The Use of a Break‐even Analysis: Financial Analysis of a Fast‐track Program

Abstract

Objective: To calculate the financial break‐even point and illustrate how changes in third‐party reimbursement and eligibility could affect a program's fiscal standing. Methods: Demographic, clinical, and financial data were collected retrospectively for 446 patients treated in a fast‐track program during June 1993. The fast‐track program is located within the confines of the emergency medicine and trauma center at a 1,050‐bed tertiary care Midwestern teaching hospital and provides urgent treatment to minimally ill patients. A financial break‐even analysis was performed to determine the point where the program generated enough revenue to cover its total variable and fixed costs, both direct and indirect. Results: Given the relatively low average collection rate (62%) and high percentage of uninsured patients (31%), the analysis showed that the program's revenues covered its direct costs but not all of the indirect costs. Conclusions: Examining collection rates or payer class mix without examining both costs and revenues may lead to an erroneous conclusion about a program's fiscal viability. Sensitivity analysis also shows that relatively small changes in third‐party coverage or eligibility (income) requirements can have a large impact on the program's financial solvency and break‐even volumes. © 1995 Society for Academic Emergency Medicine