UNIVERSITY OF VIRGINIA HEALTH SYSTEM: THE LONG-TERM ACUTE CARE HOSPITAL PROJECT

Final Case Guidance

UNIVERSITY OF VIRGINIA HEALTH SYSTEM:

THE LONG-TERM ACUTE CARE HOSPITAL PROJECT Pages 381-390

Idea of the case

This case puts students in the shoes of Larry Fitzgerald, the vice president for

business development and finance at the University of Virginia Health System (UVa Health

System). Students must decide, based on cash flow analysis and nonfinancial factors, whether

or not to propose a long-term acute care hospital (LTAC) project to the board of directors of

the U.Va. Health System. The LTAC is a very promising undertaking from the perspective of

providing better care for patients, but the financial drivers of the project have yet to be assessed.

The primary objective in this case is to portray the major differences in project analysis

for nonprofit organizations compared to for-profit companies and to highlight the unique

issues relevant in a health care environment.

The case assesses the following learning outcomes: A. Discuss relevant theories related to financial policies

B. Apply the theory, methods, and tools of finance to real-world problems.

D. Make financial decisions related to leasing and capital budgeting projects.

Questions

1. What are the non financial drivers for adding an LTAC facility to the U.Va. Health System? What are potential reasons the board may not approve the project from a non financial standpoint?

Hints: You can provide points from the case as to why the LTAC facility would be a good addition to the U.Va. Health System from the perspective of the hospital, the patient, and overall health care. Students could suggest several reasons why the board may not approve the project.

2. What are the differences between nonprofit institutions and for-profit institutions? For example, how would a for-profit hospital approach the LTAC decisions?

3. What is the average cost of capital of the for-profit hospitals provided in case Exhibit 3? Would this serve as a reasonable discount rate to analyze a set of for-profit LTAC facility

cash flows? Should Fitzgerald use this number to discount the U.Va. LTAC facility’s cash

flows? justify your answer.

-2-

4. Using the information in the case and the memo from Karen Mulroney in case Exhibit 1, complete the cash flow projections in the spreadsheet provided. What do you get for the

NPV and IRR of those cash flows?

5. What are the main drivers for NPV and IRR? Show the impact on NPV and IRR by changing a couple of these drivers to a “downside scenario” value.

6. Based on your financial analysis, should Fitzgerald propose the LTAC project in the board meeting. Explain why?

Supporting Spreadsheet Data

A supporting Excel file is available for the convenience of students:

Further Guidance

 You need to work in your groups to submit the case write-up report and an Excel spreadsheet for 15 grades each for a total of 30 grades.

 The Due date of the case is April 25th, 2021 at 4:00 PM.

 Only a Soft Copy is required and submission should be through the safe assignment link

on Blackboard.

 Direct Copy and Paste from the case is NOT allowed. If plagiarism was detected, your total

assignment grade will be affected. Further disciplinary actions may be decided by the

instructor.

 The policy regarding academic dishonesty and plagiarism will be strictly enforced.