Setting Up A Health Care Unit – Feasibility And Financial Analysis

Outline

A project report has been prepared on setting up of a health care unit. The project has been analysed for its feasibility in terms of investment in time, resources, human capital, regulatory requirements, etc. Finally based on the study, conclusion and recommendation has been given towards the end. The analysis also includes the use of zero-based budgeting and the breakeven analysis (Arnott, Lizama, & Song, 2017).

The project to aim to improve the health care system in the state by increasing the number of beds, enabling the hospital services so that the surgery time can come down and health system can be improved. This is one of the major objectives of the local health district system.

The services of health care system and hospital needs to be introduced simply because of the fact that the people have to migrate to different areas in search of proper and immediate health care services. The health centre will include services like those of ambulatory services, Rehabilitation and Wellness Centre, occupational health services, skilled nursing facility, same day surgery and community health services and it is thus expected that the population of approximately 50000 people which move to different cities and places for health services will no longer be required to do so (Boccia & Leonardi, 2016). The plan includes all the operating and financial analysis, risk analysis and requirements as well with a detailed process flow chart.

The proposal is to set up a health care system with proper financial analysis and to highlight all the risks and requirements along with the process. The plan should be feasible financially.

Aims: The primary aim of the project is to set up a facility, which will provide comprehensive health care services for the patients. This will also lead to decrease in the costs of the contractors and thereby the overall costs and help in increasing the efficiency of operations (Alexander, 2016).

Benefits: Out of the numerous benefits available out of the project, reduction in hospital stay hours for patients will be instrumental. Furthermore, since the zero based budgeting has been used, therefore there is no historical cost case and all the costs will be estimated and forecasted from scratch. The project will lead to financial as well as non-financial gains.

Factor	Benefits
Patients	Good quality and affordable treatment would now be available to the patients within the city and the patient stay days at the hospital would be decreased, leading economic gains for the patients (Cheatham & Cheatham, 1996).
Facility	The facility would provide the comprehensive health care services, meaning numerous health care facilities would be available under one roof.
Clinicians	The clinicians would be getting employment in the city itself, meaning they will not have to travel to other cities for employment purposes (Calvasina & Calvasina, 2017).
Other	There are several other benefits accruing to the society and community as a whole. This would also help in improving the public system and increasing revenues for the state.

Besides the benefits, the project also offers some of the risks, which have been highlighted below in the table.

Risk Issue	Severity	Impact	Mitigation Plan	Notes
Financial risk	High	High	The contingency of 10% has been kept in case the planned capital cannot be arranged but besides that, they is a risk on the return on investment.	The financial analysis in each of the given circumstances has been shown below and the cost saving measures have been shown (Sithole, Chandler, Abeysekera, & Paas, 2017).
Patients	Moderate	High	The patients who needs critical operation may be specialist doctors and it has been planned for visits of such doctors thrice in a week.	A contract has been signed with the nearby hospital for emergency help in case specialist doctors are required on emergency.
Insurances	Low	Low	The insurance plan has already been taken for the hospital and thus the same is secured (Mun, 2018).	As per the comprehensive health care plan, the hospital would also be conducting awareness campaigns for the city people to have compulsory insurance cover.
Other	Moderate	Low	Most of the risks have been covered and planning is in place so the impact should be less.	The resource requirement and various other requirements have been stated below in the plan.

The process in which the project would be executed has been shown below in the form of a flowchart.

Setting up and discussing the objective, aim and long term vision of the health care unit

Meeting amongst the relevant stakeholders including the owner, the finance person and the CEO to check upon the operational and the financial feasibility

Identifying the sources of revenue, planning clinical program and budgeting the number of patients

Building and campus arrangement and negotiation with the contractors

Shortlisting of the vendor for medical supplies and procuring the same

Capital and finance arrangement at least possible cost

Setting up of the IT system for the health care unit for day to day operations

Staffing of the nurses, doctors, admins and other required manpower

Setting up of the equipment and other surgical equipment’s to make the facility ready for use

Requisite training being provided to the doctors and other medical staff

Test runs and go live of the facility

Tracking of the project and MIS circulation to the top management

Most of the resources, which will be required to set up the health care centre, has already been specified in the calculation below but the most important and critical requirements have been stated below:

Space requirement for the administrative building and the operation theatres.
The Parking area for the patient vehicles and the ambulances(Truong, G, & Peat, 2008)
The own ambulance and other emergency vehicles of the health care unit
The equipment is primarily the X-ray equipment’s, radiology machine and other such surgical equipment’s.
Other requirements as per specifications.

The time, which has been considered, for the project is 5 years. The project timelines and project updates would be taken care off by one full time employee from admin department. The set up time would be approximately 6-8 months (Bennouna, Meredith, & Marchant, 2010).

For the reporting of the outcomes of the project and the tracking of the performance of the organization, there would be team of two people in admin department who would be responsible for highlighting the results on a monthly basis via a MIS update (Hall & Rapanotti, 2017). Furthermore, they would also be responsible for setting out and proposing the cost cutting measures based on the regular operations of the organization. As if for all the organizations and companies in Australia, they have to prepare the annual financial statements once in a year, in the given case also, the health care unit would be doing the same. Furthermore, they would also be open for putting initiatives, if any.

Background

Budget build-up and financial activity

The budget and the profit and loss account for the given case has been prepared using the zero based budgeting. Now what is zero-based budgeting? It is a technique whereby estimation of the expenses, costs and revenue is made as if there is no past trend. It must be justified for each new period and must be backed by appropriate supporting documents (Johnson, 2017). Each function is analysed based on the needs and the cost regardless of whether the cost is higher or lower as compared to the last period. Some of the major advantages of using this technique is flexible budgeting, cost savings, focused operations and more disciplined execution of the work. Along with the advantages, it also comes with a set of disadvantages as well, some of which are manipulation by perceptive managers, short-term focus and resource intensiveness (Oberoi, 2018). As per the old costing techniques, the capital charge on the assets used to be ignored like those of depreciation costs, interest, dividend as the major capital assets were being provided by the state or government and it was being considered as free but off late it has acquired a lot of importance and the same also needs to be factored in the costing. The profit and loss account has been shown below for the given organization where all the types of costs like those of fixed, variable and semi variable costs have been considered. Furthermore, the investment in the capital costs, which will be done in the first year of operation, has also been shown (Werner, 2017).

Australian Health Care Services
Break Even Analysis
Expenses	Particulars	Amount ($)	Income	Particulars	Amount ($)
Staff costs	12 x Nurses @ 40.00 x 8 x 5	998,400	Patient revenue
	8 x Nurses @ 50 x 8 x 2	332,800	Weekly X rays (week)	X ray x 10 x 100 x 10 x 5	2,600,000
			Weekly X Rays WE	X ray x 10 x 60 x 10 x 2	624,000
Weekly	On costs 15%	22,500
	Yearly cost (F)	150,000
			Other revenue from Emergency service and ambulatory services
Consumables	X Ray films x 5 x 40 x 8 x 5	416,000		375,000
	X Ray films x 5 x 25 x 8 x 2 (W/E)	104,000
	Yearly cost (F)	36,000

Electricity	4500 x 4 (F)	216,000

Water	1200X 4	585,600
	Yearly cost (F)	20,000

Admin support	2 FTE @ 30.00 x 10 x 7	218,400

Rent on Building	4500 per week (F)	234,000
	Yearly cost (F)	36,000

Depreciation on equipment	300000* x 20% (F)	60,000
Yearly cost (F)	25,000

Total		3,454,700	Total		3,599,000

Australian Health Care Services
Statement of Revenue and Expenses
Projected for the next five years
Particulars / Years	0	1	2	3	4	5
Net patient service revenue	–	3,224,000	3,385,200	3,622,164	3,930,048	4,283,752
Other Income	–	375,000	401,250	421,313	438,165	464,455
Total incremental revenue	–	3,599,000	3,786,450	4,043,477	4,368,213	4,748,207

Expenses
Building	612,000	–	–	–	–	–
Equipment’s	300,000	–	–	–	–	–
Furniture	92,000	–	–	–	–	–
Other capital costs	47,950	–	–	–	–	–
Setting up costs	28,000	–	–	–	–	–
Operating Expenses	–	–	–	–	–	–
Fixed Expenses	–	777,000	777,000	777,000	777,000	777,000
Variable Expenses	–	2,677,700	2,637,535	2,666,284	2,740,940	2,823,168
Total incremental expenses	1,079,950	3,454,700	3,414,535	3,443,284	3,517,940	3,600,168

Incremental income year wise	(1,079,950)	144,300	371,916	600,193	850,273	1,148,039

Computation of the Net present Value and other parameters of the Company
Year	Net Cash inflow	PV factor (10%)	P.V. Amount of Flows
0	$ (1,079,950.00)	1	$ (1,079,950.00)
1	$ 144,300.00	0.909	$ 131,168.70
2	$ 371,915.50	0.826	$ 307,202.20
3	$ 600,192.87	0.751	$ 450,744.85
4	$ 850,273.37	0.683	$ 580,736.71
5	$ 1,148,039.40	0.621	$ 712,932.47
Total Cash inflow			$ 2,182,784.93
Net Present Value			$ 1,102,834.93
Pay Back Period			2.94 Years
Discounted Pay Back Period			3.33 Years

In case the required capital as planned above is not available and a contingency is to be built in, the alternative proposal has been shown below. The savings will be in the form of capital investment at year 0 in the building, equipment cost and others. Amongst the other variable costs, the nursing staff has been reduced from 12 to 10 during weekdays and 8 to 6 during weekends. Furthermore, the admin pay has also been reduced from 30 per hour to 25 per hour (Dumay & Baard, 2017). The savings has also been planned in depreciation cost in equipment and the electricity expenses. A corresponding change will also be seen in the revenue. The revised simulation has been shown below.

Australian Health Care Services
Break Even Analysis
Expenses	Particulars	Amount ($)	Income	Particulars	Amount ($)
Staff costs	10 x Nurses @ 40.00 x 8 x 5	832,000	Patient revenue
	6 x Nurses @ 50 x 8 x 2	249,600	Weekly X rays (week)	X ray x 10 x 90 x 10 x 5	2,340,000
			Weekly X Rays WE	X ray x 10 x 45 x 10 x 2	468,000
Weekly	On costs 15%	18,750
	Yearly cost (F)	125,000
			Other revenue from Emergency service and ambulatory services
Consumables	X Ray films x 5 x 40 x 8 x 5	416,000		375,000
	X Ray films x 5 x 25 x 8 x 2 (W/E)	104,000
	Yearly cost (F)	36,000

Electricity	4000 x 4 (F)	192,000

Water	1200X 4	585,600
	Yearly cost (F)	20,000

Admin support	2 FTE @ 25.00 x 10 x 7	182,000

Rent on Building	4500 per week (F)	234,000
	Yearly cost (F)	36,000

Depreciation on equipment	270000* x 20% (F)	54,000
Yearly cost (F)	25,000

Total		3,109,950	Total		3,183,000

Australian Health Care Services
Statement of Revenue and Expenses
Projected for the next five years
Particulars / Years	0	1	2	3	4	5
Net patient service revenue	–	2,808,000	2,948,400	3,154,788	3,422,945	3,731,010
Other Income	–	375,000	401,250	421,313	438,165	464,455
Total incremental revenue	–	3,183,000	3,349,650	3,576,101	3,861,110	4,195,465

Expenses
Building	561,250	–	–	–	–	–
Equipment’s	270,000	–	–	–	–	–
Furniture	78,850	–	–	–	–	–
Other capital costs	40,090	–	–	–	–	–
Setting up costs	20,480	–	–	–	–	–
Operating Expenses	–	–	–	–	–	–
Fixed Expenses	–	722,000	722,000	722,000	722,000	722,000
Variable Expenses	–	2,387,950	2,352,131	2,377,769	2,444,347	2,517,677
Total incremental expenses	970,670	3,109,950	3,074,131	3,099,769	3,166,347	3,239,677

Incremental income year wise	(970,670)	73,050	275,519	476,332	694,763	955,788

Computation of the Net present Value and other parameters of the Company
Year	Net Cash inflow	PV factor (10%)	P.V. Amount of Flows
0	$ (970,670.00)	1	$ (970,670.00)
1	$ 73,050.00	0.909	$ 66,402.45
2	$ 275,519.25	0.826	$ 227,578.90
3	$ 476,331.52	0.751	$ 357,724.98
4	$ 694,763.47	0.683	$ 474,523.45
5	$ 955,788.03	0.621	$ 593,544.36
Total Cash inflow			$ 1,719,774.14
Net Present Value			$ 749,104.14
Pay Back Period			3.31 Years
Discounted Pay Back Period			3.67 Years

Thus, the project will break even in 2.94 years and 3.31 years as per the 2 scenarios above. However, since the time value of money is a critical factor during project appraisal, therefore as per the same, the project will break even in 3.33 years and 3.67 years respectively for the 2 scenarios (Farmer, 2018).

References

Alexander, F. (2016). The Changing Face of Accountability. The Journal of Higher Education, 71(4), 411-431.

Arnott, D., Lizama, F., & Song, Y. (2017). Patterns of business intelligence systems use in organizations. Decision Support Systems, 97, 58-68.

Bennouna, K., Meredith, G., & Marchant, T. (2010). Improved capital budgeting decision making: evidence from Canada. SCHOOL OF BUSINESS AND TOURISM, 48(2), 225-247.

Boccia, F., & Leonardi, R. (2016). The Challenge of the Digital Economy. Markets, Taxation and Appropriate Economic Models, 1-16.

Calvasina, R. V., & Calvasina, E. J. (2017). Standard Costing Games that Managers Play. Journal of Management Accounting Research, 12(2), 33-65.

Cheatham, C., & Cheatham, L. (1996). Redesigning cost systems: Is standard costing obsolete? Accounting Horizons, 10(4), 23.

Dumay, J., & Baard, V. (2017). An introduction to interventionist research in accounting. The Routledge Companion to Qualitative Accounting Research Methods, 265. Retrieved from https://books.google.co.in/books?hl=en&lr=&id=PzQlDwAAQBAJ&oi=fnd&pg=PA265&dq=Dumay,+J.,+%26+Baard,+V.+(2017).+An+introduction+to+interventionist+research+in+accounting.+The+Routledge+Companion+to+Qualitative+Accounting+Research+Methods,+265.&ots=ta1isTHB

Farmer, Y. (2018). Ethical Decision Making and Reputation Management in Public Relations. Journal of Media Ethics, 33(1), 1-12.

Hall, J., & Rapanotti, L. (2017). A design theory for software engineering. Information and Software Technology, 87, 46-61.

Johnson, R. (2017). The Best Strategies for Investing. In the News, 21-31.

Mun, K. a. (2018). A close look at the role of regulatory fit in consumers’ responses to unethical firms.

Oberoi, J. (2018). Interest rate risk management and the mix of fixed and floating rate debt. Journal of Banking and Finance, 86, 70-86.

Sithole, S., Chandler, P., Abeysekera, I., & Paas, F. (2017). Benefits of guided self-management of attention on learning accounting. Journal of Educational Psychology, 109(2), 220. Retrieved from https://psycnet.apa.org/buy/2016-21263-001

Truong, G., G, P., & Peat, M. (2008). Cost-of-Capital Estimation and Capital-Budgeting Practice in Australia . Australian Journal of Management, 33(1), 95-122.

Werner, M. (2017). Financial process mining – Accounting data structure dependent control flow inference. International Journal of Accounting Information Systems, 25(1), 57-80.

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