per patient per month would push the break-even point to about 709 patients even with shared savings, well beyond the year-two plan.

Options for Leaders

Leaders can respond in three ways. They can raise volume, by accelerating enrollment in practices with many patients who have a dementia diagnosis and by accepting referrals from the neighboring memory center, aiming for an average of at least 615 patients by the middle of year three so that the program covers its costs without shared savings. They can raise the contribution margin, for example by improving billing for care planning and follow-up visits, which the program's first months showed were missed for about one in six eligible patients. And they can reduce fixed costs by sharing the social worker and coordinator roles with the health system's other care management programs.

Leaders should not respond by cutting care manager staffing below the caseload rule, which would lower variable cost on paper but weaken the service that produces both the clinical benefits and any savings.

Limitations

Break-even analysis assumes a constant price and a constant variable cost per unit, which is only approximately true. Payment rates may differ by patient tier, care manager costs rise in steps, and some fixed costs, such as the program director, would change if the program grew very large. The analysis also treats the program in isolation, ignoring revenue elsewhere in the health system, such as primary care visits by newly engaged families, that the program may generate. These limits argue for using the break-even point as a planning target rather than a precise figure, to be recalculated each quarter as actual payments and costs replace the budget's assumptions.

Conclusion

Sorting the dementia care program's costs by behavior shows fixed costs of $622,320 and a variable cost of about $1,960.58 per patient-year in year two. The program breaks even at about 615 average enrolled patients on direct revenue or about 503 if cautious shared savings materialize, which means its planned volume of 550 depends on savings the evidence does not guarantee. The analysis gives leaders a concrete enrollment target, a reason to protect billing and a warning not to balance the budget by thinning the care that makes the program worth funding.

References

Callahan, C. M., Boustani, M. A., Unverzagt, F. W., Austrom, M. G., Damush, T. M., Perkins, A. J., Fultz, B. A., Hui, S. L., Counsell, S. R., & Hendrie, H. C. (2006). Effectiveness of collaborative care for older adults with Alzheimer disease in primary care: A randomized controlled trial. JAMA, 295(18), 2148-2157. https://doi.org/10.1001/jama.295.18.2148

Finkler, S. A., Jones, C. B., & Kovner, C. T. (2013). Financial management for nurse managers and executives (4th ed.). Elsevier Saunders.

Jennings, L. A., Laffan, A. M., Schlissel, A. C., Colligan, E., Tan, Z., Wenger, N. S., & Reuben, D. B. (2019). Health care utilization and cost outcomes of a comprehensive dementia care program for Medicare beneficiaries. JAMA Internal Medicine, 179(2), 161-166. https://doi.org/10.1001/jamainternmed.2018.5579