ACR Medical Lab

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Here the interviewee should shortly brainstorm and come up with a list of possible reasons for declining profits. The following three reasons should be mentioned for sure:

• Decline in sales
• Increase in costs
• Change in prices

After this brainstorming the interviewer should further ask about the three mentioned examples above.

The interviewee should come up with at least 5 possibilities. Possible answers:

• The society is getting healthier and therefore needs less medical surgeries, etc.
• There is a new competitor with lower prices.
• The costs for their services and therefore their prices are increasing.
• The prices of the equipment are going down and therefore some doctors do the tests in their own clinical practice.
• There are newer technologies that are not yet provided by the client.

The interviewee should come up with at least 5 possibilities. Make sure the answers are presented in a structured way.

• The energy cost for the utility increases.
• Labour costs in the country are going up across all or only the medical labour.
• Taxes are increasing.
• The need for big investments grows and therefore the yearly depreciation is increasing.
• The rent for the laboratories is increasing.

Further investigation showed that a decrease in sales is actually the reason for the declining profits. This is due to doctors who started their own labs and do not refer patients to our client anymore.

The interviewee should come up with at least 5 possibilities. Make sure the answers are presented in a structured way.

• More competitors join the market, which offer lower prices for their services.
• The demand for the client’s services is decreasing / increasing.
• The costs are increasing / decreasing.
• New investments have to be made in the laboratories.
• The government may raise new / higher taxes or provide subsidies / lower taxes for the client’s services.

As doctors will only invest in profitable labs, the goal is finding the limit from which on it is profitable to open an own laboratory.

The more patients a doctor has the more money he gets. As a result the interviewee should find out the breakeven point of patients.

Looking back at the diagram 1 shows that out of the total revenue of $400 million about $20 million will be lost. This corresponds to a loss of 5% of the total revenue.

Several solutions are possible. Here is just listed a small excerpt:

• The client could offer long-term partnerships to the doctors and provide them with some kind of compensation. This could be a share of the revenue for instance. Therefore the doctors would have less incentive to invest in their own laboratories. This should only target doctors who send on average more than 8 customers per day to the client’s institutions.
• The client could improve its services and increase the amount of services provided. For instance could the client provide very new technology for its customers or try to cover more areas with its services.
• The client could try to lobby for tighter standards in the industry and therefore make it more difficult for new competitors to enter.

There are many possible answers:

• The before mentioned compensation. The client could pay doctors with a high patient-per-day rate a percentage of their revenue. This would decrease the revenue the client makes with bigger customers (doctors with more patients), but would lead to an incentive for the doctors to not invest in their own laboratory.
• The client can provide the doctors with the newest technology, which is very expensive to buy as a small laboratory. Therefore the doctors with a high patient-per-day rate have the incentive to remain sending their patients to the client as they can advertise their high quality of service due to the possible access of very new technology.