Feasibility of a $100 million medical facility in urban healthcare market

Consultant Evaluation/Healthcare Industry

You are in the role of a consultant with ten years experience in the health care insurance industry. A group of 20 doctors are considering forming a new medical group and have asked you to prepare a report on whether they should build a facility in an area within 30 miles of the downtown center of your 500,000 population city for $100 million dollars. Prepare a report for the management team of the doctor's group on your proposed $100 million expenditure plan reflecting on the key course objectives including the financial, legal, alternative health care models, reinforced by your knowledge of strategic planning and capital budgeting.

The benefits of this proposal are truly overwhelming. One of the most major benefits of the proposal are the humanitarian efforts. There is also, as this paper will demonstrate a true potential to develop a new payment model, rather than the standard fee-based on service method that is so overwhelming in the U.S. However, as this paper will reflect, certain legal issues do need to be tended to. Though the paper will close by exploring all possible alternative health and service models.

Humanitarian Effort

The plans to build this facility truly are exciting and absolutely do offer a great deal of potential to the entire inhabitants of this community. One of the most striking aspects is that the facility can provide potential inhabitants with a true wealth of services that are currently unavailable in the town. Since only $100 million is being invested, this indicates that the money is being spent to create a niche center, such as one which fulfills the health needs of certain groups, such as women care, natal care, teen care, mental health care, or services just for veterans. $100 million simply doesn't have enough capabilities to create a truly formidable and state of the art facility, but it can specialize in serving the needs of a particular group of individuals, most certainly. For example, just last year private organizations were raising money to create a more thorough and evidence-based practice facility for soldiers at Fort Bragg (Ramsey, 2012). "A private foundation is raising $100 million to build clinics at Fort Bragg and other installations to help the military treat and research the psychological wounds of war. The Intrepid Fallen Heroes Fund's planned clinic would be the latest in a flurry of local projects that leaders in the Army and the Department of Veterans Affairs hope will make it easier to meet the growing demand for mental health care" (Ramsey, 2012). As the recent news reflects, more and more buildings are cropping up all over the nation to better help the growing number of soldiers from Iraq and Afghanistan who bear serious physical and mental wounds upon their return to this country (Ramsey, 2012). This is clinic is a shining example of how smaller investments in healthcare facilities can truly do a wealth of good for specific niche populations.

Healthcare Financing

"According to recent World Health Organization estimates, every year 25 million households (more than 100 million people) are forced into poverty by illness and the struggle to pay for healthcare.1 This coupled with the lack of basic health infrastructure in rural and remote areas aggravate the health conditions of the poor, leaving them in a perpetual state of poverty" (Ofori-Adjei, 2007). This is true in third world countries as in America. Paying for health care is a definitive struggle for so many people around the world, and the clinic proposed absolutely seeks to level the playing field so that more people with specific health needs are able to get those needs taken care of. Furthermore, in this case study, the investment proposed truly is an investment that will no doubt benefit all members of the city. When people have access to health services and health protection, it's obvious these things are a key component in not only fighting poverty but in furthering economic development. Helping to increase the economic development of any city, be it in America or abroad, truly relies upon a strong health care facet, with strong pillars of public health.

Thus, there's a truly intense burden to insure that the health care facility where all this money is being invested is in according with the proper financing model. The proper financing model is essential in ensuring that the money is not only well-spent but that the facility is empowered to the extent that it is able to stay afloat. "The viability of any hospital initiative depends on its financial performance. Financial modeling is therefore the foundation for determining feasibility, whether for a new hospital program, a joint venture or a new business" (dgapartners.com) However, the healthcare arena more often than not creates a truly intricate and confusing means of financial modeling which often co-exists with large degrees of uncertainties, particularly in regard to doctor buy-in, competitive response, and reimbursement. More than anything, the key revolves around how exactly the financial model is being used.

One of the first pillars upon which the success of this endeavor depends is insuring that the right stakeholders are made members of the planning team (dgapartners.com). While some people think that it's just important to get the right people on-board at some point, truly it's absolutely vital to get the right people involved from the beginning. "It allows everyone to work out agreement on the scope of the analysis, the constraints and the parts of the model that can be based on simple assumptions rather than in-depth analysis. Having the right team working together can uncover unexpected information that is critical to all further analysis of a venture" (dgapartners.com). Members of this planning include clinical, financial and operational stakeholder along with all appropriate doctors (dgapartners.com). Thus, in the case study presented, the doctors who are making this investment are important, as are all relevant physicians to the overall goals of the facility.

When it comes to drafting the actual model, it helps for one to go one or two levels up from what the group thinks they will need at the moment (dgapartners.com). "Fight the pressure for a quick answer; the figures will hold up better, you'll be more comfortable and so will your stakeholders" (dgapartners.com). Since the Bismarck model for health care was such a failure and because the out-of-pocket model has meant that so many people can't afford health care, this particular project needs a health care model which will actually support the investment being made and which will ensure it is sustainable.

One successful model which would be wise to mimic would be the National Health Insurance model, most famous for being used in Canada and other countries who have health care systems which work. "This system has elements of both Beveridge and Bismarck. It uses private-sector providers, but payment comes from a government-run insurance program that every citizen pays into. Since there's no need for marketing, no financial motive to deny claims and no profit, these universal insurance programs tend to be cheaper and much simpler administratively than American-style for-profit insurance" (pbs.org, 2009). One of the overwhelming benefits of such a plan for the user is that the consumer has a great deal of power to negotiate lower prices; moreover such plans able to better control costs by narrowing the overall medical services they're willing to pay for, by making patients wait to be treated (pbs.org, 2009).

Another truly crucial aspect of proper financial modeling for this proposal is to engage in accurate volume projections. The key factor in creating solid projections is the tendency for triangulation. "Use multiple approaches to projection that provide checks on each other. Consider historical volumes where relevant (both yours and the market's). Check that your volume results in an achievable market share.Use the best available utilization benchmarks and population data" (dgapartners.com). The right financial model won't come without a certain amount of research done, also in conjunction with research about relevant technology and current growth.

A crucial aspect of going forward with the financial model means ensuring that everyone who plans on participating will buy off on all relevant assumptions. All the variables truly need to be addressed including things like the volume and growth curve, the payment rate, the payer mix, the size of the facility, the cost per square foot, the levels of staffing and the hours of operation (dgapartners.com). Moreover, the model needs to be robust and trustworthy, so that as the planning goes ahead and becomes fluid, the financial model needs to reflect that (dgapartners.com). By saying that the financial model needs to be trustworthy, one wants to double check to see that the over-arching philosophy and values of the model are indeed accurate, ensuring that no errors in logic have occurred. For instance, " if you take the volume to zero and you still have variable costs, something is wrong. If you change the volume growth rate, the model should show a proportional increase in gross revenue. Fixed costs should never vary.Have someone outside the model-building process review the model for accuracy" (dgapartenr.com). A certain amount of errors is to be expected, but there should not be so many that it demonstrates a certain level of skewedness about the model in its entirety. Thus, if the NHI model is the one which is selected, then it needs to be tested against a range of different scenarios. The following demonstrate some truly relevant what-ifs: what if the doctors only move half the projected volume; what if medicare slashes rates; what if competitors open a comparable program (dgapartners.com).

There are a range of factors which can change or adjust once a healthcare facility opens their doors for business. And as much as this facility is attempting to engage in a solid humanitarian effort, at the end of the day, it's still a business and people need to get paid. Thus, before engaging in further developmental activities, one needs to determine in what ways the model is sensitive and how it's more open to variation for controlling uncertainty.

Thus, one of the most important aspects of financial modeling for this scenario will be in creating a "worst case scenario" idea and plans/strategies as to how the company will adequately deal with it. Creating a presentation in front of a test audience of colleagues is also a suitable idea; these are people who don't have a personal investment in the project and thus can afford to be more objective and more critical regarding the success of the project.

Other Legal Considerations

There are of course, other legal considerations to bear in mind, though these generally have to do with the physical and visual aspects of the actual facility, once it is built. For instance, by law the facility needs to bear the following: "Accessible path-of-travel into and throughout the facility; wide and easy-to-open exterior and interior doors; accessible examination and/or treatment rooms and equipment; accessible office and examination room hardware; appropriate reach ranges; accessible toilet and dressing rooms" (in.gov). Thus, a facility has a legal obligation to create a space which allows all people access; if there are any barriers to access, then they must be removed (in.gov). Certain hotspots can be tricky in allowing access, so in the construction of the facility, special attention needs to be paid to: parking lots, doorways, waiting rooms, lobbies, stairways and comparable spaces. "In order to meet the guidelines set forth by the ADA, parking lots should include accessible parking spaces, stairs should have alternative ramps or elevators, doorways should be wide enough for wheelchair access and waiting room or lobbies should be spacious enough to accommodate wheelchairs.

Providers should also ensure that people with disabilities have access to scales, exam tables or chairs without charging patients for the provision of the required services or devices" (in.gov). Furthermore, the actual facility needs to offer provisions in communication access for people who need aid in communicating, such as hearing or being heard. Communication access refers to auxiliary aids, services and other forms of program access which might be necessary (in.gov). Health care professionals need to be certain that they can communicate efficiently with people who have a variety of handicaps and disabilities, such as those who are deaf, or who have a vision or learning disability (in.gov). This means that a range of auxiliary aids and services need to be made available to help bolster communication (in.gov). Some of the people and resources which can help in this capacity are interpreters, readers, Braille, large print and TDD (in.gov).

Once the facility is actually built, it needs to be cognizant of and compliant with the Americans with Disabilites Act of 1990 which gives those with disabilities the same access to employment, government services, all business and telecommunication services. "Under Title III of the ADA, heath care providers are required to remove barriers, make reasonable modifications and provide auxiliary aids and services if necessary. People with disabilities should have access to the same goods and services as those provided to people without disabilities. If this is not possible, health care providers should modify their policies or procedures" (in.gov). One of the most common examples of this is the way that pets aren't allowed in most healthcare facilities, except for service dogs and other comparable animals. These animals can help certain disabled people in walking through the building, opening doors and accessing items that might be otherwise unreachable (in.gov).

Alternative Health Models

These models need to be scrutinized and placed under real consideration so that the healthcare facility has a higher likelihood of surviving from a fiscal perspective. Alternative health models allow for greater flexibility along with greater adaptability and a higher likelihood of the business thriving and being able to serve the community from the most nuanced and multifaceted perspective. For example, as one expert as aptly pointed out, "Our nation's health care system is high cost and high volume, but it is certainly not high value. This year, we will spend more than $8,000 per person on health care, which is more than twice the average of $3,400 per person in other developed nations. But spending more on health care has not made us healthier. Even within the United States, different areas of the country spend very different amounts on health care, again with no correlation to better outcomes" (Calsyn & Lee, 2012). There's absolutely no reason why this new facility can't be a maverick in the field of health, demonstrating new and viable methods and platforms and for health and payment plans. In fact, one of the overwhelming reasons for the fact that health care spending is quite so out of control is the fact that the most dominant system in America is the fee-for-service payment plan (as this paper alluded to earlier). This plan is so problematic because it rewards quantity over quality, particularly for expensive and high margin transactions and services (Calsyn & Lee, 2012). it's true that every healthcare facilitiy is a business and does need to make money, but that should not be the primary and overarching goal. The love of money is one of the reasons that greed is such a motivating factor in the health care industry. With this plan, health insurance plans, even government ones pay health care professionals and facilities for different items and services given to the patient: this structure is the bulk of how all systems go in America at 78% (Calsyn & Lee, 2012).

It would be beneficial to the health care facility if they consider alternative payment plans. This would not only give them a sufficient amount of publicity, but it would also help them to be able to service a much larger portion of the population. For instance, things like bundled payments, patient-centered medical homes, and accountable care organizations are all aspects which could provide more help to more patients. For example, "Bundled payments, which are fixed amounts paid to health care providers for a bundle of services or all the care a patient is expected to need during a period of time. Patient-centered medical homes, which are redesigned primary care practices that focus more on preventive care, patient education, and care coordination between different health care providers. Accountable care organizations, which are groups of health care providers who agree to share responsibility for coordinating lower-cost, higher-quality care for a group of patients" (Calsyn & Lee, 2012). The more options that the facility has available to patients, the more they'll be able to better serve the population. This greater level of flexibility will actually help them to serve more patients and to be more available to the community. Greater flexibility can also in some ways be seen as the path to greater levels of financial success.

Alternative Health Services

With more and more alternative health services enjoying such a wide variety of popularity and great acceptance by the population in general, it would be incredibly wise for the healthcare facility to offer some alternative services which are relevant. Western medicine has entrenched itself in today's society. Unfortunately, it has also squelched many more natural, alternative, and holistic approaches. At the same time, some are now referring to the current medical model not as 'health care,' but as 'sick care,' as it seems far better at addressing illness once it exists than at preventing it and promoting wellness to begin with" (Harrison, 2012). Western medicince is flawed, but important. It is the most dominating and most trusted form of professional healthcare in this country. However, it should be the only one. "With the staggering rise of medical costs and the increasing prevalence of disease, especially in well-developed, industrialized nations such as the United States, people are waking up to the reality that the mainstream medical model may not be the best approach to ensuring health and wellness" (Harrison, 2012). This statement accurately reflects the truth about health care in America. More and more consumers are in fact waking up to the notion that western medicine is not all there is and are beginning to seek out and demand other forms of treatment. There's absolutely no reason why this healthcare facility can't provide at least a few of the more popular forms of treatment; however the ones which it will supply need to be selected right now.

For instance some of the more dominant practices in alternative therapies are: acupuncture, massage therapy, meditation techniques, spinal manipulation, and relaxation techniques. "Acupuncture is a technique in which practitioners stimulate specific points on the body -- most often by inserting thin needles through the skin. Massage therapy includes many different techniques in which practitioners manually manipulate the soft tissues of the body. Most meditation techniques, such as mindfulness meditation or transcendental meditation, involve ways in which a person learns to focus attention" (nih.gov). Certain forms of alternative medicine have had countless research studies done on them, proving their effectiveness. Transcendental meditation is an excellent example of a form of alternative medicine which has been found to have truly tremendous healing powers for a range of conditions. Transcendental meditation has been found to have noticeable improvements upon patients with conditions like heart disease, cancer, anxiety, depression, ADHD, and PTSD. The results have been truly staggering. For instance, the findings on transcendental meditation and breast cancer patients is just a single example of the sheer effectiveness of this form of alternative medicine. In the study, "A Randomized Controlled Trial of the Effects of Transcendental Meditation on Quality of Life in Older Breast Cancer Patients" by Nidich and colleagues, patients were put into two groups: a group that received transcendental meditation and one which did not. "Significant improvements were found in the Transcendental Meditation group compared with controls in overall QOL [quality of life], measured by the FACT-B total score (P = .037), emotional well-being (P = .046), and social well-being (P = .003) subscales, and SF-36 mental health ( P = .017). Results indicate that the Transcendental Meditation technique improves the QOL of older breast cancer patients. It is recommended that this stress reduction program, with its ease of implementation and home practice, be adopted in public health programs" (Nidich, 2009). This is just one example of how powerful alternative medicine can truly be -- one example out of dozens more.

Thus, it's absolutely important that all stakeholders consider its implementation for the proposed facility.

Summary

The proposed facility is truly an exicting proposition which will no doubt have an impact on the city and all the inhabitants. However, in order for it to be as effective and successful as possible, there needs to be a strong health care model selected, after a thorough appraisal of all other models. All immediate and potential obstacles need to be examined, and solutions need to be strategized before further momentum. Finally, all legal issues need to be addressed right away as these are the most time sensitive issues. Alternative payment models should be looked at, as should all potential alternative health services.