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.