Question $2$

Given the current patient flows, how large should the ED observation unit be to achieve a target

utilization of $80$ percent?DO NOT COPY

$3$

Middletown General Hospital $1-429-133$

Assume that the average observation patient represents about $$3,300$ in profits to the hospital$*$

$,$ and the

average admitted patient represents about $$3,500$ in profits $($Figure $1).$

Question $3$

Currently, what is the profit flow per day resulting from patients who enter the hospital through the ED

on either observation or admitted status?

If an observation unit of your recommended size $($question $2)$ is built, then most of the observation

patients could be kept there $($except for days with very high variability about the mean arrival rate of

patients$).$ Observation beds are less costly to construct and staff than inpatient beds due to differing code

requirements and patient characteristics. In addition, in Certificate of Need states, increasing licensed

inpatient bed capacity incurs additional administrative hurdles relative to increasing observation bed

capacity. Assume that if an observation unit is available, the average profit per observation patient will be

$$3,700($Figure $2).$

Question $4$

What is the profit increase to the hospital, $($the difference between the new day and old profit per day$)$

if the observation unit is built? What is the profit boost per year?

The answer to question $4$ may underestimate the value of the observation unit, because in addition

to reducing the cost for $20$ percent of the ED patients going on observation status, the construction of an

observation unit removes these patients from inpatient beds. These now$-$empty beds can be backfilled with

new patients.

Question $5$

Assume that all vacated beds are backfilled by admitted patients. How many new patients per day can

be admitted? Assume that all of these new patients come in on admitted status and stay an average of $5\mathrm{.}8$

days. $($Hint: Use Little$$s Law, I $=$ RT$,$ where you know I and T from the above information$)$

Question $6$

There is a critical assumption front and center in question $5.$ What is it$?$ How would you check on

whether that assumption is justified at Middletown General?

Question $7$

If your calculations in question $5$ are accurate, and each patient in the new flow of patients represents

$$3,500$ in profits to the hospital, what is the total benefit to the hospital for having the observation unit

$($including cost reductions and backfill patients$)?$

The answer to question $7$ should be compared with the construction and equipment costs to get the

observation unit built and operational. Typically these costs are one$-$time up$-$front costs, and then the

changed cash flows $($that you computed$)$ occur every day after the unit is operational. Standard financial

metrics $($e$.$g$.,$ net present value, payback period, internal rate of return$)$ can be computed from these data.