Feasibility Checkpoints for Healthcare Business Plans

Thanks for asking! My advice is to follow the steps of business plan development, using each of these stages as an opportunity for checking feasibility. Here are the steps, with an example that I published in an obscure health care management newsletter a few years ago. Warning: this is a long post!

Business Plan Example: A committee of cardiologists at SouthSide Hospital (fictitious organization) prepare a business plan to propose a new Cardiac Catheterization Laboratory (CCL).

1. Problem or Need Identification: The following questions help determine the feasibility of your proposed project in meeting a problem or need:

• How well does the proposed project address the problem or need? The cardiologists must demonstrate that the CCL will improve patient outcomes, reduce liability, attract and retain specialists, and enhance profitability.
• What is the political context? The decisions and preferences of major power brokers such as the Southside Hospital CEO, Board of Directors, major funders and the client base must be considered.
• How well does the project fit with the organizational mission, values and goals? SouthSide Hospital’s 5-year strategic plan includes a goal of establishing a center of excellence for cardiac care.
• Where does this problem rank compared to other organizational priorities? Competing problems at SouthSide Hospital include a need for a cardiac rehabilitation facility, and upgrading the Surgery Department for state-of-the-art cardiac procedures.

Feasibility Checkpoint: If SouthSide’s CEO puts a “hold” on capital projects for the coming fiscal year, the CCL proposal is infeasible. The cardiologists must determine where the proposed CCL fits as a budget priority for the coming fiscal year.

2. Product Definition: Readers must understand what you expect to accomplish, what is required to accomplish your goal, and what alternative approaches are available. These questions help determine feasibility at the product definition step:

• What is required to provide this product?The cardiologists’ plan is to upgrade and relocate cardiac catheterization services at SouthSide Hospital to a CCL using space in the Surgery Department.
• What are the alternatives?As an alternative, SouthSide can maintain current cardiac catheterization services.

Feasibility Checkpoint: The business plan must show measurable advantages to creating the CCL in terms of savings, profitability, patient outcomes and physician satisfaction compared to the alternative of maintaining current operations.

3. Market Analysis: Questions such as the following help identify factors in the outside environment that affect feasibility:

• What is the market share? Approximately 40% of patients in the market area who require cardiac catheterization use SouthSide Hospital’s facility.
• Who are the clients? Patients requiring cardiac catheterization at Southside Hospital are predominantly over age 65.
• What is the payor mix? Cardiac catheterization procedures performed at SouthSide Hospital are largely covered by Medicare.
• Who are the competitors? Goodman General Hospital is SouthSide’s major competitor for cardiac catheterization, but does not have surgical back-up for emergency procedures.
• What is the demand for this product? Southside Hospital’s service area has a higher than average proportion of persons over age 60, so demand for cardiac catheterization is strong and expected to grow.

Feasibility Checkpoint: Although the client base is strong, changes in Medicare reimbursement or a decision by Goodman General to enhance its cardiac surgery capability could make the Southside CCL project infeasible at this stage of business plan development.

4. Budget Estimates: The next step is to develop budget estimates and use them as feasibility checkpoints, considering items such as:

• Capital budget. Remodeling, purchase of upgraded technology and start-up costs such as extended warrantees total approximately $2,500,000 for the proposed CCL.
• Operating expense budget. The costs for personnel, supplies, overhead and other operating expenses are approximately $575,000 for the first year of the proposed CCL.
• Revenue budget. For the start-up year, the estimated volume is 500 cardiac catheterizations, with an estimated $8,000 charges per procedure. Net revenues after deductions are estimated at $1,425,000.
• Profitability. Total expenses for the start up year, including operating expenses, depreciation, start-up costs and overhead are estimated as $1,153,000. Revenues less expenses amount to $272,000 or a 19% profit margin.

Feasibility Checkpoint: The plan for the CCL appears feasible given its profitability, although SouthSide Hospital leadership must approve the capital budget and start-up expenditures.

5. Financial Analysis: Approaches to financial analysis include break-even analysis, cost benefit analysis or cost effectiveness analysis. At this checkpoint, the analysis should show that the CCL’s revenues will cover or exceed expenses, that the benefits (savings) generated by the CCL will meet or exceed its costs, or that the CCL is the least costly alternative to meet SouthSide Hospital’s needs.

Feasibility Checkpoint: The cardiologists did a very simple analysis comparing the average profitability for the start-up and following 3 years of operations between the proposed CCL and the alternative of maintaining current operations. The CCL meets profitability targets, reinforcing its financial feasibility.

6. Feasibility Statement: Business plans conclude with a statement addressing the overall feasibility of the proposed project. There is an inherent bias to overlook checkpoints indicating unprofitability and infeasibility. In the long run, it’s better for the organization to recommend dropping a proposed project, if the checkpoints throughout the preparation of the business plan indicate the project is infeasible.

Feasibility Checkpoint: Assuming political support from SouthSide Hospital leadership and sufficient Medicare reimbursements for cardiac catheterization procedures into the foreseeable future, this project appears to be feasible.

Note that I haven’t tried to update this example, published in 2004. Recent advances in interventional radiology (IR) and other technologies might alter some of these assumptions and affect the current feasibility of this project. The point is, you need to think about where and when to stop or proceed in the business plan process.

Penner, S.J. (Spring 2004). Business plan feasibility checkpoints. Society for Professionals in Healthcare Newsletter 9(2): 1-2, 5.

Cracks in the Plan?

Many of us in the San Francisco Bay Area are following the news of the unexpected crack found in the Bay Bridge. We fear the need for additional repair may delay our commutes tomorrow morning, and we've already been without the Bridge all weekend.


Business plans and grant proposals can also suffer fatal flaws, which can cause serious problems. I typically discuss these problems in terms of project feasibility.

Sometimes business plans with major cracks in them take on a life of their own. It can save the institution money, and save you a lot of wasted effort, if you can identify feasibility issues as early in the plan development as possible. You can then stop or modify an unworkable project idea into something that benefits your institution and your patients.

I have some suggestions for ensuring feasibility as you develop your business plan. Is there any interest out there in discussing this topic further?

Chargemasters

Masters of nursing students in my current financial management class are now working on one of their most frustrating assignments: reviewing California hospital chargemasters, and trying to figure out why the prices are so disparate between institutions. I use this assignment as a way to get students started reviewing financial documents, and to see how so much information is still hidden, even when these documents are made public. Later in the semester I'll lecture about concepts hospital administrators use when they set prices (cost-shifting, for example).

Do you have access to your hospital's chargemaster? Is this a resource for you when developing business plans?

Many countries that provide universal health coverage standardize and regulate hospital pricing. This is one area that I have not seen discussed in our current health reform debates. What are your thoughts about the implications of making all US hospital chargemasters public, and requiring greater regulation and standardization of hospital prices?

Jobs!

After teaching the first sessions of my two fall classes, I can share a major concern of entry-level masters of nursing students: jobs.

At least in the San Francisco Bay Area, hospital-based new graduate orientation programs largely ended with the economic downturn beginning the last quarter of 2008. Although the professional nurse population in America is aging, the recession caused many nurses to postpone or come out of retirement, at a time when hospitals may have to cut back related to dwindling profits, or limited public funds.

With Baby Boomers turning 65 beginning in 2011, including a lot of our current nursing workforce, I wonder about ideas for grant proposals or business plans that might help increase employment opportunities for new graduate nurses. Are nurse managers and health care administrators waiting for health reform to kick in?

Palliative care

I'm well aware there's been some unfortunate press about "death panels" related to health reform proposals. Sigh. One of the most timely business plans my students submitted this summer was to train hospital staff nurses on principles of palliative care, to improve their assessment and care planning skills in this important area. With Baby Boomers starting to turn 65 in 2011, isn't it time we started thinking about financial and quality of care implications of end-of-life conditions?

I would welcome thoughts about this issue.

Vascular Catheter Infections

One of the HACs I reviewed in June referred to prevention of vascular catheter related infections. Over the summer, I had a terrific group of CNL (Clinical Nurse Leader) masters of nursing students. Two of the teams prepared business plans that recommended dedicated teams of nurses to start and manage vascular catheters, on medical-surgical units and in the newborn intensive care units (NICUs).

Other than labor, there were few additional costs other than purchasing a portable sonogram to facilitate line placement. With the increased focus on infection prevention and compliance with patient safety provisions, I wonder how many of you are thinking about approaches to this problem, and would be interested in seeing how a business plan might develop around this topic.

The Summer's Over!

It's time to stop putting things off...the fall semester's starting this week, with another course to teach in financial management. I'll have 25 or so graduate nursing students coming up with creative ideas for business plans and grant proposals.

Until I start seeing some comments, it will take a real leap of faith to start posting regularly. However, I'm determined to see whether nursing and other health care managers are interested in learning and discussing about this topic.

At any rate, I'm back from vacation! Let's see where these ideas take us...

Disaster Management

The Joint Commission Standard EC.4.11 Element of

Performance 4, implemented in 2008, states:

When developing its emergency operations plan, the

[organization] communicates its needs and vulnerabilities

to community emergency response agencies and identifies the

capabilities of its community in meeting their needs.

Let's say your hospital needs resources to put this communication plan in place. However, your hospital is among the half of U.S. hospitals currently losing money. What about applying for grant funding? You may need to write the grant proposal in collaboration with local response agencies, such as the fire and police departments, but the Joint Commission expects you to collaborate with these agencies, anyway.

We can talk more about writing grant proposals, or business plans. I'm interested in your comments and feedback!

HACs and Business Plans

How are the HAC provisions related to costs?

• added treatment costs, for example, the added cost of a pressure ulcer that develops after hip surgery
  
• increased length of stay
  
• potential fines or litigation
  
• potential accreditation, reputation and referral problems

How are the HAC provisions related to revenues?

• Medicare will withhold additional payment for these conditions if they were not present on admission, resulting in lost revenues.

What about quality?

• The Centers for Medicare and Medicaid (CMS) is proposing additions to the current list of HACs:

Surgical Site Infections Following Elective Procedures:

• Total Knee Replacement


• Laparoscopic Gastric Bypass and Gastroenterostomy


• Ligation and Stripping of Varicose Veins

Legionnaires’ Disease

Glycemic Control:

• Diabetic Ketoacidosis


• Nonketotic Hyperosmolar Coma


• Diabetic Coma


• Hypoglycemic Coma

Iatrogenic Pneumothorax

Delirium

Ventilator-Associated Pneumonia (VAP)

Deep Vein Thrombosis (DVT)/Pulmonary Embolism (PE)

Staphylococcus aureus Septicemia

Clostridium difficile-Associated Disease (CDAD)

How does this relate to writing business plans?

If you're trying to make a business case for your idea, showing that you will improve quality, reduce costs and capture revenue makes your plan convincing. We can use HACs (current and proposed) as examples of ideas for business plans.

Hospital-Acquired Conditions

Last July (2008) Medicare identified 10 categories of Hospital-Acquired Conditions (HACs). HACs present as: (a) high cost or high volume or both, (b) result in the assignment of a case to a DRG that has a higher payment when present as a secondary diagnosis, and (c) could reasonably have been prevented through the application of evidence‑based guidelines.
The 10 categories of HACs include (I’ve omitted subsets of conditions—see the Medicare link for more detail) :
1. Foreign Object Retained After Surgery
2. Air Embolism
3. Blood Incompatibility
4. Stage III and IV Pressure Ulcers
5. Falls and Trauma
6. Manifestations of Poor Glycemic Control
7. Catheter-Associated Urinary Tract Infection (UTI)
8. Vascular Catheter-Associated Infection
9. Surgical Site Infection Following:
o Coronary Artery Bypass Graft (CABG) - Mediastinitis
o Bariatric Surgery
o Orthopedic Procedures
10. Deep Vein Thrombosis (DVT)/Pulmonary Embolism (PE)

Is this new information for you, or are you currently trying to cope with this new ruling and its payment implications, implemented in October 2008?

In the next post, I’ll discuss implications for costs, quality, revenues and business plans.

What this Blog is About

I'm working on a co-authored book to help nurses and other health care professionals write business plans and grant proposals. I teach masters of nursing students how to write these documents, and hope to share this information with nurse managers and others who might find it helpful.

Currently, half of the hospitals in the US have zero profit margins, or are losing money. It's a prime time for health care workers, especially managers, to learn how to generate funds for their departments.

I hope to get ideas about what interests and needs nurses and other professionals have in learning to write business plans and grant proposals, and to share the experience and some of the content of our forthcoming book as we work on it over the coming year.