Scenario - You are the manager of the Lyndon Outpatient Clinic which is operated by a medium-sized medical center. The administrator of the facility has informed you that the Board of Directors is currently considering the purchase of an MRI (magnetic resonance imaging) device to enhance the diagnostic services that the hospital provides. The administrator has given you the following information:
1. You need to develop a proposal that includes a financial breakdown of startup costs and projected income and expenses for five years.
2. You need to include a break-even analysis.
3. The cost of the MRI, computers, software and the renovations will be debt financed over five years.
4. Based on your analysis you need to recommend whether or not it is in the medical center's best interest to purchase an MRI device at this time. What course of action would you recommend for the future?
Use following information to develop your proposal, please use Excel format for analysis completion.
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Given Information and Known Costs
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Cost of MRI machine
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$ 2 million
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Space required
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20'X20'X10'
20' x 20' = 400 Square Feet
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Cost of space renovation
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$45 per sq. ft.
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Senior Technician wages
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$55 per hour
40 Hours/week
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Junior Technician wages
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$35 per hour
40 Hours/week
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Radiologist (Half time)
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$88 per hour
20 Hours/week
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Computers and software
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$12,000
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Consumable supplies
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$10 per exam
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Utilities
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$10 per square foot per year
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Other Assumptions:
Beginning Year 3 the service will add 8 hours per week to include Saturday mornings (4 hours) and Tuesday and Thursday evening for 2 hours each. Staffing hours for the employees will need adjustment and to include the Radiologist. The estimated number of procedures would be adjusted accordingly. The technology is capable of completing one procedure per hour.
Salaries will include a 2% wage adjustment for each year after Year One of operation.
Utilities expense will increase by 3% per year for each year after Year One. This is inflationary cost increases.
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Revenue and Reimbursement
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Allowable price per MRI procedure
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$1,200 per session
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Reimbursement: Blue Cross
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85% of billable services
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Reimbursement: Medicare
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80% of billable services
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Reimbursement: Medicaid
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50% of billable services
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Private Pay
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100% of billable services
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Other Information
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Total population
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800,000
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Clinic's market share
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15% of population - for Years 1 & 2
18% of population - for Years 3, 4 & 5
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MRI market share
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4% of overall clinic market share
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Payor Mix: A, B, C, D
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A: Private Pay
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10%
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B: Blue Cross
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30%
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C: Medicare
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40%
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D: Medicaid
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20%
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MRI throughput
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Maximum of 8 patients per day, 5 days per week.
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Loan interest
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8% simple interest
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Bad debt on procedures
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5% per year
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