Total Blood and Urine Health and Drug Use Testing Laboratory
Expanding our Services, Following our Vision and Mission Statements
HSA3170 – Health Care Finance: Team 5 Final Paper
November 28, 2014
Saint Petersburg College
1. Title Page 1
2. Table of contents Page 2
3. Executive Summary Page 3
4. Organizational Plan Page 4
5. Marketing Segment Page 6
6. Financial Segment Page 8
7. Conclusion Page 11
Members of the board, it is the mission of this hospital to provide quality, compassionate, and timely care to the sick and injured of our community without regard to color, race, religion or sex. From our early beginning as small 50-bed hospital, this hospital has become the largest hospital in the area by employing this mission statement, which has withstood the test of time. The hospital currently has 350 beds and on average services 70 emergency room visits daily.
Our team has analyzed the financial performance of the hospital’s current specimen lab along with statements from the lab director and have found the lab to be marginally profitable, lacking in services and, losing ground. Due to the small size of the lab, expansion has not been an option and the hospital continues to pay for an increasing number of lab tests from non-affiliated labs. As a result of the aforementioned, we propose a lab expansion to occupy the old emergency room.
With a modest capital investment of $540,000, we can improve the quality of services we offer by upgrading our lab equipment to the most technologically advanced equipment available. Likewise, the expansion of the lab increases hospital revenue by making more types of in-house tests available. Finally, the lab expansion gives this hospital an opportunity to offer drug-testing services to the public. Our research indicates that marketing drug-testing services to the local businesses in the community will increase hospital revenue significantly.
A quick review of our capital investment financial analysis indicates the (NPV) net present value of this $540,000 capital investment discounted at six percent will generate $340,747 in revenue over five years. We also show that increasing the risk of capital to ten percent provides a positive revenue of $241,936. We respectfully request that you review this plan for expanding our lab in its entirety to give us your approval, so that we may better serve our community, and remain profitable in the quickly changing health care industry.
Organizational plan – Rose this is for youAllowing 2 pages 4 and 5
This data is better placed in organization section ,Rose, please use this info
The laboratory will require six FTEs, consisting of the following, with planned first year salaries: 1 Manager – $60 hourly, 3 Lab Technologists – $30 hourly, 2 Receptionists – $15 hourly .The total annual FTE costs including benefits figured at 205 of salaries will be $449,280.00. Because the manager reports to the existing Director of Operations, who reports to the CEO there are no anticipated addition managerial costs.
Continuation of organizational plan
Our initial consultation with the hospitals Marketing Director identified that our
technologically advanced lab can discretely offer additional services to local health care providers not currently available to them, thereby saving them time and money, while increasing our hospitals revenue. For health care facilities that do not have compatible charting software to download lab test results to, many of these lab tests can be performed while the courier waits in the lobby, further adding value to services we can provide.
Further research revealed a popular through-the-mail drug-screening lab charges $25 per drug tested for (“Employee drug testing confirmation”, 2014). Our lab conservatively priced this service at $18 per drug tested which represents a potential 25% savings to local employers; a savings, which does not even include the employer’s time involved to administer tests and process them through the mail.
The hospital’s Marketing Director further suggested that we hire a salesperson to develop and foster relationships with employers and independent health care service providers within a fifty-mile radius of the hospital. Our capital investment financial analysis includes hiring a full time sales representative and having reserve resources available for direct mail, and other media advertisements. The initial marketing plan timeline follows.
An initial press release 30 days prior to Grand Opening followed a week later by a direct mail campaign to employers and independent healthcare providers with an estimated cost of two dollars per address. Concurrent with the press release, hire and familiarize a new salesperson to begin initial contact solicitations two weeks prior to Grand Opening. Subsequent marketing activities will be based on the results of their effectiveness.
Employee drug testing confirmation and confirmation with medical review officer services.
(2014). Retrieved from https://www.employee-drug-testing-ace.com/drug-test-confirmation-mro-services
The addition of an onsite complete blood and urine testing lab that offers both complete blood work and drug screening will be of substantial benefit to the financial future of our facility. The lab will provide what is truly a full array of blood services. Additionally any and all types of urine drug screening will be available.
Revenue from services provided
These services provide an anticipated combined net return of eighteen dollars per procedure. Our charted and reachable first year goal of 3760 procedures monthly procedures is based on comparative studies of current volumes at both drug testing and complete blood labs within a one hundred mile radius of our hospital. Our central location to large employers, our nearness to major consumer centers, and our ability to combine multiple blood and urine service, indicates that our actual procedure numbers may exceed those gathered from existing competitors past year data.
The five year cash flowis projected as follows;
Year 0 Year1 Year 2 Year 3 Year 4 Year 5
(540,000) (400,280) 173,647 210.460 250,363 293,571
NPV will be varied based on our investment discount rate. Three possibilities follow:
6% discount –NPV$ 340,737 8% discount NPV- $289,135 10%discount NPV- $241,936
The clinic anticipates an IRR of 40 % and an ARI based on net income of, 9.76% year 1, 16.05% year 2, 22.86% year 3, 30.25% year 4 and 38.25% in year 5.
Cost of supplies
Non reusable supplies and devices specific to the laboratory will be needed at an average cost of four dollars per procedure for medical, and one dollar for non-medical supplies. This lab will not be offering medications. Use of reagents for tests constitute a large portion of the costs. Blood and urine storage containers, bandaging, needles, gauze, tape, antiseptics, and cleaning agents define the anticipated supplies. We anticipate the ability to use just in time supply vending, so our monthly costs should remain relatively constant, based upon our meeting our goal of monthly procedure delivery.
Cost of required space
Total space requirement for the laboratory will be fourteen hundred square feet. This includes a 240 square foot reception and waiting area, with male and female restrooms. The proposal calls for the laboratory to fill the currently unused first floor wing, currently known as the former emergency room.
The laboratory will pay rent back to the hospital at a first year rate of $6,250.00 monthly. Anticipated total utility costs per month of $521.00 (to come from laboratory budget) have been figured into all calculations. Due to the anticipated laboratory space filling currently unused and fully owned space of the hospital, the rental return would highly compliment the overall fixed costs budget by providing a substantial addition to revenue per square foot of climate controlled space.
The major capital outlay required for this project is the purchase of the modern testing machines that are the core of our proposal, and the real money makers for the hospital. Total acquisition costs will be $350,000.00. Initial research places the costs of the required machines as follows
• ThreeIndiko Chemistry Analyzers at $36,000.00 per item and seventeen types of reagents (these provide the test for all commonly used drugs of abuse) at $173.00 per item, total costs of $2,941 per unit.
• Three Biolyte 2000 electrolyte analyzers at $2,800 per item
• Three piccolo Xpress Blood chemistry machines (refurbished) at $8,525.00 per item
• Three Piccolo Analyzers (refurbished) $8,525
• Fifteen required panels for the piccolo analyzer $3,600 dollars. (two sets)
• Three Axcel Wasserman complete blood analyzers at 39,000 dollars each.This price includes three years of maintenance and 4000 free reagent test supplies Total costs of all listed items above equals $300,573. The remaining $49,427 will be available for any increase in current costs from today to actual purchase dates.
There is aprominent rate of duplication in our initial purchase of laboratory equipment. This is necessary to insure against machine breakdown and maintenance time, as well as providing our facility to meet maximum demand for capacity at high demand times..
Although these machines are all commonly utilized by top laboratories, there is the possibility that some minimal training may be required for our laboratory technicians. These costs would be well lower than the equal of one week’s salary for three technicians, or $3,600.00. This cost has been allocated into the calculations as a part of the $10,000.00 contingency cost set aside.
The incorporation of the blood and urine testing services in the hospital will not only increase the efficiency of the facility but also offer the necessary services to clients in one setting. It is beneficial because the program incurs a lower rental, manpower and equipment costs compared to a scenario where it is separated; when separate facilities are used receptionists have to be at the two facilities. Basing on the benefits and the overall number of procedures that would be carried out on monthly basis the program is feasible.
Importantly, the program anticipates a minimum of 3,760 procedures per month at a combined net return of $18 per procedure; this gives an income of $ 67,680 per month. The sum equals to $ 812,160 per against an expenditure of $ 449, 280 on annual salaries, $ 75,000 on annual rent and $ 3,500 on annual utility costs. In addition, the annual marketing cost is $ 45,000, license cost is $ 10,000, while annual repair contract cost will be $ 25,000, medical and other supplies are $ 225,600. The program will enjoy a net annual income enough to enable expansion, maintenance and recovery of the cost of investment.
Furthermore, the use of just-in-time supply chain strategy increases efficiency in resource utilization while reducing warehouse, calling cost and inventory expenses (Voortman 2004, p. 100). Moreover, just-in-time supply chain enables early detection of faults that may result to misdiagnosis due to a faulty lab report. Through the strategy the program will offer its services at a competitive price to attract many clients and ensure repeat clients. Due to sustainable competitive advantage, the program will benefit both the society and the investors. It is important that the program is supported through financing due to its good five year financial performance.
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