Posted: August 14th, 2015

# HS440 | Finance for Health Care

HS440 | Finance for Health Care
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Unit 9 Assignment:
Capital Budgeting
Unit outcomes addressed in this Assignment:
? Describe the role of financial analysis in health care financial decisions.
? Discuss the key elements in breakeven analysis.
? Explain how opportunity relates to cost principles.
Course outcome addressed in this Assignment:
HS440-4: Utilize financial analysis to inform management decisions.
GEL-2.3: Solve real-world problems using mathematical skills.
Instructions
For this Assignment, you will complete a cash flow analysis for a new MRI service for the
physician’s network. Based upon your analysis, you will recommend whether the new MRI
service is a sound financial decision for the physician’s network.
Consider the following information:
The estimated average is \$1000 per scan. 25% of this average is expected to be lost on
discounts to payers, charity care, and losses.
Each scan will cost the physician’s network \$40 to in supplies
The MRI service is expected to operate 50 weeks per year. 1.5 full-time employees will be
required with an annual labor cost of \$70,000, including benefits.
There are no increased overhead costs associated with the opening as the physician’s network
has an existing building that is currently vacant.
Annually, the MRI machine requires \$125,000 in maintenance costs.
The long-term plan is to utilize this MRI system for five years. At this end of this period, the
physician’s network will sell the MRI for salvage for \$750,000 (deducting any removal costs).
The inflation rate is averaged at 5% for the period. This inflation rate is expected to affect all
revenues and costs equally.
The profitability measures are: Net Present Value = \$83,478 with an internal rate of return equal
to \$11.1%.
HS440 | Finance for Health Care
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Complete a cash flow analysis utilizing the information above and below to create your Cash
Flow Chart.
Assume the following in your analysis:
A MRI System will cost: \$2.5 million
Delivery, Installation and site preparation will cost: \$500,000
Payer # of scans
per week
Charge per
scan
Total
Charges
Basis of
Payment
Net
Payment
per Scan
Total
Payments
Medicare 10 \$1000 \$10,000 Fixed fee \$740 \$7,400
Medicaid 5 \$1000 \$5,000 Fixed fee \$700 \$3,50
Private
Insurance
5 \$1000 \$5,000 Full charge \$1000 \$5,000
Blue Cross 2 \$1000 \$2,000 Percentage
of Charge
\$840 \$1,680
Managed
Care
4 \$1000 \$4,000 Percentage
of Charge
\$750 \$2,000
Self-Pay 1 1,000 \$1,000 Full Charge \$110 \$110
Total 27 \$27,000 \$19,690
Average \$1,000 \$750
To present your analysis, the physician’s network has asked you to prepare a report. This report
will be in two parts. The first section will be a written report (in essay format) that includes an
introduction of what will be included in the report, a detailed summary of the cash flow analysis,
and a determination by you as to whether you recommend that the new MRI services to be a
sound financial decision. The second portion of the report will be your cash flow analysis in the
For the report to be effective, it should be no less than five pages total, including references.
with meeting APA expectations for written assignments.
HS440 | Finance for Health Care
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Dropbox Guide found on the Academic Tools tab. Make sure that you save a copy of your
submitted work.
Unit 9 Assignment Grading Rubric = 325 points
Assignment Requirements Points
possible
Points
earned by
student
Report includes an introduction 0-25
Report includes a detailed summary of the cash flow analysis 0-75
Report includes a decision summary (recommendation or
declination) based off of the cash flow analysis
0-75
Report includes a conclusion paragraph summarizing the written
portion
0-50
Report includes a spreadsheet cash flow analysis 0-100
Total (Sum of all points)
Points deducted for spelling, grammar, and/or APA errors.
(See Writing Deductions Rubric in Doc Sharing)