Palm Hospital Notes

Palms infirmary (Traditional Project Analysis) Palms Hospital * 250 bed capacity investor owned Islamorada, Florida * Founded in 1946 by Rob Winslow, went back in 1967 after the war * High economic perplexth, population expansion Acknowledged to be one of the leading healthc atomic amount 18 providers in the area * Currently evaluating a proposed ambulant (outpatient) ope appraise theatre concenter * More than 80% o all outpatient surgery is performed by specialists * tyke surgerys get hold of about one hour or less, major procedures take two or more hours * About 60 percent of the procedures are performed under general anesthesia, 30 percent under local anesthesia, 10 percent under regional or spinal anesthesia * operating(a) rooms build in pairs for prep and surgery efficiency * Outpatient surgery market has experienced significant growth since the first ambulatory fondness opened in 1970 1990 2. million surgeries, 2009 more than 20 million surgeries * egress was fueled by three factors rapid advancements in technology do it possible for inpatient surgeries to be performed as outpatient surgeries, Medicare has been aggressive in clear new minimally invasive surgery techniques, meaning number of Medicare patients who map outpatient surgery services has grown substantially patients prefer outpatient surgeries for convenience, and third party payers prefer them for less appeal * Inpatient surgery numbers confuse been flat due to these factors over the last 20 years outpatient procedures grow at 10% annually * No other outpatient surgery move exists in Palms Hospitals immediate environment, but rumors about medical student owned facilities are surfacing * Palms Hospital owns a land near to the facility that would be a perfect location for the new ambulatory surgery centre the land was bought for $150,000, spent $25,000 to clear the land (also expensed for gross enhancement purposes) to put sewer and gain lines. If sold today, the land will ringing in $200,000. * The supposed building will house four operating suites that will cost $5,000,000 plus another $5,000,000 for equipment costs for a native of $10,000,000. *Note the building and the equipment fall into the modified accele prised cost convalescence system (MACRS) five-year class for tax depreciation purposes in reality, the building has to be depreciated over a longer period than the quipment * Although the plan may shake up a longer life, the infirmary assumes a five-year life in its great(p) budgeting analyses and then approximates the jimmy of the cash flows beyond year 5 by including a terminal/ unbosom value in the abridgment to visualise this value, the hospital uses the market value of the building and equipment after five years, which in this case is $5M before taxes, excluding land value. *Note taxes must be gainful on the difference between an assets salvage value and tax book value at termination for example, if an asset that cost $10, 000 is depreciated to $5,000 and then sold for $7,000, the firm owes taxes on the $2,000 excess in salvage value over tax book value * Expected passel for this centre is 20 procedures a day, with an average charge of $1,500 but philanthropy care, bad debts, managed care plan discounts and other allowances lower the solve revenue amount to $1,000 the centre will be open 5 age a week, 50 weeks a year, 250 days out of the year.Labor costs are expected to run at $918,000 a year excluding fringe benefits utility costs run at $50,000 a year * If the centre is built, hospitals cash overhead will increase by $36,000 annually, generally for housekeeping, building and grounds maintenance centre will be allocated $25,000 of the hospitals current $2. 8M administrative overhead costs. On average, each procedure will require $200 in expendable medical supplies, including anesthetics. The hospitals inventories and receivables, as well as accruals and payables will increase. Overall multifari ousness in net working detonating device is expected to be small, therefore not imperative to the synopsis. The hospitals tax rate is 40%. * Inflation one of the most difficult factors to deal with in project analysis. Input costs and charges have been rising at twice the rate of overall inflation. Inflationary pressures are highly variable.Analysis is started by assuming that twain revenues and costs, except for depreciation, will increase at a constant rate which they project will be at 3%. * Board members concerns wants to snitch sure that a complete risk analysis including sensitivity and scenario analysis is performed before the proposal is presented (board was forced to close a daycare that appeared to be profitable but turned out to be a larger-than-life money loser 2 years ago) * Another concern would be the impact of the centre on the current volume of inpatient surgeries. mathematical process department head projected that the outpatient surgery centre could sip hon complete up to $1,000,000 in cash revenues annually, hat could lead to a $500,000 reducing in annual cash expenses * The data developed for risk analysis were as follows three input variables are highly uncertain number of procedures per day, average revenue per procedure, building/equipment salvage value. If another centre was built to compete with theirs, number of procedures could be as low as 10 a day, but if acceptance to their centre is strong, they could be doing 25 procedures a day. * Net average revenue (cost of procedure) is $1000. But if surgery severity is high, net average revenue could be $1,200. If severity is low, it could be $800. If real soil and medical equipment values stay strong, salvage value could be as high as $6M, but if it weakens, itll be as low as $4M considering that the average salvage value is $5M. Another board member move why the scenario analysis only had three scenarios and suggested 5 or 7. * found on historical scenario analysis data t hat use best case, finish off case, and most likely, the hospitals average project has a coefficient of var. of NPV (net present value) in the range of 1. 0-2. 0 and the hospital typically adds or subtracts 4 percentage points to its 10 percent corporate cost of capital to adjust for differential project risk. * Note the case asks us to dole out complete project analysis and present findings. It suggests the application of Monte Carlo exemplar (but that is bullshit because thats the simulation you need a computer software system for).