7/27/2019 Losing Money in the Medical Screening Industry

1/6

P R E S E N T E D B Y :

S WAT I M I T H A L ( 2 0 1 3 2 9 7 )U T S AV D U B E Y ( 2 0 1 3 3 1 1 )VA I N AV S H A H ( 2 0 1 3 3 1 4 )

T U S H A R R O Y ( 2 0 1 3 3 0 7 )

Losing Money in the medicalScreening industry

Providing preventive medical scansturned out not to be a profitable

business

7/27/2019 Losing Money in the Medical Screening Industry

2/6

Introduction

In the early 2000s, the declining price of Computed Tomography scanningequipment due to technological advances convinced many entrepreneurs that itwould be profitable to provide preventive body scans to apparently healthy

people.

However, the firms offering this service faced following difficulties:

It was a voluntary procedure, not covered under most medical insurance plans.

Few customers used the service more than once.False positives, created a lot of negative publicity.

As a result of these difficulties the new businesses operated at a loss.

7/27/2019 Losing Money in the Medical Screening Industry

3/6

Graphs

s

D

Price(dollar sper scan)

$250

The market pricefor CT scans was250$ per scan

Quantity0

MC ATC

Demand 2 = MR 2

Demand 2 = MR 2

Which was belowthe break even priceof $495 per scan

$495

$250

Price andcost($ per scan)

So the firms likeCalifornia heartscan lost money

Market for CT scans Losses for California CT scansQuantity

7/27/2019 Losing Money in the Medical Screening Industry

4/6

Managerial Implication

In a perfectly competitive market situation a firm in order to maximize itsrevenue should produce in most optimum manner and try to reduce the totalcost as much as possible.In the short run, if by producing the firm would loose an amount greater thanits fixed cost it will shut down.In the short run, if the firm receive the total revenue greater than its variablecost the revenue over and above variable cost can be used to cover part of thefirms fixed cost. As a result in this case the firm will have a smaller loss bycontinuing to produce then if it shut downs.

7/27/2019 Losing Money in the Medical Screening Industry

5/6

Similar case

How a success at Microsoft washed out at a laundryRobert kjelgaard after quitting his job bought a laundry business for which hisreceives 76 washers and dryers and existing lease on the building which was 6 year remaining and require a payment of $3300 per month. Unfortunately Mr.kjelgaardhad difficulty operating the laundry at profit. His explicit cost were $4000 per monthmore than his revenue.so he tried to sell the laundry but was unable to do so. Heconsidered closing the laundry but as a soleproprietor he would be responsible for the remainder of the lease. At $3300 per month for 6 years, he would be responsiblefor paying almost $200000 out of his personal saving

In the end he recognized his business and hired a professional manager. This change allowed him to return tomicrosoft and still reduce his losses to $2000 per month because this amount wasless than $3300 per month he would lose by shutting down it made sense for him tocontinue to operate the laundry.Source:G.Pascal Zachary,how a success at microsoft washed out at a laundry,Wall Street Journal, May 30 ,1995

7/27/2019 Losing Money in the Medical Screening Industry

6/6

Thank you