Break_Even_Analysis

Date: January 17, 2010 To: Dr. Barkley Director Getwell Clinics Satellite office From: Management Consultant University of Phoenix Consultants Break Even Analysis Dr. Barkley, I wanted to briefly go over the relevance of diagnosis reacted groups (DRG) analysis as a tool that drives costs and affects management decision within the healthcare industry. I will also be proposing which DRG must be promoted in an advertising program if the office has access capacity, which DRG must be promoted if the office is almost at maximum capacity in terms of available hours, and explain why the use of DRG is a good approach in allocating costs. Following my recommendations I will be providing in excel format, the calculations of the break even points, in numbers of treatments, for each of the DRG’s, using the weighted average margin approach. Analyzing DRG M, J and P is imperative for Getwell Clinics managers to visualize how the costs will affect the bottom-line for the future of Getwell Clinics. Visualizing the costs of each company will in turn give each member of management the ability to see the expected profit from each DRG. To analyze DRG, M, J and P, I will use the cost structure, the fees that will be charged to each customer for services performed, number of hours for the services, and the fixed and variable costs in the calculation to show the break-even point of each DRG. If excess capacity occurred at the satellite office the DRG services that provide the most contribution to Getwell Clinics should be promoted. Since DRG J’s margin of contribution is at $1,400 opposed to DRG M with $700 and DRG P at $300, then DRG J should be promoted. In looking to which DRG should be promoted if the satellite office is at maximum capacity, looking at which DRG provides the most to the bottom-line per hour, the DRG that provides the most bottom-line per hour for the company is DRG M. To better understand the calculations please look over the calculations provided in the spreadsheet provided. The rationale for using DRG as an approach to allocating cost is that DRG is applicable in managements’ decisions. DRG’s is separate, which is one of a few approaches in allocating and driving costs. Because DRG can be used to drive costs in is an effective tool at affecting management decisions in healthcare.