NHS-FP6008 Assessment 2: Business Case for a New Economic Opportunity
NHS-FP6008 Assessment 2: Business Case for a New Economic Opportunity
Healthcare organizations’ primary mandate is to provide healthcare services that address specific patient needs. As they execute this role, it is vital to identify ways to expand their services and serve communities and societies better. One way to achieve this objective is to identify inadequacy areas and use them as economic opportunities. Opening new branches has been common, and adopting technologies is also highly encouraged. Klin Medical Center has been providing quality inpatient and outpatient mental health services for the past eight years. The economic opportunity within this facility is to establish a residential rehabilitation program. This paper is a business case analysis of the economic opportunity, providing a detailed report about its feasibility. It evaluates opportunities and risks associated with the economic opportunity while reflecting on the progress in five years through a cost-benefit analysis.
Opportunities Associated With the Economic Opportunity
Healthcare organizations should prioritize progressive growth, and Klin Medical Center shows the same orientation by establishing the residential rehabilitation program. One of the opportunities associated with establishing the facility is using it as a business venture to earn the facility more revenue. The facility will offer addiction education, family counseling, medical detox, and individual therapy at a cost. With many adolescents and youths diagnosed with substance use disorders in the facility, an affiliate program is a practical way of increasing Klin Medical Center’s financial base. From an operational perspective, the served individuals and their families will refer other people to the rehabilitation care center. The revenue earned from the served clients will expand the facility’s infrastructure to enable it to continue serving mental health patients better and more readily.
Healthcare providers also look for ways to supplement their incomes. Undeniably, earning a substantial amount motivates healthcare providers since they can meet their daily financial needs without struggling. In the same frame, mental health workers in residential rehabilitation care will receive overtime allowances and stipends. Such supplementary earnings can be used for personal growth and investments, increasing the financial strength of their families. Investing in economic activities also creates economic opportunities, helping to make communities more financially solid.
When providing healthcare services, it is vital to be solution-centered and apply innovative ways of making communities more self-reliant. Improving mental health services is one way of making societies more economically productive and should be supported by all means. According to Gold (2019), Americans can spend around $120-$145 billion on substance abuse treatment yearly, as witnessed from 2006 to 2016. Drugs commonly abused in this period included methamphetamine, heroin, marijuana, and cocaine. In response, the new facility seeks to improve mental health services to create more productive individuals. Money spent on mental health services can be used for other needs such as education, traveling, and immediate family needs.
The new facility also enables clients to save time and money. Klin Medical Center serves approximately 8,000 patients in the county.
As one of the five facilities specializing in mental health care in the county, many patients requiring specialized care and psychotherapy services are often referred to the facility. Unfortunately, about 40% of clients diagnosed with substance use disorders are usually referred to other facilities for residential rehabilitation treatment. In this case, approximately 3,200 patients experience challenges related to traveling costs. In some cases, patients do not get adequate and optimal services as their mental health statuses obligate, increasing illness burden in families and communities (Carbonell et al., 2020; Kilbourne et al., 2018). Establishing a new rehabilitation facility will be cost and time-saving and address the supply-demand gap currently experienced as patients get referred to other facilities.
Risks Associated With the New Economic Opportunity
Like other new business opportunities, the residential rehabilitation program is vulnerable to several risks, as identified in the cost-benefit analysis. One such risk is competition since other facilities in the county also expand their operation potential progressively. As Hicks (2020) noted, competitive risk in health practice can prevent a healthcare organization from achieving its goal as revenue margins decrease over time due to the actions of competitors. In this scenario, facilities offering residential rehabilitation services usually use the same approach in mental health care, implying that mental health patients will seek help from the facilities close to them. Accordingly, there will be a lot of pressure to maintain the required competitive advantage, which can be costly.
Besides competition, financial risks characterize expansion operations. As demonstrated in the cost-benefit analysis, establishing residential rehabilitation requires substantial financial investment. Maintenance costs, staff payment, and emergencies also require a significant budgetary allocation. Accordingly, the residential rehabilitation program must maintain a stable patient flow to break even within the targeted period. Services must be offered at a considerable cost to maintain the required operating float while avoiding high charges that can deter patients from seeking mental health services.
The other major risk is the consequences of an increased flow of patients. Establishing a residential rehabilitation program solves several challenges that will encourage patients to seek healthcare services. With traveling costs significantly reduced, the flow of patients will increase, which can be burdening to mental health providers. Scanlan and Still (2019) noted that serving a high number of patients when providing mental health services is associated with burnout, leading to turnover. Burnout is a leading cause of medication errors, which should be avoided since mental health patients need much patience and close attention (Yang & Hayes, 2020). To serve them as required, the facility will be compelled to hire more mental health practitioners, which has a huge financial implication.
Opportunities-Risks Comparison and Solving Risks
A comparative analysis of the opportunities and risks depicts a viable economic opportunity that helps Klin Medical Center address its current needs. By expanding its potential to serve communities, Klin Medical Center will increase its flow of patients and earn more revenue to enable it to expand its operational infrastructure. The risks projected are somewhat inevitable during expansion projects but are solvable through planning and practical interventions. Competition is part of risks and challenges in the business world, inevitable when organizations provide similar services or products. Besides, such an investment requires huge capital, and it is justified to take such risks to enable health care organizations to serve communities better.
To address the proposed risks, the facility’s management should be creative in its approach to service provision. Competition can be addressed by being more creative and friendly to patients to ensure that they are satisfied and healing is achieved. Some financial risks can be avoided by hiring mental health workers according to patient demands. Some can operate on-call basis to avoid wastage of resources. Financial risks are the most significant for the healthcare setting since they affect operations and quality of care profoundly. They are a priority area where keenness is critical.
To a large extent, the proposed solutions are ethical and culturally sensitive. In mental health practice, it is crucial to ensure that healthcare workers are physically and mentally ready to serve patients (Triliva et al., 2020). Progressive hiring of mental health workers and assigning roles as patients’ flow demands exempts them from frustrations. Avoiding resource wastage also puts a healthcare facility in a better position to meet its operational objectives (Hicks, 2020). Overall, the initiative is a massive opportunity for economic growth since mental health workers will earn, and the facility will make money by serving patients. In the same case, the community will seek mental health services without covering huge distances, which is cost-saving.
Cost-Benefit Analysis
The feasibility of an economic opportunity can only be justified after analyzing the costs and benefits of its establishment. As attached in Appendix 1, the estimated capital cost includes design, construction, and purchasing of assets, including furniture, computers, and standard equipment for the staff. The total cost is projected to be $435,000, which is not expected to change over the five years. Operating costs, projected at $836,500, include maintenance costs, staff’s salaries, emergencies, essential utilities including internet and electricity, and advertisement charges. All are estimates that can change as situations obligate.
From an economic dimension, costs and revenues increase progressively over a given period. It is not different in this scenario. As capital costs remain unchanged over the five years, operating costs will change over time. Maintenance costs are projected to increase to respond to the rising charges. Staff salaries will also increase as additional staff joins the facility. Maintenance costs may not change by a huge margin, the same case with marketing and administration. Emergencies are challenging to estimate, but the projected figure will address its associated needs, such as ambulances and staff payment during emergencies.
Benefits, in this scenario, include primarily the revenue earned over the five years. It is expected that approximately 400 patients will be visiting the facility weekly, and the number will increase over time. The estimated revenue during the first year from patient charges is estimated to be $10,000,000. Due to the progressive increase in the number of patients, the revenue is projected to increase by 10% annually. Accordingly, the estimated revenue over the five years is $63,400. Cost benefits stand at $22,500 and additional benefits at $2,000. The net benefit (revenue-costs [$63,424,500-$1,271,500) is estimated at $62,153,000 over the five-year period. From the analysis, it is justified to deduce that the economic opportunity is economically viable.
Strategies of Controlling Costs and Maximizing Benefits
Despite the need to expand mental health services, it is vital to ensure that the facility does not operate at a loss. As a result, overhead costs should be avoided as much as possible while ensuring that projections for expenses are accurate. One strategy of controlling costs is a progressive review of expenditure. It should occur every three months to identify areas of huge and unnecessary spending and invent ways of reducing costs. Utilities-related costs are the most likely to reduce through progressive reviews. For instance, electricity and internet charges can be minimized by shutting down devices and unconnected when not in use. Controlling costs would maximize benefits since saving increases revenue, which can be used to improve services.
It is also vital to market the facility attract more clients. Like it happens to any business scenario, advertisements are a rational way to ensuring that the residential rehabilitation program is known to the public. Meeting the people tours are also a practical way of marketing the facility to increase patients flow and maintain the revenue base at the desired levels. Reminders are a perfect way of creating a strong bond with patients. They should be reminded when to visit the facility, visit a support group, and seek medications if necessary. Such a show of care and close contact helps to establish referrals and increase the revenue (benefits).
Economic, financial, and scholarly evidence were consulted to develop the business case. It is vital to review empirical evidence to ensure that decisions made are rational and evidence-based. The economic and financial evidence used is largely what happens when setting up a business premise. It is vital to balance costs and benefits to establish whether an investment is viable based on the net returns. The financial projections in the business case facilitate planning and risk mitigation. Scholarly evidence is largely level I and II, which comes from empirical studies, and ensures that the evidence is correct and relevant to the situation. The evidence is also current as required in professional analysis of situations.
In conclusion, Klin Medical Center is among the five facilities providing mental health care in the county. Individuals with mental health and substance use disorders are often referred to the facility for specialized care and psychotherapy services. Since 40% of the patients are referred to other facilities, establishing a residential rehabilitation center will enable the facility to expand its mental health services to its client base. Projections over a five-year period show that the economic opportunity is viable since revenues increase progressively.
References
Carbonell, Á., Navarro‐Pérez, J. J., & Mestre, M. V. (2020). Challenges and barriers in mental healthcare systems and their impact on the family: A systematic integrative review. Health & Social Care in the Community, 28(5), 1366-1379. https://doi.org/10.1111/hsc.12968
Gold, M. (2019, Oct 10). Substance use disorders take a toll on more than just health. Addiction Policy Forum. https://www.addictionpolicy.org/post/substance-use-disorders-take-a-toll-on-more-than-just-health
Hicks, L.. (2020). Economics of health and medical care. Burlington, MA: Jones & Bartlett Learning.
Kilbourne, A. M., Beck, K., Spaeth-Rublee, B., Ramanuj, P., O’Brien, R. W., Tomoyasu, N., & Pincus, H. A. (2018). Measuring and improving the quality of mental health care: a global perspective. World psychiatry: Official Journal of the World Psychiatric Association (WPA), 17(1), 30–38. https://doi.org/10.1002/wps.20482
Scanlan, J. N., & Still, M. (2019). Relationships between burnout, turnover intention, job satisfaction, job demands and job resources for mental health personnel in an Australian mental health service. BMC Health Services Research, 19(1), 1-11. https://bmchealthservres.biomedcentral.com/articles/10.1186/s12913-018-3841-z
Triliva, S., Ntani, S., Giovazolias, T., Kafetsios, K., Axelsson, M., Bockting, C., … & Øverland, S. (2020). Healthcare professionals’ perspectives on mental health service provision: a pilot focus group study in six European countries. International Journal of Mental Health Systems, 14(1), 1-18. https://ijmhs.biomedcentral.com/articles/10.1186/s13033-020-00350-1
Yang, Y., & Hayes, J. A. (2020). Causes and consequences of burnout among mental health professionals: A practice-oriented review of recent empirical literature. Psychotherapy, 57(3), 426. doi: 10.1037/pst0000317
Appendices
Appendix 1: Cost-Benefit Analysis
| Cost-Benefit Analysis Klin Medical Center | ||||||
| Establishing a residential rehabilitation program | ||||||
| Quantitative Costs | Year 1 | Year 2 | Year 3 | Year 4 | Year 5 | Total |
| Non-Recurring Costs | ||||||
| Capital cost | $ – | |||||
| Furniture and fixtures | $ 320,000.00 | $ – | $ – | $ – | $ – | $ 320,000.00 |
| Computers | $ 5,000.00 | $ – | $ – | $ – | $ – | $ 5,000.00 |
| Staff equipment | $ 110,000.00 | $ – | $ – | $ – | $ – | $ 110,000.00 |
| Total Non-Recurring Costs | $ 435,000.00 | $ – | $ – | $ – | $ – | $ 435,000.00 |
| Recurring Costs | ||||||
| Salaries | 110,000 | 140,000 | 150,000 | 150,000 | 170,000 | $ 720,000.00 |
| Maintenance costs | 5,000 | 5,000 | 6,500 | 7,000 | 7,000 | $ 30,500.00 |
| Emergencies | 4,000 | 4,000 | 4,000 | 4,500 | 4,500 | $ 21,000.00 |
| Basic utilities | 7,000 | 7,000 | 7,000 | 8,000 | 9,000 | $ 38,000.00 |
| Advertisement | 3,500 | 5,600 | 5,900 | 6,000 | 6,000 | $ 27,000.00 |
| Total Recurring Costs | $ 129,500.00 | $ 161,600.00 | $ 173,400.00 | $ 175,500.00 | $ 196,500.00 | $ 836,500.00 |
| Total Costs | $ 564,500.00 | $ 161,600.00 | $ 173,400.00 | $ 175,500.00 | $ 196,500.00 | $ 1,271,500.00 |
| QUANTITATIVE BENEFITS | Year 1 | Year 2 | Year 3 | Year 4 | Year 5 | Total |
| Revenues | ||||||
| Patient charges | 10,000,000 | 11,000,000 | 12,200,000 | 14,400,000 | 15,800,000 | $ 63,400,000.00 |
| $ – | ||||||
| $ – | ||||||
| Total Revenues | $ 10,000,000.00 | $ 11,000,000.00 | $ 12,200,000.00 | $ 14,400,000.00 | $ 15,800,000.00 | $ 63,400,000.00 |
| Cost Savings | ||||||
| Decreased cost of services provided | 2,000 | 2,000 | 2,000 | 2,000 | 2,000 | $ 10,000.00 |
| Savings from Business process improvements | 1,000 | 1,000 | 1,000 | 1,000 | 1,000 | $ 5,000.00 |
| Productivity gains | 1,500 | 1,500 | 1,500 | 1,500 | 1,500 | $ 7,500.00 |
| Total Cost Savings | $ 4,500.00 | $ 4,500.00 | $ 4,500.00 | $ 4,500.00 | $ 4,500.00 | $ 22,500.00 |
| Cost Avoidance | ||||||
| 0 | 0 | $ – | ||||
| Total Cost Avoidance | $ – | $ – | $ – | $ – | $ – | $ – |
| Other Benefits | ||||||
| Grants | $2,000.00 | $ 2,000.00 | ||||
| Total Other Benefits | $ 2,000.00 | $ – | $ – | $ – | $ – | $ 2,000.00 |
| Total Benefits | $ 10,006,500.00 | $ 11,004,500.00 | $ 12,204,500.00 | $ 14,404,500.00 | $ 15,804,500.00 | $ 63,424,500.00 |
Net Benefit [$63,424,500-$1,271,500) = $62,153,000