A not-for-profit hospital realizes a 3 percent return on its $200,000 investment in its home health unit. Its current revenue after discounts and allowances is $382,000. Administrative costs are $119,000, clinical personnel costs are $210,000, and supply costs are $47,000. Providing home health care is not a core goal of the hospital, and it will sell the home health unit if it cannot realize a return of at least 12 percent. A process improvement team has recommended significant changes to the home health unitâs billing processes. The team has concluded that these changes could reduce costs by $20,000 and increase revenues by $5,000. Analyze the data that follows and assess whether the changes would make the home health unit profitable enough to keep.
Old New Revenue $382,000 $387,000 Cost $376,000 $356,000 Profit $6,000 $31,000 Return on investment 3% 16%
A not-for-profit hospital realizes a 3 percent return on its $200,000 investment in its home health unit. Its current revenue after discounts and allowances is $382,000. Administrative costs are $119,000, clinical personnel costs are $210,000, and supply costs are $47,000. Providing home health care is not a core goal of the hospital, and it will sell the home health unit if it cannot realize a return of at least 12 percent. A process improvement team has recommended significant changes to the home health unitâs billing processes. The team has concluded that these changes could reduce costs by $20,000 and increase revenues by $5,000. Analyze the data that follows and assess whether the changes would make the home health unit profitable enough to keep.
| Old | New | |
| Revenue | $382,000 | $387,000 |
| Cost | $376,000 | $356,000 |
| Profit | $6,000 | $31,000 |
| Return on investment | 3% | 16% |
