Financial Analysis Ucsd Is a Health Care Essay

  • Length: 7 pages
  • Sources: 2
  • Subject: Business - Management
  • Type: Essay
  • Paper: #54335576

Excerpt from Essay :

Financial Analysis

UCSD is a health care provider that is considering the purchase of an MRI machine. An MRI is a tube that is surrounded by a giant circular magnet. It is used to scan patients, and has the benefit of being very safe relatively to radiation scanning. The purchase must be aligned, however, with the UCSD goal of providing high quality patient care and alleviating suffering. A significant number of the hospital's patient population eventually needs MRI services. At present UCSD is paying an outside provider for this service. Thus, UCSD is considering purchasing and installing its own MRI machine.

The purpose of an MRI machine is to conduct diagnoses, and these are generally very accurate and the process is safe. The present condition is that MRI diagnoses are important but are typically referred to an outside provider at a cost to UCSD. Critical condition patients are especially at risk, so both the patients and the hospital will benefit from having access to an MRI machine in house. The lack of one has a number of negative implications for the facility. Staff, for example, must occasionally accompany a patient to the external MRI clinic, which takes them away from their regular duties, causing capacity problems.

MRI machines are expensive, ranging from $1.5 to $3.0 million. There will also need to be some equipment upgrades as well. Staff requirements are extensive, since specialized staff will be required to operation the MRI and interpret the results. There are also going to be training costs associated with the existing staff members. Training is one of the ways that UCSD will minimize the risk associated with this project. It is also worth noting that an MRI machine has a high degree of computability with existing equipment, such as the Tesla 3.0 that has the following features: pulse oximetry, capnography, electrocardiogram and non-invasive blood pressure testing. Compatibility with existing equipment is a concern with new equipment, and the proposed MRI purchase has a high level of compatibility.

There are a number of stakeholders, including patients, medical staff, senior management and the community at large. This project meets the needs of stakeholders from a medical and strategic perspective, because it keeps more revenue in-house, improves patient outcomes and lowers the hospital's total risk. Management goals for the MRI project are to increase revenue, retain patients, expand health services and quality development. In addition, the MRI will allow management to introduce new consultation services within the facility. The financial manager will make a determination about how the project meets his or her needs based on the numbers.

The MRI will affect the finances of the organization in that it will allow the hospital to earn more revenue. Instead of sending patients out to an external provider for an MRI, it will be able to charge them and earn revenue. In addition, when patients have immediate access to MRI services, the facility will be able to increase the efficiency of patient throughput. Not only does this result in greater efficiency for the hospital, but it also improves patient outcomes because diagnoses are made sooner.

The MRI will also help to meet organizational goals. Management feels that a stable economic environment is beneficial to the organization, and as a result sees the MRI as a way to smooth out cash flow and provide steady income. The MRI will also be able to contribute to the pool of research and medical enlightenment. There are certain tests that can only be done on this machine, so having one will increase not only the knowledge within the organization but the speed at which this knowledge is acquired. Community service is also improved, since the MRI provides a valuable community service that at present is not being provided. In addition, the MRI contributes to the impression of visionary leadership at the facility. The MRI will also aid the cause of clinical research, which it can undertake in the machine's downtime.

There are few different ways that management can establish the acceptability of this project. The first is that the project needs to be subjected to a full stakeholder analysis. There are a number of different stakeholder groups and the needs of each will need to be met. The MRI project meets the needs of the stakeholder groups, because it increases revenues, improves patient outcomes, and increases the capacity of the organization.

Senior management, especially the CEO and the finance director of the organization are oriented towards projects that not only help the hospital to reach its strategic outcomes but that will also be financially viable. A full financial analysis has been conducted, in the form of a cost-benefit analysis. The project has a high cost, and management wants to ensure that new revenues will pay that cost. Using an NPV calculation, it has been determined that the MRI machine will add $500,000 in value to the hospital in the first six years. Therefore, the project meets both the strategic and economic criteria for acceptability. As a result, it is recommended that the project is accepted.

There must also be consideration of the different risks associated with the project. The MRI machine meets the risk acceptance qualification for UCSD. The reason for this is that the MRI machine has been found to reduce risk. It does so by delivering superior patient outcomes, thereby reducing the risk associated with malpractice, which is the major risk facing health care institutions. There is some risk associated with misuse of the machine, but that can be deal with by adding experienced MRI technicians and by training the existing staff members on the appropriate use of MRI technology. With well-trained, qualified staff, and MRI machine is a low risk way of performing diagnosis.

In conclusion, the MRI machine will see a reduction of referral costs and a corresponding increase in MRI-generated revenue by a very wide margin every month. This swing in costs and revenues is sufficient to cover the high initial cost of purchasing the MRI. That there is a reduction in risk only adds to the appeal of the MRI machine. In addition, having an MRI will increase the organization's capabilities including clinical research, increase efficiency and increased patient throughput.

The management recommendation is to accept the purchase of the MRI machine.

Section II. Establishing Acceptability

There are two types of acceptability that need to be taken into consideration with this project, financial and strategic. The project must be acceptable to key stakeholder. Therefore, a stakeholder analysis must be conducted. The new MRI would meet the needs of the physicians and the patients, both groups being able to benefit from the updated technology and additional capacity. Patients have been referred to distant hospitals in the past, and the machine should all but eliminate the need for that. Likewise, the directors of radiology and the imaging staff will also benefit from having access to this technology.

Senior management, including the medical director and the finance director, are also important stakeholders. Their interest is in the cost-benefit analysis with respect to the MRI machine. The machine will allow the hospital to keep more patients in-house, and as a result will generate additional revenue. For the financial manager, the main concern is whether the MRI machine will add to the value of the organization or detract from that value. In general, however, it is reasonable to conclude that purchasing the MRI machine meets the organization's strategic objective to improve the quality of care and keep more of the business in -- house.

There is little risk associated with the MRI machine. However, as the organization does not currently have one, there will be some risk associated with the learning curve of the employees in trying to use it. A training program is the best strategy for dealing with this form of risk. Once the employees know how to use an MRI machine effectively, they will be able to operate it with minimal risk. Additionally the MRI machine will lower risk. The ability to perform this scans more accurately and more quickly that is possible now will allow for better patient outcomes, something that reduces the risk of malpractice suits and other legal liabilities. Senior management is ultimately responsible for any risk management strategy. The head of radiology in particular will charged with ensuring that all staff members in the department are properly trained on both basic and advanced usage of the MRI machine. A qualified operator will be brought in to oversee this training process.

Section III. Economic Feasibility

The head of the finance department is especially interest in the economic feasibility of the project. The CEO will weigh the financial aspects of the proposed MRI purchase heavily in making the decision to approve the acquisition or not. The best approach to undertaking this evaluation is to weigh the future cash flows associated with the MRI machine vs. The cost of the machine. The economic feasibility will then be weighed against the strategic acceptability of the project.

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