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Medium Profitability Cost Reduction Operations

Mustard Clinic

#Healthcare
ProHub Comment

This is a structured profitability case that combines capacity analysis with operational optimization. The key insight is recognizing that under a fixed-fee revenue model with high variable costs, reducing patient stay length creates dual benefits: immediate cost savings plus capacity for higher-margin additional patients. The case tests both analytical rigor and strategic thinking about business model mechanics.

Estimated Time 15 minutes
Difficulty Medium
Source Kellogg
50 / 100
Your client is the CEO of the Mustard Clinic, a for-profit hospital in the United States. The hospital is known primarily for its leading care for babies and young children. Patients pay a fixed fee to access services on arrival, and all subsequent costs are borne by the Mustard Clinic. Sugar Magnolia does not deal with insurance providers. Instead, patients submit expense claims directly with their insurance provider(s). In the last few years, the hospital’s profitability has fallen, and they are facing bankruptcy. Last year they lost $1.4m. The CEO asks you: “Why has profitability gone down and how can we turn it around?”

Clarifying Information

  1. Goal: The Mustard Clinic wants to at least break even.
  2. Customers: The Clinic cannot influence its patient mix in the short term.
  3. Services: The Clinic offers intrapartum (childbirth), neonatal (for newborns), pediatrics (for infants and children) and a small geriatrics (for the elderly) unit.
  4. Competitors: There aren’t any competitors that have contributed to the Mustard Clinic’s problem.
  5. Revenue model: Customers are charged a fixed fee at the time of checking-in. All subsequent costs are borne by the Mustard Clinic.