COST-BENEFIT ANALYSIS TEMPLATE Step 1: Enter cost amounts as future value (FV) expectations. The future value will be automatically converted to p Step 2: Enter benefit amounts as FV expectations. The FV will automatically be converted to PV. Step 3: Subtract the total PV benefits from the total PV costs to get the net benefit. Costs Total Costs (Future Value) Total Costs (Present Value) blank row Benefits Total Benefits (Future Value) Total Benefits (Present Value) blank row Present Value Discount Rate PV Denominator Net Benefit End of Worksheet Current Year (CY) $ $ - CY +1 $ $ Current Year (CY) $ $ - - CY +2 $ $ CY +1 $ $ - - CY +3 $ $ CY +2 $ $ - - CY +3 $ $ - 2% 1.00 1.02 1.04 1.06 be automatically converted to present value (PV). verted to PV. CY +4 $ $ - $ $ CY +4 $ $ - 1.08 Total Costs CY +5 - $ CY +5 $ $ - - Total Benefits $ - $ - 1.10 1 Business Case for a New Economic Opportunity Learner’s Full Name School of Nursing and Health Sciences, Capella University NURS-FPX6008: Economics and Decision Making in Health Care Instructor’s Name Month, Year Copyright ©2018 Capella University. Copy and distribution of this document are prohibited. 2 Business Case for a New Economic Opportunity Whilborne Medical Center (WMC) is a multispecialty health care facility situated in proximity to an industrial park. Its management is planning to start a new economic initiative in the form of an urgent care center (UCC) within WMC’s premises. The UCC will not only help provide quality health care to the community but also provide an additional revenue stream for WMC. The objective of this business case is to present a detailed report on the feasibility and cost–benefit considerations of implementing the proposed economic initiative over the next five years. The business case includes an evaluation of various risks and opportunities associated with the new initiative. It recommends ways to lessen the risks associated with setting up the UCC and strategies for controlling costs and maximizing benefits. Opportunities Associated With the Proposed Economic Initiative An economic and environmental analysis was performed to determine the opportunities and risks associated with the UCC. WMC is situated near Maxima Industrial Park. Most of the patients treated at WMC are among the 30,000 workers from different companies in the industrial park. Additionally, the area has around 3,000 locals. The UCC may cater to the nonemergent needs of both the workers from the park and the locals in the area. UCCs present an opportunity to reduce overcrowding in the ED at WMC. Often, EDs have to tend to patients whose cases are urgent, but do not merit the emergent care that EDs provide (Qin et al., 2015). Non-emergent cases can be diverted to the UCC, where health care personnel will be able to treat workers of the industrial park who walk in with work-related injuries or for preventive care. Additionally, any urgent health care needs of the local community may be met by the UCC. The ED will be able to exclusively tend to the Copyright ©2018 Capella University. Copy and distribution of this document are prohibited. Comment [A1]: This is great that your initiative can help address a larger problem within the U.S. health care system as well as help your organization. 3 more emergent cases, while the UCC will exclusively tend to the urgent care cases received by WMC. Thus, an additional revenue stream for WMC will be created with the addition of the UCC. Additionally, UCCs must serve a high number of patients to break even (Yee et al., 2013). Therefore, location near a target patient population is an important factor in the success of a UCC (Gurganious & Greenfield, 2015). The required target population for the UCC is found in the 30,000 workers employed at Maxima Industrial Park. WMC has developed a relationship with workers from the park through the annual health checkups it organizes. The UCC can benefit from this relationship as there is a high likelihood that employees who are satisfied with the care they received at WMC will return to the UCC for urgent care issues. A competitor analysis conducted in the area shows that there are two primary health clinics, but no UCCs in WMC’s vicinity. Most patients prefer primary health clinics over UCCs and EDs (Qin et al., 2015). This issue is mitigated by the number of work hours that EDs and UCCs have over primary health clinics. With the introduction of a UCC, patients will be able to avail after-hours health care for minor illnesses on any day of the week at lower costs compared to primary health clinics (Chang et al., 2015). Also, as patients can go to a UCC without an appointment (unlike a primary health clinic), they will find the UCC more accessible for treating minor illnesses (Yakobi, 2017). These advantages over its competitors will help WMC capture a significant market share in the urgent care segment. Risks Associated With the Economic Initiative and Ways to Address Them The potential risks associated with the setting up of a UCC were identified. It was observed during the competitor analysis that a retail health clinic inside a Walmart store situated Copyright ©2018 Capella University. Copy and distribution of this document are prohibited. 4 near WMC could pose a threat to the UCC. Retail health clinics are walk-in clinics located inside grocery stores or supermarkets. They mainly provide convenient care to retail store customers suffering from minor illnesses. Like UCCs, many retail health clinics offer after-hours care and easy accessibility without an appointment; at the same time, the health care cost at these clinics is less than it is at UCCs (Chang et al., 2015). Therefore, the presence of the retail health clinic puts the financial security of the UCC at risk as it might appear more attractive to patients in need of urgent care. A UCC is equipped to handle a wider number of ailments than a retail health clinic (Chang et al., 2015). Being affiliated with WMC, the UCC can provide its patients access to more facilities such as scans and tests that are not provided by retail health clinics and other UCCs. These factors set the UCC at WMC apart from its competitors and can be used to promote the clinic. Clients will consider the UCC a convenient and viable option for their healthcare, where multiple tests can be done if needed. Additionally, the UCC must also ensure that the focus of the clinic is on providing a convenient and satisfactory experience for the patient (Gurganious & Greenfield, 2015). If patients receive quick and timely care from excellent service providers, they will be encouraged to visit again and refer new patients to the UCC. UCCs are known for providing immediate care to many patients in a relatively short time (Yakobi, 2017). The staff and management of the UCC will have to be aware that the highvolume, speedy health care delivery environment leaves room for errors such as misdiagnoses. These errors can result in the UCC and its staff facing serious legal risks. Therefore, it is important for the UCC to maintain meticulous documentation to insulate itself from the consequences of misdiagnoses or medical malpractice. The symptoms, physical observations, and lab results which are used to develop a plan to administer care should be identified to ensure Copyright ©2018 Capella University. Copy and distribution of this document are prohibited. Comment [A2]: It is good that you have identified this threat…this is something that could undermined the economics of your initiative. 5 that the plan has clarity and is logical ("Why good documentation matters", 2016). It is also binding on UCC physicians to set patients’ expectations by communicating with them effectively about the nature of services provided ("Helping patients make informed decisions", 2014). These measures ensure that, despite the difficulties resulting from high demand, both patients and health care practitioners are mindful of the treatment that is administered. Cost–Benefit Analysis of the Proposed Economic Initiative After considering the opportunities and risks involved, the costs and benefits of setting up a UCC are analyzed. To assess the economic feasibility of setting up a UCC, the present value of the estimated costs and benefits and the net benefit over a 5-year time horizon are calculated using a present value discount rate of 11%. The present value discount rate has been determined based on the standard cost of capital and the estimated target returns. The estimated capital cost includes minor construction costs and the cost of purchasing furniture and equipment. These are conservatively projected to be $350,000 in the current year (Golinkin & Danielle, 2013). The estimated operating costs comprise expenditure on salaries paid to the staff; basic utilities such as electricity, gas, and the Internet; insurance (including insurance for staff, business liability, building, furniture, and equipment); and other operating expenses such as administrative and marketing costs. On an average, most UCCs have two full-time (or part-time) physicians, two nurse practitioners, and three medical assistants or other clinical staff (Weinick et al., 2009). It is assumed that two physicians, two nurse practitioners, three medical assistants, and a medical receptionist will be recruited by the UCC. Based on the national average recruitment incentives, staff salaries (per annum) in the first year of operation are assumed to be around $232,000 for a full-time physician, $112,000 for a nurse practitioner, $35,000 for a medical Copyright ©2018 Capella University. Copy and distribution of this document are prohibited. 6 assistant, and $32,000 for a receptionist (U.S. Bureau of Labor Statistics, 2017). The actual growth rate of an employee’s salary in the U.S. is 2.7% per annum (Economic Policy Institute, 2018). For this analysis, salaries of the employees of the UCC are assumed to increase at a conservative rate of 3% per annum. Additional costs will be incurred in years four and five to hire a full-time nurse practitioner (year four) and a full-time physician (year five) to cater to the increased number of patients. The cost of basic utilities is assumed to increase by around 5% per annum, as utilization of basic utilities will increase owing to an increase in patient volume. Considering that new staff will be hired in the fourth and fifth years of operation, insurance costs are assumed to increase in these 2 years owing to addition of staff. Other operating costs are assumed to be around 12% of annual revenue based on WMC’s financial statements. As per the cost–benefit analysis, the present value of the total costs over the 5-year period is estimated at $5,489,745.62, using a present value discount rate of 11% (see Appendix for more information on cost–benefit analysis over a 5-year period). Benefit (revenue) was calculated based on the fee collected from each patient and the number of patients expected to make use of the medical services at the UCC. Most clinics tend to the needs of an average of around 357 patients every week and charge an average fee of approximately $156 per patient visit (AMN Healthcare, 2015; Yakobi, 2017). Therefore, the estimated revenue earned during the first year of operations will be $2,730,000. It is also assumed that the revenue will increase by 5.3% per annum over the 5-year period based on the national average (“Urgent Care Center Market”, 2018). Based on the estimated revenue over the 5year period and the 11% present value discount rate, the present value of total benefits is estimated at $11,037,800.03 (see Appendix for more information on cost–benefit analysis over a Copyright ©2018 Capella University. Copy and distribution of this document are prohibited. 7 5-year period). The net benefit, calculated by subtracting the present value of total benefits from the present value of total costs, is estimated at $5,548,054.41 over a 5-year period (see Appendix for more information on cost–benefit analysis over a 5-year period). Based on the positive net benefit, it can be concluded that this initiative will be an economically viable one. It should be noted that, although the cost–benefit analysis suggests that setting up a UCC is a viable option, some knowledge gaps and unknowns are bound to be present. The impact of nonmonetary costs, such as the time and effort spent on marketing and ensuring a good patient experience, has not been considered in the analysis. Nonmonetary costs can have an effect on the patient volume and that, in turn, can affect the net benefit. An increase in capital and operating costs due to some unexpected developments or unforeseen expenses can affect the net benefit gained. The patient volume may also vary depending on unpredictable factors such as the health care market environment. All these factors can have a significant impact on the result of the cost– benefit analysis. Ways to Control Costs and Maximize Benefits It is essential for the senior management to regularly implement methods to control costs and monitor the financial position of the UCC. Overhead costs that are not directly related to providing health care services make up a large portion of the total costs of the UCC. Overhead costs include expenditure on building maintenance, repairs, insurance, basic utilities, and supplies. The UCC will keep a check on building maintenance costs by undertaking maintenance checks on a regular basis. To avoid significant repair costs, the staff will ensure that equipment is handled with care and maintained in good condition. By reviewing the usage of electricity, gas, water, phone, and the Internet on an annual basis, the UCC will also control basic utility expenses. Low-cost plans, based on the UCC’s requirements, will be chosen to control expenses Copyright ©2018 Capella University. Copy and distribution of this document are prohibited. 8 on phone and Internet services. To avoid wastage of supplies, the staff will be encouraged to use office supplies with discretion. Impractical cost control measures might adversely affect staff morale and performance. Therefore, care will be taken to ensure that all the measures undertaken are relevant, ethical, and culturally equitable. Along with keeping a check on the costs, efforts will be made to maximize the benefits. A potential means of increasing the benefits of the UCC is sending automated health reminders to regular clients. This will help ensure a regular inflow of clients. Providing consistently good service to all patients will encourage them to come back to the UCC whenever they need immediate medical attention. This will also help build strong patient trust and loyalty. Also, understanding what motivates patients and their views about health care will help the UCC staff to customize care and thus increase patient satisfaction and inflow (Qin et al., 2017). Therefore, ensuring optimal utilization of resources and providing quality care will help the UCC maintain its financial stability. Conclusion The UCC will cater to the urgent care needs of the community by providing quick, affordable, and convenient health care services. The center’s proximity to the industrial area will benefit workers who might require urgent care or want to get preventive health checkups done as part of their employment requirements. Thus, the UCC will be able to generate an additional revenue stream and contribute to the economic growth of WMC. Moreover, the cost–benefit suggests that setting up the UCC will be an economically viable initiative. Ethical solutions such as careful documentation of the treatment process and full communication of the plan of care with the patient were recommended. These solutions, which reduce the risks associated with the setting up of the UCC, will also help safeguard the future of WMC. Copyright ©2018 Capella University. Copy and distribution of this document are prohibited. Comment [A3]: Good strategy. 9 References AMN Healthcare. (2015). Convenient care: Growth and staffing trends in urgent care and retail medicine. https://amnhealthcare.com/uploadedFiles/MainSite/Content/Healthcare_Industry_Insights /Industry_Research/AMN%2015%20W001_Convenient%20Care%20Whitepaper(1).pdf Chang, J. E., Brundage, S. C., & Chokshi, D. A. (2015). Convenient ambulatory care—Promise, pitfalls, and policy. The New England Journal of Medicine, 373(4), 382–388. Economic Policy Institute. (2018). Nominal wage tracker. https://epi.org/nominal-wage-tracker/ Golinkin, W. F., & Danielle, B. (2013). The dollars and cents of running a clinic. In J. Riff, S. Ryan, & T. Hansen-Turton (Eds.), Convenient care clinics: The essential guide to retail clinics for clinicians, managers, and educators (pp. 179–186). Gurganious, V., & Greenfield, D. (2015). Starting an urgent care center: 5 essentials for success. Medical Economics, 92(11), 47–48. Copyright ©2018 Capella University. Copy and distribution of this document are prohibited. BUSINESS CASE FOR A NEW ECONOMIC OPPORTUNITY 10 Helping patients make informed decisions. (2014, April). https://cmpa- acpm.ca/en/advicepublications/browse-articles/2014/helping-patients-make-informed- decisions Qin, H., Prybutok, G. L., Prybutok, V. R., & Wang, B. (2015). Quantitative comparisons of urgent care service providers. International Journal of Health Care Quality Assurance, 28(6), 574–594. Urgent Care Center Market by Service (Acute Illness Treatment, Trauma/Injury Treatment, Physical Examination, Immunization & Vaccination), Ownership (Corporate Owned, Physician Owned, Hospital Owned), and Region - Global Forecast to 2023. (2018, March). https://marketsandmarkets.com/Market-Reports/urgent-care- center-market197843477.html U.S. Bureau of Labor Statistics. (2017). Occupational employment statistics [Data set]. https://www.bls.gov/oes/current/naics4_621400.htm Weinick, R. M., Bristol, S. J., & DesRoches, C. M. (2009). Urgent care centers in the U.S.: Findings from a national survey. BMC Health Services Research, 9(79). http://dx.doi.org/10.1186/1472-6963-9-79 Why good documentation matters. (2016, October). https://cmpa- acpm.ca/en/advicepublications/browse-articles/2011/why-good-documentation-matters Yakobi, R. (2017). Impact of urgent care centers on emergency department visits. Health Care Current Reviews, 5(3). http://dx.doi.org/10.4172/2375-4273.1000204 Copyright ©2018 Capella University. Copy and distribution of this document are prohibited. Comment [A4]: The “www.” is retained as the link does not open without adding it to the URL. BUSINESS CASE FOR A NEW ECONOMIC OPPORTUNITY Yee, T., Lechner, A. E., & Boukus, E. R. (2013). The surge in urgent care centers: Emergency department alternative or costly convenience? Research Briefs. https://researchgate.net/profile/Tracy_Yee/publication/257202014_The_surge_in_urgent _care_centers_emergency_department_alternative_or_costly_convenience/links/5750682 008aed9fa2bd2d531 Copyright ©2018 Capella University. Copy and distribution of this document are prohibited. 11 BUSINESS CASE FOR A NEW ECONOMIC OPPORTUNITY 12 Appendix Cost–Benefit Analysis Over a 5-Year Period Costs Current Year (CY) ($) CY +1 ($) CY +2 ($) CY +3 ($) Furniture & Equipment Operating Costs Staff Salaries Basic Utilities Insurance 825,000.00 55,000.00 15,000.00 849,750.00 57,750.00 15,000.00 875,242.50 1,023,885.20 1,315,719.80 60,637.50 63,669.38 66,852.84 15,000.00 20,000.00 25,000.00 Other Operating Costs 327,600.00 343,980.00 361,179.00 Capital Costs Construction Total Costs (Future Value) Total Costs (Present Value) Benefits Increase in Revenue CY +5 ($) Total Costs ($) 350,000.00 379,237.95 398,199.85 350,000.00 1,222,600.00 1,266,480.00 1,312,059.00 1,486,792.52 1,805,772.49 350,000.00 1,101,441.44 1,027,903.58 959,366.23 979,396.29 1,071,638.08 Current Year (CY) ($) CY +1 ($) CY +3 ($) CY +4 ($) Total Benefits (Future Value) Total Benefits (Present Value) Present Value Discount Rate PV Denominator Net Benefit CY +4 ($) CY +2 ($) CY +5 ($) 5,489,745.62 Total Costs ($) 2,730,000.00 2,866,500.00 3,009,825.00 3,160,316.25 3,318,332.06 2,730,000.00 2,866,500.00 3,009,825.00 3,160,316.25 3,318,332.06 2,459,459.46 2,326,515.70 2,200,758.10 2,081,798.20 1,969,268.57 11,037,800.03 0.11 1.00 1.11 1.23 1.37 1.52 1.69 Copyright ©2018 Capella University. Copy and distribution of this document are prohibited. 5,548,054.41 1 Proposing of New Initiative Anay Izquierdo Capella University NHS-FPX6008 Professor: Adriane Stasurak July 14, 2022 2 Proposing of New Initiative Introduction Nuiron hospital is focusing on the expansion of its hospital in an attempt to increase the quality of the services in the market. The hospital experienced challenges during the Covid- 19 pandemic due to the lack of enough capacity in the ICU. The number of patients that needed critical care was many and the lack of enough capacity put the lives of the patients at risk. As the facility serves a large community, the increase of the capacity of the ICU is an opportunity that will see the hospital attending to patients that suffer from critical conditions. The expansion of the unit will focus on the increase of the equipment and this allows for the treatment of the patients without risking their lives, Outcomes of the Expansion of the ICU Department The hospital serves a major community and this means that the number of people that are treated in the hospital is high. Due to the increase in the need for ICU services, the expansion is meant to increase the quality of care provided to the patients (Escobar, Cardona & Ruiz, 2020). The expansion will require machines that support the patients and this means that the hospital gets to serve patients that require critical care services. As technology improves, the machines also continue to improve and this means that the hospital will respond effectively to the needs of the patients. With the ICU in place, the waiting time for the critical patients in the wards will reduce and this will improve the healing process of the patients. It means that the diagnosis process of the patients will also improve. Factors that Influence the Expansion The ICU is driven by the criticality of the conditions of the patients. After the diagnosis of the patients, the patients must be attended to gain the support that they require in their healing 3 process. The realization that the lack of capacity constraints in many hospitals leads to premature discharges has led to the need to expand the ICU to reduce the number of deaths that arise from premature discharge (Mahmoudian-Dehkordi, & Sadat, 2020). Another factor that influences the expansion is that the lack of a functioning ICU affects the hospitals' operations as there is canceling of many surgeries where the aftercare of the patients is not guaranteed. The approach to adding more beds and equipment is critical to the hospital and this requires that there is an analysis of the variation that arises from hospital incomes and the benefits that are likely to be incurred in the process (Valley & Noritomi, 2020). The hospital needs to consider the fixed costs of the beds and the machines and how to focus on the changes that arise in the community. The estimated costs in the expansion process are $1,000,000 and this includes the purchase of the specialized beds and the machines. As the buildings are in place, the hospital will not incur construction costs. The funding of the project will be through the hospital's retained earnings which will cover 20% of the costs and a bank loan that will assist the hospital to cover 80%. The hospital expects that there is an increase in demand for the services leading to increased income for the hospital and its ability to pay the loans. Analysis of Demand and Supply As the hospital is in a highly populated community, there is a likelihood that the volume of patients requiring the services will continue to increase. In the middle of the Covid-19 pandemic, the hospital was overwhelmed by numbers that saw early discharges of the patients and this affected the quality of the treatment. There was a surge in the supply of patients but the hospital could not meet the demand. As such, this leads to the need to assess the changes that are taking place in the community and the provision of services that are effective in increasing the recovery time of the patients. With the expansion project, there is an expectation that the 4 revenues of the company will increase and this will contribute to the ranking of the hospital as one of the hospitals that offer quality services (Harris et al., 2020). Awareness of the services will be created in the community and this will entail having specialists attend to the patients. Conclusion The expansion of the ICU department is critical for the hospital. It means that more patients will be admitted and this will enable the hospital to meet the increased demand in the community. It is expected that there will be increased revenues in the hospital and this will cover the costs of the project and enable the catering to the needs of all the patients. The survey of the hospitals in the areas justifies the need for the expansion of the ICU and this will create the convenience that is needed in treating critical cases. As the hospital serves a highly populated community, the knowledge of the expansion of the ICU will lead to saving lives and avoiding premature deaths. 5 References Escobar, D. A., Cardona, S., & Ruiz, S. (2020). Planning of expansion of ICU hospital care in times of Covid-19 using the E2SFCA model. Revista Espacios, 41(42), 19-38. DOI: 10.48082/espacios-a20v41n42p03 Harris, G. H., Baldisseri, M. R., Reynolds, B. R., Orsino, A. S., Sackrowitz, R., & Bishop, J. M. (2020). Design for implementation of a system-level ICU pandemic surge staffing plan. Critical Care Explorations, 2(6). https://doi.org/10.1097%2FCCE.0000000000000136 Mahmoudian-Dehkordi, A., & Sadat, S. (2020). A generic simulation model of the relative costeffectiveness of ICU versus step-down (IMCU) expansion. Journal of Intensive Care Medicine, 35(2), 191-202. https://doi.org/10.1177%2F0885066617737303 Valley, T. S., & Noritomi, D. T. (2020). ICU beds: less is more? Yes. Intensive Care Medicine, 46(8), 1594-1596. https://doi.org/10.1007/s00134-020-06042-1
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