Bellaire Clinical Labs, Inc. (A)

This case exposes students to the process of creating an operating plan. In addition, it introduces the concept of flexible expense budgeting. It may be used as a stand-alone case on budgeting, or it may be paired with the B case (UVA-C-2179) in a module on budgeting and strategic-profitability analysis or flexible expense budgeting. Excerpt UVA-C-2178   BELLAIRE CLINICAL LABS, INC. (A) Joe Mack, chief financial officer of Bellaire Clinical Labs, Inc., looked at the clock on his desk and frowned. He had a busy day ahead of him, and he was fairly sure he would have to work late into the evening for the third night in a row. By the end of the day, Mack had to finalize Bellaire Labs' 2003 operating plan in preparation for his meeting tomorrow with Wilma Lands, the company's chief executive officer. Mack had spent numerous hours developing the current draft of the operating plan, and he was getting pretty comfortable with the process. However, Lands was known to be both detail-oriented and demanding, and Mack knew he had better be fully prepared to answer any questions she may ask. The Clinical Laboratory Testing Industry Revenues for the clinical laboratory testing industry in the United States totaled more than $ 32 billion in 2002. Clinical laboratory tests were used by physicians and other health-care providers to help diagnose and treat patients' medical conditions. The tests were usually performed on blood, urine, tissue, or other specimens. Testing services were provided by hospital labs (approximately 49 percent of industry revenues), labs in physicians' offices (approximately 13 percent of revenues), and approximately 5,000 independent clinical labs (approximately 38 percent of revenues). Although there were some national independent clinical labs, most of the independent labs were relatively small and served regional and local markets. The primary customers for testing services were hospitals, physicians, and other organizations (e.g., large corporations). Labs billed and obtained payment for the tests, however, from one of several parties: the ordering party (e.g., hospital or physician), the patient, or an other party making payment on behalf of the patient (e.g., the patient's employer, private insurance company or governmental payors such as Medicare [which primarily covered patients over the age of 65] and Medicaid [which primarily covered indigent patients]). Payment for lab testing provided to Medicare beneficiaries was made according to a fee schedule established by the U.S. Congress, which imposed a cap on such payments. In addition, payment for lab testing provided to Medicaid beneficiaries was subject to similar ceilings. In effect, labs had limited ability to influence the price paid for testing services provided to Medicare and Medicaid beneficiaries. In many instances, these amounts were lower than the prices paid by other parties. Bellaire Clinical Labs, Inc. . . .