Hospital in Transition Case Solution And Analysis, HBR Case Study Solution & Analysis of Harvard Case Studies

Hospital in Transition Case Solution

Introduction

The Simsbury Hospital is facing a critical financial challenge, and its newly appointed CEO, John Leader, is determined to find a solution. With the implementation of a new decision support system called Transition I, John believes that the hospital can identify and analyze potential actions to lower costs, increase revenues, identify new markets, improve patient care, and involve physicians more fully in the management process.

To address the $10 million challenge, John has tasked his senior management team to provide concrete recommendations using Transition I. However, the team's recommendations will face scrutiny and evaluation as they present their findings to John in a critical afternoon meeting.

Recommendation 1

Financial Impact of Terminating the Contract

Based on the information provided in Exhibit B, the analysis shows that Metropolitan HMO is currently experiencing a net loss of $1,600,566 per year on its existing contract. The break-even point, which is the minimum number of cases needed to cover the total costs and achieve a net margin of zero, is 1,081 cases.

However, Metropolitan HMO is currently servicing 900 cases and still experiencing a loss. The proposed action is to terminate the contract with Metropolitan HMO since it is unprofitable. If the contract is terminated, the expected savings would be $1,600,000 per year.

Financial Impact of Taking Additional Cases

Alternatively, Metropolitan HMO has requested to expand its volume by 300 cases. The financial analysis shows that if Metropolitan HMO were to take on these additional cases, it would increase net revenue by $18,826,494 per year. However, there would also be an increase in variable direct costs of $8,240,166 per year. After accounting for both the additional revenue and cost, the net margin would be $1,046,034 per year. While this is a positive result, it is important to note that the analysis only considers financial factors and does not take into account other non-financial factors that may impact the decision.

Based on the calculated information, it appears that taking additional cases would have a positive impact on the financials of the hospital. The contribution margin generated by the additional cases is higher than the variable cost, which means that each additional case would contribute positively to the hospital's profitability. However, it is important to note that this analysis only considers the financial impact and does not take into account any potential operational or resource constraints that may arise from taking on additional cases.

Recommendation

Based on the financial analysis, if the decision is based solely on financial factors, the recommendation would be to terminate the contract with Metropolitan HMO since it is currently unprofitable and is resulting in a net loss of $1,600,566 per year. However, as mentioned earlier, the decision should not be based solely on financial factors. It is important to consider non-financial factors as well, such as the quality of service provided by Metropolitan HMO, the impact on the reputation of the company, and the availability of alternative options.

Therefore, the decision to terminate the contract or expand the volume should be based on a comprehensive analysis that considers both financial and non-financial factors, such as the quality of service provided by Metropolitan HMO, the impact on the reputation of the company, and the availability of alternative options.

Recommendation 2

Financial Impact of Merging the Two Nursing Units

The financial impact of merging the two nursing units would result in expected savings of $2.3 million. The merged unit would have a total of 30 beds with an occupancy rate of 73.3%. The analysis shows that the total costs of the two separate units are $7,700,400, while the combined unit would cost $5,339,600, resulting in savings of $2,360,800.

The combined historical productivity of the two nursing units is approximately 50% because the occupancy rates of both units have been declining, leading to a decrease in the workload and productivity of the nursing staff. The merger would result in a higher occupancy rate for the combined unit, which would increase the workload and potentially improve productivity.................

Hospital in Transition Case Solution

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Hospital in Transition Harvard Case Solution & Analysis