In healthcare, access is key to expand your market share. Evaluating how, where, and when to expand your network to improve access is crucial to ensure your finances can withstand such an investment for the future. With that in mind, let's consider the following opportunity.

Your hospital is considering opening up a new satellite location for a primary care practice located 20 miles from the hospital where market research shows that there is a significant population that in underrepresented (either no primary care physician and/or willingness to switch for closer option).

Your plan is to recruit two primary care physicians and a nurse practitioner to staff a practice that will be located in the center of town within a rented space. This space is already designed for medical purposes so there will be no other renovation costs, just the rent for the 1,500 square feet.

Revenue Assumptions:

• Each PCP will see patients 4 days per week with a maximum capacity of 15 patients per day and the Nurse Practitioner will also see patients 4 days per week and be capped at 10. It is expected that the no show rate of 6% will hold true for this practice. All providers have 7 weeks off per year (vacation, CME, sick, etc).
• It is expected that the practice will fill 50% of its max volume in year 1, 75% in year 2, and 100% in year 3.
• Gross Professional Service Revenue (GPSR) will be an average of $500 per visit. Given the payor mix in the region, the expectation is that the practice will receive a Net Professional Service Revenue (NPSR) at 38%.
• An additional 10% of total revenue will be added via population health contracts each year.

Cost Assumptions:

• MD1 is senior and will earn a starting salary of $240k, MD2 is junior and will earn a starting salary of $185k. The NP will earn a starting salary of 120k. Each will receive a 2% cost of living increase per year.
• The clinic will have the following support staff: 3 Medical Practice Assistant's at 40k each and 1 Operations Supervisor at 55k. Support staff earn a 3% merit per year. 1 of the 3 Medical Practice Assistants will not start until the beginning of year 2.
• Fringe for salary cost at the hospital is 20% for MDs and NPs and 36% for all others.
• Malpractice costs are $2,000 per year for MDs, and $3,000 per year for NPs. Expect a 2% inflation per year.
• The hospital will invest $20k in year 1, 7.5k in year 2, and 5k in year 3 to market the practice.
• The rent is $32/ft and the landlord will cover all leasehold improvements planned. There is a 2% increase in the rent per year.
• Supply costs, based on other similar sized practices, will cost $22k in year 1 (full stock) with replacement cost of 11k in year 2 and 13.75k in year 3.
• Utilities have been quoted for year 1 at 50k. It is expected that between volume and inflation that there will be an 8% increase per year in this cost.
• A miscellaneous cost budget of 5k per year will be assigned.

Instructions:

Develop a 3-year operating budget in excel .

Does the practice breakeven operationally and when? Why is this important?

What is the investment's ROI over 3 years? Why is this important?

Given the hospital's expectation for all investments to have a positive ROI within 3 years, would you proceed with this investment?

Assuming there is additional downstream revenue, how would you re-assess the above and why?

Submit the paper with the operating budget as an exhibit. Please reference your exhibit when necessary in the paper

Answer rating: 100% (QA)

To develop a comprehensive 3year operating budget for the new satellite primary care practice we nee... View the full answer