Pate Memorial Case Analysis

I. Major Issue / Problem

What action, if any, should Pate Health Clinic take to compete for patients?

II. Alternative Courses of Action

A. ALTERNATIVE I

A. Do not make any changes (other than planned 8% increase in charges) and

B. continue with existing strategy.

a. Advantages:

• Easy to implement as no change required.

• Increase in Contribution Margin per patient visit by 10%) due to increase in charges.

• Market share to be increased to 34% to cover increased fixed cost. This is achievable given current market share is 33%.

• Expected reduction in bad debt to 2% from existing 4% of revenue will further increase contribution margin.

b. Disadvantages:

• Possibility of losing patients to competition expected to come up next year.

• Forgo capturing market for gynecological services (as 70% of female patients surveyed requested gynecological services be offered).

• Long waiting time could negatively impact image of the clinic in terms of quality of service.

c. Quantitative Analysis

Contribution Margin per patient visit

At existing Charges At 8% increase in charges % increase

Average Revenue per Patient $67.90 $73.33 8%

Variable Cost per patient visit $14.83 $14.83 0

Contribution Margin per patient visit $53.07

(78%) $58.50

(80%) 10%

• Market Share

Existing Patients = 3,900 (including 410 patients expected in April 2000)

Market size = 11,663

Current Market Share = 3,900 = 33%

11,663

Increase in Fixed Expenses Existing (extrapolated to 12 months) With 5% increase Net Increase

Personnel $181,231 $190,292 $9,062

Professional Services $179,424 $188,395 $8,971

Total $360,655 $378,687 $18,033

Additional patient visits required to cover increased fixed costs

= $18,033 = 308

$58.50

Market size = 12,363 (expecting a growth rate of 6%)

Required Market Share = 3900 + 302 = 34%

12,363

C. ALTERNATIVE II

Expand service hours by hiring another physician.

a. Advantages:

• Possibility of increase...