Break Even Analysis

Topics: Variable cost, Costs, Cost Pages: 4 (715 words) Published: February 14, 2011
Break-even Analysis

Grace L. Harden

University of Phoenix

January 30, 2011

Break-even Analysis
Getwell Clinic on Beach Street concentrates care and treatment of three different types of patients listed as DRG-M, DRG-J, and DRG-P. Dr. Barkley is the new director of the satellite office and has requested that statistical break-even points be completed for each DRG. He would also like information on which DRG is the most profitable to promote in the growing practice.

Diagnosis-Related Groups (DRG) is a classification process in which health care organizations can separate patients into like categories even though patients have such broad differences. These classifications could be demographics, treatment, age, or diagnostic groupings. This helps determine the resources needed for patient treatment and the costs associated with the treatment. Understanding the breakdown of patient groupings managers can review them and better understand the services rendered, and if a service should be added or concluded from the practice. Managers will also be able to determine if maximum advertising will need to take place to reach capacity, or if the service is already reaching capacity. “Break-even analysis determines the volume at which a program or service is just financially self-sufficient. At lower volumes, losses would occur, at higher volumes, profits would be earned. Break-even analysis is a managerial tool that is based on the relationships among cost, volume, and profit of a health care organization. The break-even analysis technique provides managers with information regarding the financial viability of proposed and existing programs and services.” (Finkler, Ward & Baker, 2007, p. 100) Furthermore, healthcare organizations must review break-even analysis as a tool that drives costs and aids with management decisions. Table 1

Break-even Analysis
|DRG |Proportion |Price |Weighted Average...
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