EAST CHESTNUT REGIONAL HEALTH SYSTEM MARKET ANALYSIS

Part I: Market Size Calculation This analysis shall focus on the expansion of ECRHS’s outpatient mental health services. The target market for outpatient mental health services is adults aged 18 and older. The project shall focus on adults, senior citizens, and young adults who are facing high-stress levels. According to the U.S. Census Bureau, the population of Chestnut County is 433,689. According to Ogunwole et al. (2021, August 12), adults aged 18 and older account for up to 77.9% of the entire population. 77.9% of this population equates to 337843 individuals. According to the National Institute of Mental Health (2023, March), one in five U.S. adults experiences mental health issues. Since Chestnut County has 337843 adults * a fifth of this population equates to 67568 individuals. If the company captures 25% of this market, it will have about 16,892 patients from 25% of the 337,843 people. This is a considerable percentage for this program.

Part II: Breakeven Analysis

The breakeven analysis for the expansion of outpatient mental health services at ECRHS involves the computation of fixed and variable costs. The breakeven point is determined using the formula Breakeven Quantity Required (Fixed Costs / [Revenue per Unit – Variable Cost per Unit]). The fixed costs in this program include salaries, administrative expenses, and facility overheads. Based on the case, the fixed costs are estimated to be $3,000,000 per year. Variable costs are costs that repeat each time the product or service is manufactured or delivered, such as physician salary per procedure or visit, office staff salary per procedure or visit, and supplies used per procedure or visit, calculated per individual visit. Variable costs in this program cut across medical supplies and treatment materials. Based on the case, the estimated variable costs are $40 per patient visit. The average visits generate revenue of $200 per patient. The computations show that the breakeven point will be 18750 visits. Part one, this case shows that the projected number of patient visits is 80,000 annually. The company estimates that it will exceed the breakeven point in one and a half years, which is a favorable financial outcome.

Part III: Pro Forma Income Statement

Pro Forma Income Statement

The pro forma income statement shows the positive financial outlook of the Chestnut mental health service program. According to the calculations, the projected sales revenue is about $16,000,000. There are expectations that the company shall realize 80,000 visits at an average rate of $200 each. Based on the case, the cost of sales includes both fixed and variable expenses and amounts to $6,200,000 (comprising $3,000,000 in fixed costs and $3,200,000 in variable costs, which is derived from $40 per service for 80,000 visits). Based on the calculations, the company shall realize a gross profit of $9,800,000, which is derived from ($16,000,000 in sales revenue subtracted from $6,200,000 in cost of sales). The case shows that marketing expenses amount to 7% of sales revenue and result in $686,000. After subtracting these marketing expenses from the gross profit, the company makes a projected net income of $9,114,000.

The net profit margin is derived from net income divided by sales revenue. The program yields a net profit margin of 56.96%, which is quite a high-profit margin and significant profitability. The ECRHS has a solid financial strategy and operational efficiencies, meaning it is in a good position to support the program’s marketing initiatives and business objectives. The level of profit appears feasible because of effective management.

Part IV: Marketing Plan Considerations

Local Economic Environment

According to the case, Chestnut County has a median household income of $41,777 and a poverty rate of 21.1%. There is a need for the company to evaluate affordability and the need for accessibility in its healthcare services. ECRHS may address the issue through the implementation of sliding scale fees to accommodate patients of varying income levels. The company may also form partnerships with local agencies and nonprofit organizations. The partnership will aid in subsidizing care for low-income populations (Swanstrom & Koschinsky, 2000). It will improve the community health outcomes and build goodwill and trust in the company’s healthcare services.

Payer Mix and Financial Sustainability

ECRHS heavily relies on Medicare and Medicaid, but they have lower reimbursement rates. The company will need efficient cost management strategies. The health system needs to determine ways to streamline operations and optimize resource allocation without affecting the quality of care. The company will need to attract more privately insured patients to create more financial stability. Some of the primary strategies are the enhancement of service offerings, such as advanced diagnostic tools, specialized treatments, and patient-centric care models (Sharma, 2018). The approaches will attract partnerships with private insurers.

Competition with Banford Medical Center (BMC)

Banford Medical Center has made substantial investments in women’s health services. It has put the competitor in a strong position. ECRHS needs to use differentiation to beat the competition effectively. The company can outline its unique strengths in marketing, such as comprehensive mental health services and integrated care approaches. The company’s marketing efforts should mention the unique offerings. They can use patient success stories to support their system’s holistic and compassionate care. They should emphasize the expertise of the healthcare team through testimonials. The company can build credibility and attract patients who are actively looking for high-quality and comprehensive care.

Antitrust Investigations and Not-for-Profit Status

ECRHS will need to strategize on navigating potential legal and regulatory challenges, such as antitrust investigations and the risk of losing its not-for-profit status. The issues have the potential to affect financial stability and public perception severely. The company needs to encourage transparent communication. The managers can share regular updates with stakeholders. The updates entail offering clear explanations of compliance measures. It may also foster active engagement with the community to maintain trust and support. The implementation of robust compliance programs will aid adherence to legal standards (Gunningham et al. 2004). The company can effectively manage and address any regulatory concerns.

Reference

Gunningham, N., Kagan, R. A., & Thornton, D. (2004). Social license and environmental protection: why businesses go beyond compliance. Law & social inquiry, 29(2), 307-341.

National Institute of Mental Health, (2023, March). Mental illness. Retrieved fromhttps://www.nimh.nih.gov/health/statistics/mental-illness

Ogunwole, S. U., Rabe, M. A., Roberts, A. W., & Caplan, Z. (2021, August 12). The U.S. adult population grew faster than the nation’s total population from 2010 to 2020. United States Census Bureau. Accessed from https://www.census.gov/library/stories/2021/08/united-states-adult-population-grew-faster-than-nations-total-population-from-2010-to-2020.html#:~:text=In%202020%2C%20the%20U.S.%20Census,from%20234.6%20million%20in%202010.

Sharma, A. (2018). Patient-centric care in the U.S. comparative study of patient satisfaction and quality care among for-profit physician-owned, corporate-owned, and not-for-profit hospitals.

Swanstrom, T., & Koschinsky, J. (2000). Rethinking the partnership model of government-nonprofit relations: The case of community development. Nonprofits in urban America, 3(2), 65-91.