Order 1366478: Business Case for a New Economic Opportunity

cf_exemplar_NHS-FP6008_assessment_2.pdf

Home >Business & Finance homework help >Management homework help >Order 1366478: Business Case for a New Economic Opportunity

Running head: BUSINESS CASE FOR A NEW ECONOMIC OPPORTUNITY 1

Business Case for a New Economic Opportunity

Learner’s Name

Capella University

Health Care Economics and Decision Making

Business Case for a New Economic Opportunity

December, 2017

BUSINESS CASE FOR A NEW ECONOMIC OPPORTUNITY 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 non-

emergent 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, Prybutok, Prybutok, & Wang, 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 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.

BUSINESS CASE FOR A NEW ECONOMIC OPPORTUNITY 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, Lechner, &

Boukus, 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, Brundage, & Chokshi, 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

BUSINESS CASE FOR A NEW ECONOMIC OPPORTUNITY 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 high-

volume, 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

Comment [A2]: It is good that you have identified this threat…this is something that could undermined the economics of your initiative.

BUSINESS CASE FOR A NEW ECONOMIC OPPORTUNITY 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, Bristol, & DesRoches,

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

BUSINESS CASE FOR A NEW ECONOMIC OPPORTUNITY 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

5-year 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

BUSINESS CASE FOR A NEW ECONOMIC OPPORTUNITY 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

BUSINESS CASE FOR A NEW ECONOMIC OPPORTUNITY 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.

Comment [A3]: Good strategy.

BUSINESS CASE FOR A NEW ECONOMIC OPPORTUNITY 9

References

AMN Healthcare. (2015). Convenient care: Growth and staffing trends in urgent care and retail

medicine. Retrieved from

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. Retrieved

from

http://library.capella.edu/login?qurl=https%3A%2F%2Fsearch.proquest.com%2Fdocvie

w%2F1698429950%3Fac

Economic Policy Institute. (2018). Nominal wage tracker. Retrieved from

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). Retrieved from

https://ebookcentral-proquest-

com.library.capella.edu/lib/capella/detail.action?docID=1188973.

Gurganious, V., & Greenfield, D. (2015). Starting an urgent care center 5 essentials for

success. Medical Economics, 92(11), 47–48. Retrieved from

http://library.capella.edu/login?qurl=https%3A%2F%2Fsearch.proquest.com%2Fdocvie

w%2F1696889732%3F

BUSINESS CASE FOR A NEW ECONOMIC OPPORTUNITY 10

Helping patients make informed decisions. (2014, April). Retrieved from https://cmpa-

acpm.ca/en/advice-publications/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. Retrieved from

http://library.capella.edu/login?qurl=https%3A%2F%2Fsearch.proquest.com%2Fdocvie

w%2F1694933787%3Facco

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). Retrieved from https://marketsandmarkets.com/Market-Reports/urgent-care-

center-market-197843477.html

U.S. Bureau of Labor Statistics. (2017). Occupational employment statistics [Data set]. Retrieved

from 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). Retrieved from https://cmpa-

acpm.ca/en/advice-publications/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

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 11

Yee, T., Lechner, A. E., & Boukus, E. R. (2013). The surge in urgent care centers: Emergency

department alternative or costly convenience? Research Briefs. Retrieved from

https://researchgate.net/profile/Tracy_Yee/publication/257202014_The_surge_in_urgent

_care_centers_emergency_department_alternative_or_costly_convenience/links/5750682

008aed9fa2bd2d531

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 ($) CY +4 ($) CY +5 ($) Total Costs ($)

Capital Costs

Construction

Furniture & Equipment Operating Costs Staff Salaries 825,000.00 849,750.00 875,242.50 1,023,885.20 1,315,719.80 Basic Utilities 55,000.00 57,750.00 60,637.50 63,669.38 66,852.84 Insurance 15,000.00 15,000.00 15,000.00 20,000.00 25,000.00

Other Operating Costs 327,600.00 343,980.00 361,179.00 379,237.95 398,199.85

Total Costs (Future Value) 350,000.00 1,222,600.00 1,266,480.00 1,312,059.00 1,486,792.52 1,805,772.49 Total Costs (Present Value) 350,000.00 1,101,441.44 1,027,903.58 959,366.23 979,396.29 1,071,638.08 5,489,745.62

Benefits Current Year (CY) ($)

CY +1 ($) CY +2 ($) CY +3 ($) CY +4 ($) CY +5 ($) Total Costs ($)

Increase in Revenue 2,730,000.00 2,866,500.00 3,009,825.00 3,160,316.25 3,318,332.06

Total Benefits (Future Value) 2,730,000.00 2,866,500.00 3,009,825.00 3,160,316.25 3,318,332.06 Total Benefits (Present Value) 2,459,459.46 2,326,515.70 2,200,758.10 2,081,798.20 1,969,268.57 11,037,800.03

Present Value Discount Rate 0.11 PV Denominator 1.00 1.11 1.23 1.37 1.52 1.69 Net Benefit 5,548,054.41

350,000.00