Download - A Feasibility Analysis for a Fixed MRI Unit
A Feasibility Analysis for a Fixed A Feasibility Analysis for a Fixed MRI UnitMRI Unit
Amy Everage HendricksonAmy Everage HendricksonUniversity of KentuckyUniversity of Kentucky
Martin School of Public Policy and AdministrationMartin School of Public Policy and AdministrationMasters of Healthcare AdministrationMasters of Healthcare Administration
Capstone ProjectCapstone ProjectSpring 2008Spring 2008
OverviewOverview Product ReviewProduct Review Literature ReviewLiterature Review Purpose of the StudyPurpose of the Study Managerial QuestionManagerial Question Background and Retrospective AnalysisBackground and Retrospective Analysis MethodologyMethodology Data Sources and CollectionData Sources and Collection Prospective Situational Analysis Prospective Situational Analysis LimitationsLimitations RecommendationsRecommendations
Product ReviewProduct Review
Magnetic Resonance Imaging (MRI) is a Magnetic Resonance Imaging (MRI) is a noninvasive diagnostic technique that noninvasive diagnostic technique that produces computerized images of internal produces computerized images of internal body tissues and is based on nuclear body tissues and is based on nuclear magnetic resonance of atoms within the magnetic resonance of atoms within the body induced by the application of radio body induced by the application of radio waves*waves*
*Merriam-Webster (2008)*Merriam-Webster (2008)
Product ReviewProduct Review
*Iglehart (2006)
Literature ReviewLiterature Review
Financial Feasibility and Future Success of Financial Feasibility and Future Success of MRI ServicesMRI Services Optimal success in the capture of imaging Optimal success in the capture of imaging
revenue tied to appropriate staffing and revenue tied to appropriate staffing and technology.technology.
Literature ReviewLiterature Review
Imaging revenues have historically been one of Imaging revenues have historically been one of the two most profitable business lines for the two most profitable business lines for hospitals*hospitals*
All hospital in this study reported strong MRI All hospital in this study reported strong MRI volumes contributed to volume growth and volumes contributed to volume growth and financial success*financial success*
MRI Technology is offering physicians precisions MRI Technology is offering physicians precisions in surgery and accuracy of diagnosis, in surgery and accuracy of diagnosis, particularly Cancerparticularly Cancer
*The Advisory Board Company (2005)*The Advisory Board Company (2005)
Literature ReviewLiterature Review
Future of MRI Technology*Future of MRI Technology* 1.5T vs. 3.0T1.5T vs. 3.0T
Spine and breast images are inferior to the 1.5TSpine and breast images are inferior to the 1.5T Coils not yet available for some servicesCoils not yet available for some services
Open vs. ClosedOpen vs. Closed Limited image quality due to lower magnetic Limited image quality due to lower magnetic
strengthstrength
*Tannenbaum (2005)*Tannenbaum (2005)
Literature ReviewLiterature Review
Competition for MRI ServicesCompetition for MRI Services Hospitals, radiologists, non-radiologists Hospitals, radiologists, non-radiologists
physicians and independent testing facilities*physicians and independent testing facilities* Hospital did have greater capture of services Hospital did have greater capture of services
over others.*over others.* Importance of CON Law and application of the Importance of CON Law and application of the
Stark LawStark Law
*Mitchell*Mitchell (2007)(2007)
Literature ReviewLiterature Review
MRI Market Potential MRI Market Potential 6% of all outpatient imaging volume and 30% 6% of all outpatient imaging volume and 30%
of all imaging profits come from MRI*of all imaging profits come from MRI*
*Advisory Board Technology Watch (2005)*Advisory Board Technology Watch (2005)
Purpose of the StudyPurpose of the Study
To analyze the feasibility of establishing a To analyze the feasibility of establishing a permanent, fixed MRI service at Newco permanent, fixed MRI service at Newco HospitalHospital
Managerial QuestionManagerial Question
Can the organization anticipate revenues Can the organization anticipate revenues adequate to justify this new service?adequate to justify this new service?
MethodologyMethodology
Retrospective AnalysisRetrospective Analysis SWOT AnalysisSWOT Analysis
Prospective Situational AnalysisProspective Situational Analysis Financial ProformaFinancial Proforma Breakeven AnalysisBreakeven Analysis
Data Sources and CollectionData Sources and Collection
InterviewsInterviews Direct ObservationDirect Observation Inpatient and Outpatient MRI VolumesInpatient and Outpatient MRI Volumes Manual Reports and DocumentsManual Reports and Documents Automated Decision Support ToolsAutomated Decision Support Tools National, State, and Area Development National, State, and Area Development
District specific dataDistrict specific data Journal ArticlesJournal Articles
Background and Retrospective Background and Retrospective AnalysisAnalysis
Organizational Setting & Organizational Setting & DescriptionDescription
96 bed, acute-care, rural hospital 96 bed, acute-care, rural hospital Not-for-profitNot-for-profit 1 of 9 hospitals 1 of 9 hospitals Located in Eastern KentuckyLocated in Eastern Kentucky Provides services of a community hospitalProvides services of a community hospital Full-service imaging departmentFull-service imaging department
Goals and ObjectivesGoals and Objectives
Mission: Improve the health and promote the Mission: Improve the health and promote the well being of the peoplewell being of the people
Formalized strategic planning process for the Formalized strategic planning process for the organization and for the hospitalorganization and for the hospital
Organizations grand strategy is to be a Organizations grand strategy is to be a financially viable ongoing entityfinancially viable ongoing entity
Support system objectives: by growing volume Support system objectives: by growing volume and market share, improving patient satisfaction, and market share, improving patient satisfaction, and establishing quality with staffing and and establishing quality with staffing and technology.technology.
GovernanceGovernance
Reports to manager of radiologyReports to manager of radiology Administrative Responsibility/Community Administrative Responsibility/Community
CEOCEO Reports to organizational president/CEOReports to organizational president/CEO Governed by Board of TrusteesGoverned by Board of Trustees
Profile of Existing ServiceProfile of Existing Service
MRI service availableMRI service available Mobile Contract ServiceMobile Contract Service Two days a weekTwo days a week Maximized within the 1Maximized within the 1stst year of operations in year of operations in
20012001
Patient Satisfaction 3.35 on a 4.0 scale, Patient Satisfaction 3.35 on a 4.0 scale, below industry benchmark of 3.55below industry benchmark of 3.55
No current marketing plan or strategyNo current marketing plan or strategy
Revenue Cycle ManagementRevenue Cycle Management
Established charge and billing structureEstablished charge and billing structure
Information SystemsInformation Systems
Integrated information system in placeIntegrated information system in place Digital picture archiving systemDigital picture archiving system No automated patient scheduling systemNo automated patient scheduling system
FiscalFiscal
2007 work stoppage2007 work stoppage Declines in volumes, revenue cycle Declines in volumes, revenue cycle
efficiency, cash flowefficiency, cash flow 2007 operating loss of $6 million2007 operating loss of $6 million Non-restricted days in cash is 23Non-restricted days in cash is 23
Human ResourcesHuman Resources
Employees represented by USWEmployees represented by USW Negotiated salary and benefits in market Negotiated salary and benefits in market
placeplace
Materials ManagementMaterials Management
Centralized materials management Centralized materials management functionsfunctions
Member of large GPOMember of large GPO Good Leverage for competitor pricingGood Leverage for competitor pricing
Regulatory & LegalRegulatory & Legal
Well established organizational policy and Well established organizational policy and proceduresprocedures
Approved certificate of needApproved certificate of need
Volume and Market AnalysisVolume and Market Analysis
Current market share is 43.08%Current market share is 43.08% MRI volume decline in 2007 due to:MRI volume decline in 2007 due to:
Private physician competitor went into businessPrivate physician competitor went into business Work stoppage by unionWork stoppage by union Limitation of a two day a week serviceLimitation of a two day a week service
National use rate is 61.5/1000National use rate is 61.5/1000 Socioeconomic demographics and epidemiology suggest Socioeconomic demographics and epidemiology suggest
61.5 is a conservative estimate in this market61.5 is a conservative estimate in this market Slight population increase over next five yearsSlight population increase over next five years
MRI UtilizationMRI Utilization
Newco Hospital Service Area FY 2007
1122
2604
0
500
1000
1500
2000
2500
3000
Total MRI Scans at Newco Total MRI Scans in the ServiceArea
# M
RI
Sca
ns
Payor Mix for Newco Hospital MRI Services
34%
33%
8%
25%Medicaid
Medicare
Self-Pay
Commercial & ManagedCare
Community and Medical Staff Community and Medical Staff SupportSupport
Local Advisory committeeLocal Advisory committee Medical StaffMedical Staff Government officialsGovernment officials Business leadersBusiness leaders
Facility and Physical PlantFacility and Physical Plant
No vacant space in the hospitalNo vacant space in the hospital Good undeveloped space adjacent to the Good undeveloped space adjacent to the
west end of hospitalwest end of hospital
SWOT AnalysisSWOT Analysis
StrengthsStrengths Well Established Physician Referral BaseWell Established Physician Referral Base Vacant space available for developmentVacant space available for development Ample Parking at site for new constructionAmple Parking at site for new construction Location of hospital Location of hospital 9% Imaging volume growth over the past 5 years 9% Imaging volume growth over the past 5 years Competitive salary & benefit packagesCompetitive salary & benefit packages Experienced manager in medical imagingExperienced manager in medical imaging Existing contract with interpreting radiologists Existing contract with interpreting radiologists New PACS imaging system New PACS imaging system
SWOT AnalysisSWOT Analysis
WeaknessesWeaknesses No existing space availableNo existing space available Part-time mobile MRI servicePart-time mobile MRI service Poor marketing and advertising for MRIPoor marketing and advertising for MRI Congested centralized registration in imaging Congested centralized registration in imaging
departmentdepartment Congested centralized imaging waiting roomCongested centralized imaging waiting room Expensive benefit packages Expensive benefit packages
SWOT AnalysisSWOT Analysis
OpportunitiesOpportunities Increased referral potential with full time Increased referral potential with full time
service service Draw commercial patients into upscale settingDraw commercial patients into upscale setting Make services available 24/7Make services available 24/7 Kentucky CON laws Kentucky CON laws
SWOT AnalysisSWOT Analysis
ThreatsThreats UnionsUnions Aggressive physician practice & diagnostic Aggressive physician practice & diagnostic
competitioncompetition Tertiary care centers within one hourTertiary care centers within one hour Two strong hospitals in primary service areasTwo strong hospitals in primary service areas Increasing trend for physician and radiologists Increasing trend for physician and radiologists
to compete for imaging business to compete for imaging business Potential for Kentucky to Lift CON law Potential for Kentucky to Lift CON law
Prospective Situational Prospective Situational analysisanalysis
0200400600800
10001200140016001800
Current A
ctivi
ty
Year 1
(27%
)
Year 2
(40%
)
Year 3
(45%
)
Outpatient MRIScans
Inpatient MRIScans
Total MRI Scans
Projected Volume Growth of MRI Projected Volume Growth of MRI Scans at Newco HospitalScans at Newco Hospital
Scope of ServiceScope of Service
24/7 Service24/7 Service M-F 8-4:30M-F 8-4:30 Nights and weekends emergency on call Nights and weekends emergency on call
serviceservice Population service: Cradle to GravePopulation service: Cradle to Grave Full-range of MRI servicesFull-range of MRI services
Capital Equipment and Capital Equipment and ConstructionConstruction
Construction:Construction: Modular addition and renovated spaceModular addition and renovated space Completed architectural planCompleted architectural plan Hard bid construction estimatesHard bid construction estimates Total construction 1976 sq. feetTotal construction 1976 sq. feet Cost estimate $617,089Cost estimate $617,089
Equipment:Equipment: 1.5 T closed MRI1.5 T closed MRI Cost $1,307,279Cost $1,307,279
Workforce AssessmentWorkforce Assessment
Modality based staffing modelModality based staffing model Experienced MRI Technologist candidates Experienced MRI Technologist candidates
availableavailable Training provided by vendorTraining provided by vendor
MarketingMarketing
New Marketing Director hiredNew Marketing Director hired Strategic marketing planStrategic marketing plan Advertising and direct marketing visitsAdvertising and direct marketing visits
Outcomes EvaluationOutcomes Evaluation
MeasuresMeasures VolumesVolumes Operational expenseOperational expense Patient satisfactionPatient satisfaction QualityQuality
Financial AnalysisFinancial Analysis
CurrentActivity Year 1 Year 2 Year 3
StatisticsProjected growth 27% 40% 45%Inpatient MRI Scans 86 109 120 125 Outpatient MRI Scans 1,036 1,312 1,450 1,502
1,122 1,420 1,571 1,627
Revenues
Inpatient 180,342 234,846 272,688 296,548 Outpatient 2,172,492 2,829,069 3,284,938 3,572,371
Other - - - -
Gross Revenues 2,352,834 3,063,915 3,557,626 3,868,919
Less Revenue Adjustments: Charity 28,508 37,124 43,106 46,878 Medicaid 430,677 560,838 651,209 708,190 Medicare 471,403 613,872 712,790 775,159 Estimated Uncollectible 134,396 175,013 203,214 220,996 Other Revenue Adjustments 603,762 786,233 912,925 992,806
Total Revenue Adjustments 1,668,746 2,173,080 2,523,244 2,744,028
Net Revenue 684,088 890,835 1,034,382 1,124,891 29% 29% 29% 29%
Expenses
Salaries - 70,782 72,906 75,093 Mobile MRI services 321,600 - - - Payroll Taxes & Empl. Benefits - 21,235 21,872 22,528 Annual service agreement on MRI - Warranty 110,000 110,000 Supplies (5 days inventory on hand) 79,415 103,556 117,952 125,830
Lease (MRI 5 years with buy out option) 235,310 235,310 235,310 Marketing (Intercompany standard 2% of revenue) - 30,639 35,576 38,689 Corporate Overhead (MRI = 23% of Rads 7%) 33,773 34,786 35,829 36,904 Hospital Overhead (see corporate overhead) 106,586 109,783 113,077 116,469 Minor equipment purchases 434 250 325 100 Interest Expense 75,578 73,701 71,688 Depreciation - 33,040 33,040 33,040
Total Expenses 541,808 714,959 849,588 865,651
Excess Revenues over Expenses 142,281 175,876 184,794 259,239
20.8% 19.7% 17.9% 23.0%
Incremental Net Revenue 33,596 42,514 116,959
^ Minor equipment purchases consists of equipment with a purchase value of less than $1,000.
NPV @ 6% 167,732
NEWCO HOSPITALMRI PROJECT PLAN PROFORMA
Breakeven Analysis
# of Patients 1143Total Net Revenue 714,981
Cost Description Fixed Cost ($)Variable CostsSupplies (5 days inventory on hand) 103,556$
Fixed CostsSalaries 70,782$ Payroll Taxes & Empl. Benefits 21,235$ Annual service agreement on MRI WarrantyLease (MRI 5 years with buy out option) 235,310$ Marketing (Intercompany standard 2% of revenue) 30,639$ Corporate Overhead (MRI = 23% of Rads 7%) $34,786Hospital Overhead (see corporate overhead) $109,783Minor equipment purchases $250Interest Expense $75,578Depreciation $33,040
Total Fixed Costs $ 611,403
Total (Variable Cost + Fixed Cost) 714,959.00 Break even in year 1
$-
$200,000
$400,000
$600,000
$800,000
$1,000,000
$1,200,000
$1,400,000
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17
Months
Rev
enu
e Net Revenue
Fixed Cost
Total Costs
Breakeven GraphBreakeven Graph
LimitationsLimitations
No information is collected by any agency No information is collected by any agency relative to outpatient service statisticsrelative to outpatient service statistics
The need to rely on experiential The need to rely on experiential information from expert subjectsinformation from expert subjects
No reporting requirements for hospitals in No reporting requirements for hospitals in Kentucky, Tennessee, or VirginiaKentucky, Tennessee, or Virginia No data sources for utilization of services in No data sources for utilization of services in
the private sector for physicians or the private sector for physicians or independent diagnostic centersindependent diagnostic centers
Limitations ContinuedLimitations Continued
This means that all projections, while This means that all projections, while based to the extent possible on proprietary based to the extent possible on proprietary utilization data and national use rates, utilization data and national use rates, required educated assumptions to be required educated assumptions to be made from the experiential datamade from the experiential data
RecommendationsRecommendations
Proposal for a permanent fixed MRI Proposal for a permanent fixed MRI service be approved and that full service be approved and that full implementation, under the direction of the implementation, under the direction of the Manager of Radiology, be achieved within Manager of Radiology, be achieved within six monthssix months
ReferencesReferences Iglehart, John K., (2006). “The New Era of Medical Imaging – Progress and Pitfalls.” Iglehart, John K., (2006). “The New Era of Medical Imaging – Progress and Pitfalls.”
New England Journal of Medicine, 354:2822-2828New England Journal of Medicine, 354:2822-2828 Merriam-Webster’s Medical Dictionary. (2008). “Magnetic Resonance Imaging” Merriam-Webster’s Medical Dictionary. (2008). “Magnetic Resonance Imaging”
http://medical.merriam-webster.comhttp://medical.merriam-webster.com Mitchell, Jean M. (2007). The Prevalence of Physician Self-Referral Arrangements Mitchell, Jean M. (2007). The Prevalence of Physician Self-Referral Arrangements
After Stark II: Evidence from Advanced Diagnostic Imaging. After Stark II: Evidence from Advanced Diagnostic Imaging. Health AffairsHealth Affairs, , 26:3, 26:3, 415-424. 415-424.
Tanenbaum, Lawrence, N., (2006). Clinical 3T MRI: Mastering the Challenges. Tanenbaum, Lawrence, N., (2006). Clinical 3T MRI: Mastering the Challenges. Applied RadiologyApplied Radiology, , 35:11, 35:11, 34-50.34-50.
The Advisory Board, H*Works: Structure and Responsibilities of Diagnostic Imaging The Advisory Board, H*Works: Structure and Responsibilities of Diagnostic Imaging
Departments, Departments, Original Inquiry BriefOriginal Inquiry Brief, May 24, 2005., May 24, 2005. The Advisory Board, MRI: New systems, applications herald future volume growth, The Advisory Board, MRI: New systems, applications herald future volume growth,
Technology WatchTechnology Watch, November 4, 2005. , November 4, 2005. www.advisory.comwww.advisory.com
Special Thanks To:Special Thanks To:
Committee Chair: Leonard Heller Ed.D.Committee Chair: Leonard Heller Ed.D. Committee Member: Sarah Wackerbarth Ph.D.Committee Member: Sarah Wackerbarth Ph.D. Committee Member: Adetokunbo Oluwole Ph.D.Committee Member: Adetokunbo Oluwole Ph.D. Outside Advisor: Trena Hall Outside Advisor: Trena Hall
Clinical Director of Corporate ProjectsClinical Director of Corporate Projects
Appalachian Regional HealthcareAppalachian Regional Healthcare
Questions?Questions?