Introduction: This portfolio work project will demonstrate your ability to think critically about the relationships between the health care system and the decisions that leaders make.
Scenerio: You have been asked by the CEO of your organization to propose a project or program to address a specific need, and to develop a feasibility study to determine if the proposed project or program should be undertaken.
Your role: You are a department leader in the organization.
Example Assessment: You may use the following to give you an idea of what a Proficient or higher rating on the scoring guide would look like:
Assessment 3 Example [PDF]
Requirements: Complete each section of the feasibility study as completely as possible, and support with relevant evidence. The length of your feasibility study will depend largely on the project or program you are proposing to address the need of your organization. Be sure that each section is fully addressed.
Your feasibility study should:
Provide relevant information on the organization (Section I).
Analyze the objectives of the proposed program (Section II).
Explain why you are proposing the program.
Where does it fit within the organization?
What systems will be affected by it?
What systems issues will it address?
Explain how both patients and the organization will benefit from implementing the proposed program.
Provide evidence that the program is needed.
Explain the value of the program (Section III).
How well does it align to the organization’s mission?
How well does it fit with existing programs and services?
Do competitors offer something similar? If so, how will your program give your organization a competitive advantage?
Analyze the potential financial and economic issues of implementing the program (Section IV).
Identify any economic issues that could affect the success of the program.
Explain how your program could affect the local economy (both positively and negatively).
Identify possible funding sources.
Estimate the cost of implementing and maintaining your program.
Analyze the marketing issues associated with your program (Section V).
Explain how your program may affect the existing marketing approach.
Explain how your program will meet the needs of the target market demographic.
Explain how you will differentiate your program from those of competitors.
Determine how the program may affect the entire organization (Section VI).
Are there regulatory or policy implications?
Will new licenses or certificates be required for the organization or staff members?
Will the program affect the tax status of the organization?
How might the program affect liability and risk management?
Do you have enough space for the program?
Do you have evidence to support the effectiveness of the program?
Recommend a course of action based on the information in the feasibility study.
How does your recommendation reflect ethical decision making?
Deliverable Format: The feasibility study is a professional document and should therefore follow the corresponding MBA Academic and Professional Document Guidelines, including single-spaced paragraphs.Organize your document using this structure:
Title page. (What is the title of your proposed program?)
Executive summary. (Many executives require an executive summary for projects of this type. The summary is written last, but becomes the first section of the feasibility study and provides an overview of the goals and objectives, summarizes the key points supporting the need, summarizes the key points supporting your proposed program, and includes your conclusion and recommendations.)
Feasibility study.
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Feasibility Study of a Renovated or Replacement Facility
For St. Sophie Medical Center
Jake Christopher
MBA5310 Decision-Making in the Health Care System
July 15, 2050
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Executive Summary
St. Sophie Medical Center has a proud tradition of serving the needs of its community for over
157 years. During these years, the infrastructure has changed several times to continue to focus
on its mission to serve the everchanging needs of its community. Once again, St. Sophie is at a
turning point. Current physical plant general maintenance costs are now exceeding $10 million a
year and are barely keeping up with the needs of a decaying building. The current and projected
shift in medical practice no longer supports the current 450 inpatient beds and more supports a
new design of fewer beds and more outpatient clinical space. The CEO of St. Sophie challenged
the COO to develop a feasibility study looking at the feasibility to renovate versus replace the
medical center, positioning it for the future care of its community members.
The following feasibility study explored the ideas of significantly renovating the current medical
center versus replacing it with a completely new facility on the same campus. The results of this
study suggest a new facility will best position St. Sophie for the future of healthcare delivery
while offering various, diverse revenue streams to offset the cost difference between renovation
and replacing, advancing a sustainable financial model long-term.
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Table of Contents
Executive Summary
2
The Organization
4
Problem Objectives
4
Program Value
5
Financial and Economic Issues
6
Marketing
8
Organizational Impact
8
Recommendations
9
Conclusion
10
References
11
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The Organization
St. Sophie Medical Center has a proud tradition of serving the needs of its community for
over 157 years. It has grown from its humble beginnings as a 12bed hospital within a physicians
home during the Civil War to the 450bed facility it boosts today. During these years, the
infrastructure has changed several times to continue to focus on its mission to serve the
everchanging needs of its community. And once again, St. Sophie is at a turning point. Current
physical plant general maintenance costs are now exceeding $10 million a year with these efforts
barely keeping up with the decaying building. The current and projected shift in medical practice
no longer supports 450 inpatient beds and more supports a new design of few but private beds
and more outpatient clinical space.
St. Sophie has seen a decline in admissions over the past ten years but still appreciates
55,000 admissions annually with gross revenue at $2 billion (St. Sophie Medical Center, 2018).
According to competitive analysis, an outward migration has been documented from key zip
codes showing a shift to the major competitor 15 miles away. Various other competitors have
entered the marketplace contributing to this downturn in inpatient census and outpatient service
utilization. Marketing surveys note a consumer perception linking quality care with newer
facilities, while overall utilization of healthcare services is on the rise in the region (St. Sophie
Medical Center, 2019).
The Board and senior leadership of St. Sophie Medical Center desire to make it a world
class healthcare organization. It acknowledges the need to upgrade the current facilities either by
a massive renovation of the existing structures or by a total replacement. Ultimately, in addition
to the inpatient facility, the upgrade plan could include a medical office building, ambulatory
surgical center, outpatient rehabilitation center, diagnostic center, and cancer treatment center. It
would include an enlarged and state-of-the-art Emergency Department (ED) reducing wait times
and enhancing diagnostics and treatment. It may also elevate the regional trauma status from
level 3 to level 1 serving the more critical needs of the community. It would mean dedicated on
campus areas for support services such as health information and supply chain management,
currently being housed in rented space. It would offer an opportunity for strategic partnerships
and alternative revenue streams such as a state-of-the-art research center in partnership with
Capella Medical University. It is believed that a full service, full continuum of care delivery will
help stave off the outward migration of patients, allowing patients to be treated in community
and reducing the burden on families. It is believed that making such changes will help best
position St. Sophie Medical Center to serve the ongoing healthcare needs of its community for
the future, creating a financial sustainability model for its longevity.
Program Objectives
This feasibility study looked at the most cost-effective solution for a decaying building
structure. Immediately, it looked at the cost to renovate versus replacement. But it soon realized
the financial implications go far beyond the direct cost of a physical plant, it actually embraces
financial growth and sustainability. So, the program objectives are to determine the most viable
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option to address a declining physical plant while positioning the medical center for another 150
years.
Healthcare accounts for over 18% of the Gross Domestic Product in the United States at
over $3 trillion (Stoakes, 2015). In this new age of healthcare reimbursement, value-based
healthcare pays based on patient outcomes not the traditional fee for services provided
(Massachusetts Medical Society, 2017). Under value-based care agreements, providers are
rewarded for helping patients improve their health, reduce the effects and incidence of chronic
disease, and live healthier lives in an evidence-based way (Massachusetts Medical Society,
2017). By managing chronic conditions better, patients will stay healthier longer and reduce
costs overall. This happens best when providers partner with patients to achieve greater
efficiencies and patient satisfaction.
In order for St. Sophie to best serve it community, a new facility conducive to such care
delivery is paramount. Patients need to have a first-class experience, with a responsive team of
professionals that offer timely and seamless care. So, beyond the medical center direct services, a
larger vision is to create a healthcare hub centered around the medical center campus. This would
include an independent range of services such as a retail pharmacy, home health service, a
medical home, durable medical equipment vendor, assisted living facility, and skilled nursing
center. Such strategic partnerships would help facilitate a continuum of care for patients netting
greater health outcomes and overall satisfaction. And given value-based healthcare financial
models, this can mean the difference between financial sustainability or closed doors for St.
Sophie.
Program Value
The decaying physical plant and older configuration are complicating care delivery and
costing a great deal of money just to minimally maintain. The value of either renovation or
replacement supports the organizations mission to deliver care to its community. By updating
the facility, existing program and services will be enhanced, with barriers to access resolved,
quality care left unimpeded, and costs better managed. In addition, by changing to all private
rooms, infection rates decrease and patient satisfaction increase, both strongly related to better
reimbursement. Enhancing the trauma designation would help bring more intensive and higher
reimbursement cases to the medical center, allowing patients and families to stay in community
for their care.
Currently, utilization has decreased 27% over the past few years in favor of a major
competitor (St. Sophie Medical Center, 2018). This competitor has a new facility that has a
better configuration in keeping with current medical practices. As an example, a patient can drive
to the competitor Emergency Department, be assessed, treated, and return home (15 miles away)
in the time it would take just to be assessed at St. Sophie. This is unacceptable to the Board and
senior leadership. By moving forward with the plan to upgrade and eventually partner to build a
healthcare hub, patients will be able to stay in their own community for all services needed.
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St. Sophie is positioned in the historic district of town on a 200 acre plot of prime real
estate. The historic district is on an economic upswing with St. Sophie supporting economic
stability through jobs and healthcare commerce. For the community, creating a healthcare hub
centered around a new medical center is the optimal decision. For patients and families, they can
enjoy optimum health and wellness in their own backyard. And when enhanced trauma
designations are achieved, more emergent needs can be addressed in community at a lesser cost
and faster care to help support better outcomes. For employees, there will be additional career
opportunities to allow them to advance. In addition, the healthcare hub creates new jobs and
business opportunities while supporting an enhanced tax base that will contribute greatly to the
local government and infrastructure. Part of the vision of St. Sophie is to continue revitalization
of this landmark becoming a destination for more sustainable development. It is perfectly
positioned for access seated at the apex of two major highways, while being within walking
distance and on the bus lines for ease of access. For the medical center, it will be best positioned
given the future direction of healthcare reimbursement by being aligned to best serve the needs
of its community members.
Financial and Economic Issues
In looking at the alternative of not renovating nor replacing, a financial projection
indicated that the medical center, which has just resolved its massive debt over the past 12 years,
would regress to a point of amassing major losses once again by 2029. Given the current hospital
is reaching the end of its functional life with aged electrical, water, sewer, and HVAC systems
needing to be completely replaced, the current $10 million annually expenditure is expected to
increase. In addition, as the structure ages, decreases in utilization are also expected to diminish
revenue. Increased costs coupled with decreased revenue suggest a financial tsunami if the status
quo continues.
The bottom line is actually more than the bottom line. The economic impact to the
medical center and community is most impressive. But the cost savings in care efficiencies and
transportation savings are of greatest importance to patients and their families. There are various
upsides to the medical center for upgrading its facilities: an increase in census, growth in
utilization, alignment for changes in healthcare delivery and reimbursement, and addition of
alternative revenue streams.
The first step in this feasibility study was to evaluate debt capacity. This helped to set the
stage for the larger financial impact analysis within the feasibility study by pinpointing financial
benchmarks contributing to the success of St. Sophie. Given this project will require significant
working capital, it was important to look at its AA bond rating for borrowing leverage as well as
liquidity for immediate debt servicing. It was determined that at its current financial state, the
organization could support a debt load structure at $600 million structured over 10 years.
Next, it was important to look at the financial impact of construction timeframes and
disrupted departments impacting revenue. It was determined it least disruptive to build a
replacement building on the southeast parking lot. Given that the land is roughed in and utilities
readily available, the timeframe to build should be shortened considerably. Since an employee
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parking lot is part of the plan, it is recommended this structure be built first to hold parking
disruption to a minimum. Then, it is suggested that the new building be constructed and
applicable services be relocated through a phased in, logistics plan. Once the new building is
complete and services relocated, the old building can be demolished in favor of parking and
other buildings in the next steps of the phased in plan.
Though it is expected that service will be temporarily interrupted during this construction
time, it also is expected that these losses in revenue will be offset by the additional revenue
generated by the development of new service lines in the near future. Each new service line will
have its own operating budget, but new net revenues are expected to be at $35 million for Years
1 and 2, growing exponentially after that. There are also expected cost savings as efficiencies are
gained through a shared service integration model positioning support services for great
efficiency. Enhanced net revenues of existing services are also expected particularly given
anticipated volume increases in the Emergency Department and ambulatory services. The
combined additional revenue from both the cost savings and enhanced revenue of existing
services is expected to be an additional $45 million for Years 1 and 2, growing exponentially as
well. The combination of the $35 million and $45 million will more than service the debt from a
replacement hospital and offer additional cash to develop the next phases of construction and
service development.
The cost to renovate the current medical center facility is estimated to be $350 million
dollars for the 1 million square feet of facility. The renovation would allow for minimal changes
in the main structure but will result in retrofitting the facility to maximizes efficient use of space
and optimize clinic flow. The cost per square foot is approximately $350/square foot, including
systems upgrades and a parking deck. The estimated cost for a replacement facility, new
systems, and parking deck is $500 million, for 1 million square feet of clinic space. Both plans
include limiting inpatient rooms to 250 private rooms, adding a neonatal intensive care, doubling
the size of the ED positioning diagnostics and surgical suites adjacent to it, doubling intensive
care beds from 10 to 20; doubling OR suites from 4 to 8. Situating retail diagnostics and
ambulatory surgical suites with inpatient to allow for market place shifts. Allocating dedicated
space for support services like supply chain management, health information, accounting, and
administration. This would net cost savings given the lease agreements for current space. The
costs of furniture and furnishings, replacement equipment, and some new equipment are also
included in these estimates.
The cost difference between renovating and replacing is $150 million to be offset
by the enhanced net revenue expected at $50 million of the $80 million noted above. So,
the debt service for renovation is expected to be completed in 12-14 years. The debt
service for replacement is expected to be completed in 7-8 years. Enhanced performance
and heightened patient satisfaction will stave off outward migration to the competition
and increase utilization along a continuum of service delivery. Once volume gains,
revenue growth, and operating efficiencies are realized, these financial contributions will
more than offset the cost of money in the scope of this capital expense.
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The liquidity of the medical centers assets and investments allow for $100
million dollars to initiate this endeavor. Given the medical centers AA Bond rating, the
organization is well poised to borrow the balance. A more comprehensive financial study
is recommended to determine the cost of money and the best option to structure this debt
once a selection is made. Some monies need to be earmarked for initial operating
expenses as new programs are introduced, technology upgrades, and for market access
delays. In addition, contingency capital needs to be budgeted for unforeseen construction
issues.
Marketing
A comprehensive market analysis was completed to include a market demographic study,
a community wellness assessment, and SWOT analysis. A local and regional competitive impact
analysis was also added to the mix (St. Sophie Medical Center, 2019). The results revealed a
significant need for healthcare services particularly supported by a continuum of care (Deloitte
Center for Health Solutions, 2012). The anticipated population changes of the surrounding area
and healthcare trends, project growth over the next 25 years. More attention is being placed on
economic development in the area bringing more jobs to the area thus diversifying income. Over
42% of the community population is age 55 or older. As this cohort ages, the demand for a broad
spectrum of health-related services is expected to increase. There is also a high significance of
at-risk births suggesting the need for prenatal programs and services as well as a neonatal
intensive care. The shift for general healthcare services is toward a reduction in length of stay
and a movement to ambulatory services. So, in developing this healthcare hub, these
demographic considerations will be part of the service delivery planning.
The goal of these changes and the new facility is to enhance the health and wellness of
the community (Paradise, Rosenbaum, Markus, Sharac, Tran, Reynolds, & Shin, 2017). It is
unknown what the public or organizational response will be to this endeavor. So immediately
following the approval of this study recommendation, a marketing plan needs to be developed
and implements to manage the message. This comprehensive marketing plan will promote
existing programs and services, position the new state-of-the-art facility, and endorse the dream
of a world class healthcare hub. Particular attention needs to be directed at the community at
large, at community leaders, at the senior populous, and the at-risk pregnancy population. Patient
navigators may be introduced to help patients and their families navigate the health system.
This will be an enhancement over the competition. Equal attention needs to be paid to
communication with internal stakeholders, like physicians, staff, existing patients, suppliers, and
families. Gaining their support will be vital to the success of this effort.
Organizational Impact
Information sessions will help to best position the new idea with all stakeholder. Plans to
ensure the least disruptive process should be in order. Ongoing communication will be key
during every step along the way.
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Given changes in processes, procedures will need to be continually reviewed in order to
minimize risks to patients, visitors, physicians, and staff during this transition. In addition to this
disruption from construction, there will be other changes that will impact the organization.
Additional physicians will be needed in various specialties so physician recruitment will need to
be activated. Various staff positions will be added as programs and services are introduced or
enhanced. Regulatory requirements will continue to be met with possible inspections and
reviews along the way. New licenses may be required depending on equipment purchased or
services introduced. Technology requirements will need to be reviewed and implemented.
Inherently, this will be a disruptive process. But with proper communication,
involvement of all concerned, and a focus on mitigate disruption and risks, the outcome can be
extremely rewarding offering state-of-the-art services in a state-of-the-art complex.
Recommendations
Given the long-term positive implications and financial impact of the replacement
medical center, it is recommended that St. Sophie Medical Center be replaced not renovated.
It is further recommended that a comprehensive funding and financial proforma be
developed to initiate the best investment strategy based on evidence-based investment
procedures. This study is recommended to determine the cost of money and the best option to
structure this debt once a selection is made. The need to develop this comprehensive financial
strategy is most immediate and short-term in nature, though ongoing monitoring of the project
will be longer term.
The development of a comprehensive marketing and promotion plan is also
recommended for managing the message both internally and externally. This plan should be for
the long-term, addressing each step in the process.
Instituting a planning committee that will oversee the implementation of this project is
recommended, as well. This committee will have representatives overseeing construction,
marketing, financing, recruitment, physician relations, and service line development. It will be
active for the long-term, ensuring a fully coordinated effort. This committee would report
progress monthly to the senior leadership team.
The key to the success of any healthcare initiative is to involve patients and their families
in the decisions, empowering them to be partners in their own care (Institute of Medicine, 2001).
So as new programs and services are developed, it will be useful to consult with patients and
their families who are most impacted by these programs and services. The development of a
community advisory committee and the offering of community forums ensure the development
of services from a community vantage point as well as the promotional opportunity to manage
the message overall. In addition, the medical ethicists Beauchamp and Childress (2012) illustrate
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four basic principles that offer guidelines to this overall endeavor. First, they start with the
concept of autonomy that conveys each patient has a right to choose their care based on personal
values. Beauchamp and Childress continue to suggest that all care initiatives are for the patients
good followed by the universal medical ethical principle of do no harm. Finally, they suggest
the final ethical principle as healthcare resources should be equally distributed and that all
patients should be treated fairly. Therefore, as plans roll out it is important for the organization to
remember that patient centered care is primary and to ensure it offers services to all equally and
fairly. The community advisory committee can also help the medical center monitor its ethical
decision making along these principles.
Conclusion
St. Sophie Medical Center has a proud tradition of serving the needs of its community for
over 157 years. During these years, the infrastructure has changed several times to continue to
focus on its mission to serve the everchanging needs of its community. Once again, St. Sophie is
at a turning point. The following feasibility study explored the ideas of significantly renovating
the current facility versus replacing it. The results of this study suggest a new facility will best
position St. Sophie for the future of healthcare delivery while offering various, diverse revenue
streams to offset the cost difference between renovation and replacing. This will advance a
sustainable financial model for the organization and will significantly support the health,
wellness, and economic stability of the community it serves for the next 157 years.
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References
American College of Healthcare Executives. (2017). Top issues confronting hospitals in
2017. Retrieved from https://www.ache.org/pubs/research/ceoissues.cfm
Beauchamp, T. & Childress, J. (2012). Part II: moral principles. Principles of Biomedical Ethics,
(7th ed.). New York, NY: Oxford University Press.
Bowen, D. J., Kreuter, M., Spring, B., Cofta-Woerpel, L., Linnan, L., Weiner, D., . . . Fernandez,
M. (2009). How we design feasibility studies. American Journal of Preventive Medicine, 36(5),
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Deloitte Center for Health Solutions. (2012). The U.S. health care market: A strategic view of
consumer segmentation [PDF]. Retrieved from
https://www2.deloitte.com/content/dam/Deloitte/us/Documents/life-sciences-health-care/us-lshchealth-care-market-consumer-segmentation.pdf
Institute of Medicine (US). Committee on Quality of Health Care in America. (2001). Crossing
the quality chasm: A new health system for the 21st century. Washington, D.C.: National
Academy Press.
Kaiser, L. S., & Lee, T. H. (2015, October 8). Turning value-based health care into a real
business model. Harvard Business Review Digital Articles, 25. Retrieved from
https://hbr.org/2015/10/turning-value-based-health-care-into-a-real-business-model
Massachusetts Medical Society (2017, January 1) What is value-based healthcare? NEJM
Catalyst. Retrieved from https://catalyst.nejm.org/what-is-value-based-healthcare/
Office of the Assistant Secretary for Health, U.S. Department of Health and Human Services.
(n.d.). Module 1: Person- and family-centered care (PERS). Retrieved from
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Paradise, J., Rosenbaum, S., Markus, A., Sharac, J., Tran, C., Reynolds, D., & Shin, P.
(2017). Community health centers: Recent growth and the role of the ACA. Retrieved from
https://www.kff.org/medicaid/issue-brief/community-health-centers-recent-growth-and-the-roleof-the-aca/
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St.Sophie Medical Center. (2019). Marketing and competitive analysis. Retrieved from
http://SSMC/competitiveanalysis2019.org
St.Sophie Medical Center. (2018). Annual report. Retrieved from
http://SSMC/annualreport2018.org
Stoakes, U. (2015, December 8). The rising billions and healthcare’s expanding global market.
Forbes. Retrieved from https://www.forbes.com/sites/unitystoakes/2015/12/08/the-3-trillion-ushealthcare-market-pales-in-comparison-to-the-rising-billions/#1c4e5482129a
