HCA 125 Module 7 assignment: operating budget and break-even analysis for a new service, a full sample

Twelve Visits to Break Even: An Operating Budget and Cost-Volume-Profit Analysis for Saturday Hours at a Primary Care Practice

Student Name

Health Care Administration Program, Aspen University

HCA 125: Healthcare Finance

Instructor Name

Month Day, Year

Twelve Visits to Break Even: An Operating Budget and Cost-Volume-Profit Analysis for Saturday Hours at a Primary Care Practice

When a practice considers a new service, two questions come first: how many patients it needs to cover its costs, and what the budget looks like at the volume it expects. This paper answers both for Maple Grove Family Medicine, a composite eight-clinician primary care practice considering four-hour Saturday morning hours. It separates fixed and variable costs, calculates the contribution margin per visit and the break-even volume, builds a first-year operating budget, and tests what happens if volume falls short.

Why Saturday Hours

The practice's after-hours phone line receives about 40 calls each weekend, and the practice's own claims data show that its patients made 310 emergency department visits last year for conditions coded as nonurgent, many on weekends. Access to primary care outside weekday hours matters for where patients go. In a cohort of 57,850 Medicaid managed care patients, those whose practices offered more than 12 evening hours a week used the emergency department 20 percent less than patients of practices without evening hours, although the observational design could not prove cause and effect (Lowe et al., 2005). Saturday hours are intended to capture some of that demand in the practice rather than the emergency department.

Cost Behavior

Cost-volume-profit analysis depends on sorting costs by how they behave as volume changes (Reiter & Song, 2021). Fixed costs for each Saturday do not change with the number of patients seen: a nurse practitioner for five hours, including preparation and charting, at $91 an hour with benefits, or $455; two medical assistants for five hours at $30, or $300; a front desk staff member for five hours at $26, or $130; and building costs for heating, cooling, and security of $120. The total fixed cost per Saturday is $1,005. Over 50 Saturdays, with $6,000 for patient outreach, annual fixed costs are $56,250.

Variable costs rise with each visit: about $9 in supplies and point-of-care tests, and a billing service fee of 5 percent of collections. Net revenue averages $112 per visit across the practice's payer mix, so the billing fee is $5.60, total variable cost is $14.60, and the contribution margin, what each visit contributes toward fixed costs, is $97.40, or about 87 percent of revenue.

Break-Even

The break-even point is reached when total contribution just equals the fixed costs it must cover. Per Saturday, $1,005 divided by $97.40 is 10.3 visits, so 11 visits cover the day's direct costs. Including the annual outreach budget, $56,250 divided by $97.40 is about 578 visits a year, or 11.6 per Saturday. In practical terms, the practice needs about 12 patients each Saturday morning, three an hour, before the service covers its costs. That is a manageable number for a nurse practitioner, whose capacity over four hours is roughly 16 to 18 visits.

First-Year Operating Budget

The practice expects 16 visits per Saturday, based on the weekend call volume and a conservative estimate that 40 percent of callers would accept an appointment. Table 1 shows the budget at that volume.

What If Volume Falls Short?

At 12 visits per Saturday, the service would roughly break even, with a margin of about $2,190. At 10 visits, it would lose about $7,550 a year. At 20 visits, it would earn about $41,150. The margin is sensitive to volume because most costs are fixed: once staff are scheduled, each additional visit adds $97.40 almost entirely to the bottom line, and each missing visit subtracts it. The practice should therefore track Saturday visits weekly and set a review point. If volume averages fewer than 11 visits after three months, it should consider shorter hours, a single medical assistant, or alternate Saturdays before ending the service.

Effects Beyond the Budget

The budget captures only the Saturday visits. If the service keeps patients out of the emergency department, the practice may benefit under value-based contracts that reward lower total cost of care, and patients avoid emergency department bills and waits. Saturday hours may also help retain patients who would otherwise switch to a retail clinic. These effects are real but uncertain, so they are not counted in the budget; they are reasons to be patient with a service that starts near break-even. How the Saturday session connects to weekday care also matters. Interviews with primary care practices in 16 states found that after-hours models were easier to sustain when they matched patient demand and provider capacity, shared an electronic record with the patient's usual clinicians, and fit a broader practice approach to access and continuity (O'Malley et al., 2012). Staffing the session with the practice's own nurse practitioner, working in the same record, is meant to meet those conditions.

Assumptions to Watch

Three assumptions carry most of the analysis. The first is volume, discussed above. The second is net revenue per visit: $112 reflects the practice's current payer mix, but Saturday patients may differ, for example with more uninsured patients or more patients from high-deductible plans who pay less of their bills, which would lower the average and raise the break-even point. At $100 per visit, break-even would rise to about 13 visits. The third is staffing: if a nurse practitioner cannot be found for Saturdays and the practice must pay a physician, fixed costs rise and the break-even point with them. Each of these can be checked monthly from the practice's own billing and scheduling data, so the analysis can be updated with actual figures after the first quarter.

Recommendation

Maple Grove should open Saturday hours on a six-month trial. The service breaks even at about 12 visits a morning and is expected to see 16, producing a modest surplus of about $21,670 a year, with a clear review point if volume falls below 11. The analysis depends most on the volume assumption, which the trial will test directly.

Conclusion

Separating fixed and variable costs shows that Saturday hours at Maple Grove need about 12 visits each morning to cover their costs. At the expected 16, the service produces a small surplus and may reduce emergency department use; below 11, it loses money. Break-even analysis turns a general idea into a number the practice can schedule and monitor.

References

Lowe, R. A., Localio, A. R., Schwarz, D. F., Williams, S., Tuton, L. W., Maroney, S., Nicklin, D., Goldfarb, N., Vojta, D. D., & Feldman, H. I. (2005). Association between primary care practice characteristics and emergency department use in a Medicaid managed care organization. Medical Care, 43(8), 792-800. https://doi.org/10.1097/01.mlr.0000170413.60054.54

O'Malley, A. S., Samuel, D., Bond, A. M., & Carrier, E. (2012). After-hours care and its coordination with primary care in the U.S. Journal of General Internal Medicine, 27(11), 1406-1415. https://doi.org/10.1007/s11606-012-2087-4

Reiter, K. L., & Song, P. H. (2021). Gapenski's healthcare finance: An introduction to accounting and financial management (7th ed.). Health Administration Press.