Market Demand and Pro-forma Income Statement

Market Demand and Pro-forma Income Statement

Healthcare economics has market demand at its center. There is a need to calculate the projected income to establish the influence of the organization’s finances and marketing plans. Notably, this is established in this paper. Additionally, a break-even analysis is performed in this paper to establish the number of clients that should be served to break even. Finally, various market considerations important for healthcare organizations are discussed.

Part I: Market Size Calculation

The market size for East Chesnut Regional Health (ECRHS) Women’s Health Services is estimated using the U.S. Census Demographics and Case Study analysis. Notably, the initial step in determining the market size entails determining the market share of ECRHS using the case study and then explaining it based on local concepts. That is the case when the service provider offers services in a different market. The next undertaking in determining the market size was establishing the number of beds in the Northern Mountain Hospital Consortium (NMHC). Essentially, 400 physicians are employed by ECRHS in its system, with most of them being posted in the Chestnut County operations. Notably, this means that the other locations served by the service provider are under the remaining 165 physicians. The Archway Hospital (A.H.) and ERMC, which the 165 physicians serve, have 750 registered beds. It is established that there would be 402 beds for every three physicians, assuming the same physicians-to-bed ratio for the rest of the system.

In gross, it means ECRHS’s system has 1102 beds. A 73% market share is established for ECRHS, considering that the rest of the market has 400 beds. Based on census findings, the approximate number of women aged above 65 is 554,434 in Wisconsin. Notably, this figure obtained from the U.S. Census Bureau Demographics formed a basis to answer the Women’s Health Services question. A total of 404,737 market size is established by taking 73% of the established market share of 554,434.

Part II: Breakeven Analysis

 The calculation of the fixed and variable costs of service provision is based on different aspects. Regarding the fixed costs, the amount established relates to the new office capital expenditure meant to expand the capacity of the existing facility for offering services to women. Notably, this is a one-time cost that is totalling to $500,000. Regarding the variable costs, three expenses inform the variable expenses. They include supplies used for every office visit, estimated to be $5, the office staff per patient visit of $20 per office visit of 15 minutes, and the physician cost for every 15-minute office visit of $60. Notably, when the three expenses are added, a total variable of $85 per client visit is established. The established price per client visit is $150. Notably, the breakeven units will indicate the price and number of units sold at this price. As calculated above, the breakeven units are 7,693 office client visits. Additionally, these break-even units represent the number of visits required to cover fixed and variable costs.

Part III: Pro Forma Income Statement

 Summary of Market Size Calculation

ECRHS employs four hundred physicians. Most of them are posted in the Chestnut County operations, which means that the other locations served by the service provider are under the remaining 165 physicians. The 165 physicians serve Archway Hospital (A.H.) and ERMC, which have 750 registered beds. Assuming the same physicians-to-bed ratio as the rest of the system, there would be 402 beds for every three physicians. This means that ECRHS’s system now has 1102 beds. ECRHS has a 73% market share despite the fact that the rest of the market has 400 beds. According to census data, the approximate number of women over the age of 65 in Wisconsin is 554,434 people. Significantly, this data from the U.S. Census Bureau Demographics was used to answer the question about Women’s Health Services (U.S. Census Bureau QuickFacts, 2021). By taking 73% of the stated market share of 554,434, a total market size of 404,737 is established.

Summary of Breakeven Analysis

The calculation breakeven unit is informed by revenue, fixed, and variable costs. Regarding the fixed costs, the amount established relates to the new office capital expenditure meant to expand the capacity of the existing facility for offering services to women. Essentially, this is a one-time expense totalling $500,000. In terms of variable costs, three expenses inform the variable costs. These include supplies utilized for every office visit, which are expected to be $5, office personnel each patient visit of $20 every 15-minute office visit, and physician expenses per 15-minute office visit of $60. Notably, when the three expenses are summed, a total variable of $85 is established for each client visit. Each client visit generates $150 in revenue. As calculated in the breakeven analysis table, the breakeven units are 7,693 client visits.

Summary of Projected Profit

The projected profit is given as $60,710,550. Notably, the figure is obtained by considering that the sales revenue projected per every client visit is established in the breakeven analysis, which was established to be $150. The amount is then multiplied by the number of visits forecasted for one year in the market size estimation. The cost of sales is given as $34,902,645. The figure is obtained by adding the fixed costs to the total variable costs for 404,737 visits. Thus, the total costs for sales are the one-time construction fixed costs of $500,000 + ($85 variable cost per client visit × 404,737 = $34,402,645) = $34,902,645. The gross profit is established to be $25,807,905. The gross profit is obtained by subtracting the cost of sales from the projected sales revenue. Marketing expenses are taken to be 7% of the sales revenue, and by figure, the expenses are $4,249,739. When the marketing expenses are subtracted from the gross profit, a net profit of $21,558,166.50 is obtained, expressed as a percentage of 35.5%.

Part IV: Marketing Plan Considerations

The contemporary world has been affected significantly by the COVID-19 crisis. The health sector has played the most significant role in handling the crisis even though unfortunate events took place, such as the death of healthcare officials. Arguably, this explains the importance of the healthcare sector and why crucial factors, such as marketing healthcare products and consumer behaviour, relating to the sector should be monitored. Worth noting is the role of projections such as the one undertaken in this paper for ECRHS. Through the analysis, projections regarding client visits and profits are made. Various considerations are made regarding the market plan, such as the nature of healthcare services in the setting of the COVID-19 crisis and the consumer behaviour of clients (Venkatesh, 2020). For instance, regarding consumer behaviour, there has been a change in the behaviour of consumers who seek healthcare services online and communicate without physical contact. Notably, this forces healthcare providers to make themselves available through online platforms.

The current market environment comprises numerous lessons for healthcare providers. Initially, businesses did not fully comprehend what is meant by efficiency because they were primarily focused on micro-level short-term savings without considering other important factors such as energy, time, and ethics relating to production processes. Notably, these features are present in the existing pool of physicians employed by ECRHS. However, there is a need to enhance the experience of these physicians to meet the current market needs. For instance, they should be equipped with the ability to acquire client information from online platforms. Essentially, the acquired information can be used to define potential clients and help discover new target groups. For instance, the healthcare organization can manage to offer personalized services to these target groups (Yeganeh et al., 2019). Another market consideration that can be made entails economic externalities. Economic externalities influence how marketers plan and execute different marketing approaches. There is a need for ECRHS to keep in touch with the changes in the marketing arena to attain the estimated market expense of 7%. Thus, focusing on these marketing aspects will ensure that ECRHS remains competitive and survives in the market for a long time.

References

U.S. Census Bureau QuickFacts: United States. (2021). Census Bureau Quick Facts. https://www.census.gov/quickfacts/fact/table/US/PST045221.

Venkatesh, V. (2020). Impacts of COVID-19: A research agenda to support people in their fight. International journal of information management, 55, 102197.

Yeganeh, H. (2019). An analysis of emerging trends and transformations in global healthcare. International Journal of Health Governance. https://doi.org/10.1108/IJHG-02-2019-0012.

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Assignment Directions
In this part of the course, you will prepare a pro forma income statement for a new or revised product or service you recommend for East Chestnut
Regional Health System.
Review Case Study: East Chestnut Regional Health System.
Pro Forma Income Statement for East Chestnut Regional Health:

Market Demand and Pro-forma Income Statement

Please complete the following prior to preparing the pro forma income statement and budget. You will need the following information in order to
prepare it.
Part I: Market Size Calculation:
Determine the size of the market for the ECRHS product or service you are recommending. Assume East Chestnut Regional Health is located in
the market in which you live or work.
Visit the University Library Consumer Demographics page.
From this page, visit the United States Census Bureau sites linked under the Demographic Data heading. A rough estimate of the need for healthcare
products or services can be made based on the population demographics, using age, gender, and in some cases, race. On these sites, you can
gain information on the total U.S. market for health care, as well as the number of U.S. consumers who fit your target market segmentation.
Determine the local market for the product or service you recommend for East Chestnut Regional Health.
Next, multiply the percentage of people likely to purchase your recommended ECRHS product or service by the estimate of market share you
believe ECRHS can achieve for the product or service. For example, if there are 6,000 women who might be interested in ECRHS obstetrical
services, and ECRHS has a potential 40 percent market share, this results in 2,400 patients.
Prepare a 150- to 300-word summary of your market determination process