Feasibility Studies: The Key to Evaluating Expansion Opportunity by By Phillip Laux, MS

Hospitals faced with increasing financial pressures and market competition such as declining reimbursements, fragmented financing systems, lower operating margins, and consumers driving healthcare decisions are responding with innovative business approaches. One of the most common initiatives is to expand services, either enhancing existing care areas or venturing into a new service line. State of the art facilities for imaging, ambulatory surgery, outpatient diagnostics, cancer treatment, or one of the more profitable service lines: cardiac surgery are being designed & built throughout the country. Today, more than ever, hospitals must carefully consider the impact of all spending and financial return to the organization.

Taking these issues into consideration, hospital executives attempt to offset unprofitable services such as emergency rooms and inpatient psychiatric care with cancer care and heart surgery where contribution margins continue to be “healthy”. New clinical services can position a hospital to generate new streams of revenue while addressing unmet need.

There are many risks involved with implementing new and unfamiliar services. Hospital executives can minimize these risks by making intelligent, data-supported decisions. Answers to the following three questions are the first steps in the planning process. 1. What is the market of the proposed service? 2. Is the proposed service a “right fit”, both organizationally and operationally? 3. Does the proposed service project a sound financial picture? Feasibility studies are considered one of the more powerful, yet under utilized tools that hospital executives can use to test planning assumptions and substantiate their case for expanding services. A feasibility study can be used to solicit board approval; financing and bond review, and meet CON application requirements. Also, they serve as the foundation for the final business plan. The typical time commitment to conduct a comprehensive feasibility study ranges from 75-120 days, dependent on availability of financial and market information.

Case Study

Faced with financial challenges and significant out migration of the cardiovascular patient population, administrators at a 150-bed community-based hospital conducted a comprehensive cardiovascular feasibility study. “We kept seeing increased need and unmet demand. Diagnostic catheterizations have been offered here for nearly ten years, but patients had to leave the community to access advanced cardiovascular care,” they said. This feasibility study was initiated for four purposes: (1) to determine a course of action: whether or not to enter the open heart surgery market (2) CON application support (3) financing and bond issuance testing (4) implementation business plan foundation.

Senior management conveyed the strategic goals and necessity of the feasibility study to key medical staff leaders and a selected project team. Support and direction from senior management was critical to the success of the project, which would be one of the biggest investments in the history of the organization. A senior executive assembled a project team from core hospital departments to discuss the timeline, project scope, and to review information on medical admissions and market need statistics. Information was gathered on appropriate data of market share, financial, capital, procedural volumes, and operational requirements.

As mentioned earlier, a feasibility study looks at three major areas: (1) Market (2) Operations (3) Finance. Beginning with the market analysis, hospital management and key stakeholders were identified and interviewed to assist in development of the strengths, weaknesses, opportunities, and threats (SWOT) of the organization for the proposed cardiovascular services expansion. Trends of cardiac specific procedures were gathered at the national, regional, and local levels. For example, U.S. hospitals could expect cardiology services to increase 44 percent more than the average increase in other services in the next 5 years . Additional criteria analyzed in the feasibility study included mortality rates, out migration for advanced cardiac care, cardiac transfers to competitors, demographics, and procedure use rate statistics. These factors assisted in defining the hospital’s Total Cardiac Target Market™ (TCTM). The TCTM is the geographical area from which the hospital could expect to draw patients for advanced cardiovascular care. Demand projections incorporating all of the mentioned methodologies were developed and reviewed with senior management. Exhibit 1, demand projections for open heart surgeries within the TCTM, calculated by applying actual historical open heart surgery utilization rates, specific to the TCTM population.

Exhibit 1

TCTM Service AreaPopulationOHS Utilization RateTCTM Projected Volume

Go to Page 2

BIO:

Phillip Laux, MS is the finance manager with Health Care Visions, Ltd a leading cardiac consulting firm. He earned his Master of Science in Management and Technology from Carlow University in 2000 and Bachelor of Arts in Administration from the University of Pittsburgh in 1994. Phillip has over 8 years of financial reporting, statistical analysis, revenue modeling for hospitals and physicians.

Some Aditional Articles you may enjoy

ASTRAGALUS, THE ANCIENT CHINESE WONDER HERB. by Alfred Jones

Arthritis Drugs Celebrex-Vioxx Safety in Doubt by Margot B

Find out why you haven't been able to loose Weight yet!!! by Varun Pratap

In the early stage of Alzheimer’s, what is the best environment? by William Hammond, J.D.

Eating for Health, Happiness and Successful Weight Control by Dr. William Parsons

Click a Number to go to an article index page
1 | 2 | 3 | 4 | 5 | 6 | 7 | 8 | 9 | 10 | 11 | 12 | 13 | 14 | 15 | 16 | 17 | 18 | 19 | 20 | 21 | 22 | 23 | 24 | 25 | 26 | 27 | 28 | 29 | 30 | 31 | 32 | 33 | 34 | 35 | 36 | 37 | 38 | 39