everage hendrickson

8/7/2019 Everage Hendrickson

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A Feasibility Analysis for aA Feasibility Analysis for a

Fixed MRI UnitFixed MRI Unit

Amy Everage HendricksonAmy Everage HendricksonUniversity of KentuckyUniversity of KentuckyMartin School of Public Policy and AdministrationMartin School of Public Policy and Administration

Masters of Healthcare AdministrationMasters of Healthcare AdministrationCapstone ProjectCapstone Project

Spring 2008Spring 2008


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OverviewOverview

Product ReviewProduct Review Literature ReviewLiterature Review Purpose of the StudyPurpose of the Study

Managerial QuestionManagerial Question Background and Retrospective AnalysisBackground and Retrospective Analysis MethodologyMethodology Data Sources and CollectionData Sources and Collection

Prospective Situational AnalysisProspective Situational Analysis LimitationsLimitations RecommendationsRecommendations


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Product ReviewProduct Review

Magnetic Resonance Imaging (MRI) is aMagnetic Resonance Imaging (MRI) is anoninvasive diagnostic technique thatnoninvasive diagnostic technique thatproduces computerized images of internalproduces computerized images of internal

body tissues and is based on nuclearbody tissues and is based on nuclearmagnetic resonance of atoms within themagnetic resonance of atoms within thebody induced by the application of radiobody induced by the application of radiowaves*waves*

*Merriam*Merriam--Webster (2008)Webster (2008)


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Product ReviewProduct Review

*Iglehart (2006)


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Literature ReviewLiterature Review

Financial Feasibility and Future Success ofFinancial Feasibility and Future Success ofMRI ServicesMRI Services

Optimal success in the capture of imaging

Optimal success in the capture of imagingrevenue tied to appropriate staffing andrevenue tied to appropriate staffing and

technology.technology.


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Imaging revenues have historically been one ofImaging revenues have historically been one ofthe two most profitable business lines forthe two most profitable business lines forhospitals*hospitals*

All hospital in this study reported strong MRIAll hospital in this study reported strong MRIvolumes contributed to volume growth andvolumes contributed to volume growth andfinancial success*financial success*

MRI Technology is offering physiciansMRI Technology is offering physicians

precisions in surgery and accuracy of diagnosis,precisions in surgery and accuracy of diagnosis,particularly Cancerparticularly Cancer

*The Advisory Board Company (2005)*The Advisory Board Company (2005)


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Future of MRI Technology*Future of MRI Technology*

1.5T vs. 3.0T1.5T vs. 3.0T

Spine and breast images are inferior to the 1.5TSpine and breast images are inferior to the 1.5T

Coils not yet available for some servicesCoils not yet available for some services

Open vs. ClosedOpen vs. Closed

Limited image quality due to lower magneticLimited image quality due to lower magnetic

strengthstrength

*Tannenbaum (2005)*Tannenbaum (2005)


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Competition for MRI ServicesCompetition for MRI Services

Hospitals, radiologists, nonHospitals, radiologists, non--radiologistsradiologistsphysicians and independent testing facilities*physicians and independent testing facilities*

Hospital did have greater capture of servicesHospital did have greater capture of servicesover others.*over others.*

Importance of CON Law and application ofImportance of CON Law and application of

the Stark Lawthe Stark Law

*Mitchell*Mitchell (2007)(2007)


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MRI Market PotentialMRI Market Potential

6% of all outpatient imaging volume and 30%6% of all outpatient imaging volume and 30%of all imaging profits come from MRI*of all imaging profits come from MRI*

*Advisory Board Technology Watch (2005)*Advisory Board Technology Watch (2005)


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Purpose of the StudyPurpose of the Study

To analyze the feasibility of establishing aTo analyze the feasibility of establishing apermanent, fixed MRI service at Newcopermanent, fixed MRI service at NewcoHospitalHospital


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Managerial QuestionManagerial Question

Can the organization anticipate revenuesCan the organization anticipate revenuesadequate to justify this new service?adequate to justify this new service?


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MethodologyMethodology

Retrospective AnalysisRetrospective Analysis

SWOT AnalysisSWOT Analysis

Prospective Situational AnalysisProspective Situational Analysis Financial ProformaFinancial Proforma

Breakeven AnalysisBreakeven Analysis


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Data Sources and CollectionData Sources and Collection

InterviewsInterviews

Direct ObservationDirect Observation

Inpatient andO

utpatient MRI VolumesInpatient andO

utpatient MRI Volumes Manual Reports and DocumentsManual Reports and Documents

Automated Decision Support ToolsAutomated Decision Support Tools

National, State, and Area DevelopmentNational, State, and Area DevelopmentDistrict specific dataDistrict specific data

Journal ArticlesJournal Articles


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Background and RetrospectiveBackground and RetrospectiveAnalysisAnalysis


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Organizational Setting &Organizational Setting &

DescriptionDescription 96 bed, acute96 bed, acute--care, rural hospitalcare, rural hospital

NotNot--forfor--profitprofit

1 of 9 hospitals1 of 9 hospitals

Located in Eastern KentuckyLocated in Eastern Kentucky

Provides services of a community hospitalProvides services of a community hospital

FullFull--service imaging departmentservice imaging department


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Goals and ObjectivesGoals and Objectives

Mission: Improve the health and promote theMission: Improve the health and promote thewell being of the peoplewell being of the people

Formalized strategic planning process for theFormalized strategic planning process for the

organization and for the hospitalorganization and for the hospital Organizations grand strategy is to be aOrganizations grand strategy is to be a

financially viable ongoing entityfinancially viable ongoing entity

Support system objectives: by growing volumeSupport system objectives: by growing volume

and market share, improving patient satisfaction,and market share, improving patient satisfaction,and establishing quality with staffing andand establishing quality with staffing andtechnology.technology.


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GovernanceGovernance

Reports to manager of radiologyReports to manager of radiology

Administrative Responsibility/CommunityAdministrative Responsibility/Community

CEO

CEO

Reports to organizational president/CEOReports to organizational president/CEO

Governed by Board of TrusteesGoverned by Board of Trustees


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Profile of Existing ServiceProfile of Existing Service

MRI service availableMRI service available

Mobile Contract ServiceMobile Contract Service

Two days a weekTwo days a week Maximized within the 1Maximized within the 1stst year of operations inyear of operations in

20012001

Patient Satisfaction 3.35 on a 4.0 scale,Patient Satisfaction 3.35 on a 4.0 scale,

below industry benchmark of 3.55below industry benchmark of 3.55

No current marketing plan or strategyNo current marketing plan or strategy


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Revenue Cycle ManagementRevenue Cycle Management

Established charge and billing structureEstablished charge and billing structure


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Information SystemsInformation Systems

Integrated information system in placeIntegrated information system in place

Digital picture archiving systemDigital picture archiving system

No automated patient scheduling systemNo automated patient scheduling system


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FiscalFiscal

2007 work stoppage2007 work stoppage

Declines in volumes, revenue cycleDeclines in volumes, revenue cycle

efficiency, cash flowefficiency, cash flow 2007 operating loss of $6 million2007 operating loss of $6 million

NonNon--restricted days in cash is 23restricted days in cash is 23


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Human ResourcesHuman Resources

Employees represented by USWEmployees represented by USW

Negotiated salary and benefits in marketNegotiated salary and benefits in market

placeplace


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Materials ManagementMaterials Management

Centralized materials managementCentralized materials managementfunctionsfunctions

Member of large GPO

Member of large GPO

Good Leverage for competitor pricingGood Leverage for competitor pricing


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Regulatory & LegalRegulatory & Legal

Well established organizational policy andWell established organizational policy andproceduresprocedures

Approved certificate of needApproved certificate of need


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Volume and Market AnalysisVolume and Market Analysis

Current market share is 43.08%Current market share is 43.08%

MRI volume decline in 2007 due to:MRI volume decline in 2007 due to:

Private physician competitor went into businessPrivate physician competitor went into business

Work stoppage by unionWork stoppage by union Limitation of a two day a week serviceLimitation of a two day a week service

National use rate is 61.5/1000National use rate is 61.5/1000

Socioeconomic demographics and epidemiologySocioeconomic demographics and epidemiology

suggest 61.5 is a conservative estimate in this marketsuggest 61.5 is a conservative estimate in this market Slight population increase over next five yearsSlight population increase over next five years


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MRI UtilizationMRI Utilization

Newco Hospital Service Area FY 2007

Total MRI Scans at Newco Total MRI Scans in the Service

Area

#MRIScans


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Payor Mix for Newco Hospital MRI Services

34%

33%

8%

25%

Medicaid

Medicare

Self-Pay

Commercial & ManagedCare


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Community and Medical StaffCommunity and Medical StaffSupportSupport

Local Advisory committeeLocal Advisory committee

Medical StaffMedical Staff

Government officialsGovernment officials

Business leadersBusiness leaders


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Facility and Physical PlantFacility and Physical Plant

No vacant space in the hospitalNo vacant space in the hospital

Good undeveloped space adjacent to theGood undeveloped space adjacent to the

west end of hospitalwest end of hospital


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StrengthsStrengths

Well Established Physician Referral BaseWell Established Physician Referral Base

Vacant space available for developmentVacant space available for development

Ample Parking at site for new constructionAmple Parking at site for new construction Location of hospitalLocation of hospital

9% Imaging volume growth over the past 5 years9% Imaging volume growth over the past 5 years

Competitive salary & benefit packagesCompetitive salary & benefit packages

Experienced manager in medical imagingExperienced manager in medical imaging

Existing contract with interpreting radiologistsExisting contract with interpreting radiologists

New PACS imaging systemNew PACS imaging system


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WeaknessesWeaknesses

No existing space availableNo existing space available

PartPart--time mobile MRI servicetime mobile MRI service

Poor marketing and advertising for MRIPoor marketing and advertising for MRI

Congested centralized registration in imagingCongested centralized registration in imagingdepartmentdepartment

Congested centralized imaging waiting roomCongested centralized imaging waiting room Expensive benefit packagesExpensive benefit packages


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OpportunitiesOpportunities

Increased referral potential with full timeIncreased referral potential with full timeserviceservice

Draw commercial patients into upscale settingDraw commercial patients into upscale setting

Make services available 24/7Make services available 24/7

Kentucky CON lawsKentucky CON laws


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ThreatsThreats UnionsUnions

Aggressive physician practice & diagnosticAggressive physician practice & diagnostic

competitioncompetition Tertiary care centers within one hourTertiary care centers within one hour

Two strong hospitals in primary service areasTwo strong hospitals in primary service areas

Increasing trend for physician and radiologistsIncreasing trend for physician and radiologiststo compete for imaging businessto compete for imaging business

Potential for Kentucky to Lift CON lawPotential for Kentucky to Lift CON law


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Prospective SituationalProspective Situationalanalysisanalysis


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0200

400

600

800

1000

1200

1400

1600

1800

Curre

ntActivi

ty

Year1(2

7%)

Year2(4

0%)

Year3(4

5%)

Outpatient MRI

ScansInpatient MRIScans

Total MRI Scans

Projected Volume Growth of MRIProjected Volume Growth of MRIScans at Newco HospitalScans at Newco Hospital


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Scope of ServiceScope of Service

24/7 Service24/7 Service

MM--F 8F 8--4:304:30

Nights and weekends emergency on callNights and weekends emergency on callserviceservice

Population service: Cradle to GravePopulation service: Cradle to Grave

FullFull--range of MRI servicesrange of MRI services


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Capital Equipment andCapital Equipment andConstructionConstruction

Construction:Construction: Modular addition and renovated spaceModular addition and renovated space

Completed architectural planCompleted architectural plan

Hard bid construction estimatesHard bid construction estimates Total construction 1976 sq. feetTotal construction 1976 sq. feet

Cost estimate $617,089Cost estimate $617,089

Equipment:Equipment: 1.5 T closed MRI1.5 T closed MRI

Cost $1,307,279Cost $1,307,279


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Workforce AssessmentWorkforce Assessment

Modality based staffing modelModality based staffing model

Experienced MRI Technologist candidatesExperienced MRI Technologist candidates

availableavailable Training provided by vendorTraining provided by vendor


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MarketingMarketing

New Marketing Director hiredNew Marketing Director hired

Strategic marketing planStrategic marketing plan

Advertising and direct marketing visitsAdvertising and direct marketing visits


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Outcomes EvaluationOutcomes Evaluation

MeasuresMeasures

VolumesVolumes

Operational expenseOperational expense

Patient satisfactionPatient satisfaction

QualityQuality


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Financial AnalysisFinancial Analysis

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Br k n An y is

# of Patients 1143

Total Net Revenue 714,981

C st Description Fixed Cost( )

riable CostsSupplies (

c

days ind

entory on hand) 103,556$

Fixed CostsSalaries 70,782$Payroll Taxes & Empl. Benefits 21,235$Annual service agreement on MRI Warranty

Lease( e RI 5 years with b f y o f t option) 235,310$Marketing (Intercompany standard 2% ofrevenue) 30,639$Corporate Overhead ( e RI = 23% ofRads 7%) $34,786Hospital Overhead (see corporate overhead) $109,783

Minor equipment purchases $250Interest Expense $75,578Depreciation $33,040

otal Fixed Costs $ 611, 3

Total ( ariable Cost + Fixed Cost) 714, 59. Break even inyear1


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$-

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1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17

Months

Revenue Net evenue

Fi ed ost

ot osts

BreakevenGr phBreakevenGr ph


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LimitationsLimitations

No information is collected by any agencyNo information is collected by any agencyrelative to outpatient service statisticsrelative to outpatient service statistics

The need to rely on experientialThe need to rely on experiential

information from expert subjectsinformation from expert subjects No reporting requirements for hospitals inNo reporting requirements for hospitals in

Kentucky, Tennessee, or VirginiaKentucky, Tennessee, or Virginia N

o data sources for utilization of services inN

o data sources for utilization of services inthe private sector for physicians orthe private sector for physicians orindependent diagnostic centersindependent diagnostic centers


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Limitations ContinuedLimitations Continued

This means that all projections, whileThis means that all projections, whilebased to the extent possible on proprietarybased to the extent possible on proprietaryutilization data and national use rates,utilization data and national use rates,required educated assumptions to berequired educated assumptions to bemade from the experiential datamade from the experiential data


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ReferencesReferences

Iglehart, John K., (2006). The New Era of Medical ImagingIglehart, John K., (2006). The New Era of Medical Imaging Progress and Pitfalls.Progress and Pitfalls.

New England Journal of Medicine, 354:2822New England Journal of Medicine, 354:2822--28282828

MerriamMerriam--Websters Medical Dictionary. (2008). Magnetic Resonance ImagingWebsters Medical Dictionary. (2008). Magnetic Resonance Imaginghttp://medical.merriamhttp://medical.merriam--webster.comwebster.com

Mitchell, Jean M. (2007). The Prevalence of Physician SelfMitchell, Jean M. (2007). The Prevalence of Physician Self--Referral ArrangementsReferral Arrangements

After Stark II: Evidence from Advanced Diagnostic Imaging.After Stark II: Evidence from Advanced Diagnostic Imaging. Health AffairsHealth Affairs,,26:3,26:3, 415415--424.424.

Tanenbaum, Lawrence, N., (2006). Clinical 3T MRI: Mastering the Challenges.Tanenbaum, Lawrence, N., (2006). Clinical 3T MRI: Mastering the Challenges.Applied RadiologyApplied Radiology,, 35:11,35:11, 3434--50.50.

The Advisory Board, H*Works: Structure and Responsibilities of Diagnostic ImagingThe Advisory Board, H*Works: Structure and Responsibilities of Diagnostic Imaging

Departments,Departments, Original Inquiry BriefOriginal Inquiry Brief, May 24, 2005., May 24, 2005.

The Advisory Board, MRI:N

ew systems, applications herald future volume growth,The Advisory Board, MRI:N

ew systems, applications herald future volume growth,Technology WatchTechnology Watch, November 4, 2005., November 4, 2005. www.advisory.comwww.advisory.com


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Special Thanks To:Special Thanks To:

Committee Chair: Leonard Heller Ed.D.Committee Chair: Leonard Heller Ed.D.

Committee Member: Sarah Wackerbarth Ph.D.Committee Member: Sarah Wackerbarth Ph.D.

Committee Member: Adetokunbo Oluwole Ph.D.Committee Member: Adetokunbo Oluwole Ph.D.

Outside Advisor: Trena HallOutside Advisor: Trena Hall

Clinical Director of Corporate ProjectsClinical Director of Corporate Projects

Appalachian Regional HealthcareAppalachian Regional Healthcare


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Questions?Questions?