Operating Budget Proposal
In 4-5 pages, describe the environmental forces that affect health care organization budgets
The cost-benefit analysis helps healthcare institutions to determine the viable projects to pursue and ignore the non-beneficial ones. The current proposal explores the cost-benefit analysis of purchasing an MRI machine and how it could align with the targeted profit margin. The clinic also needs to acquire a billing software. Furthermore, exploring the external factors that could be affecting the pricing and the budgeting process. The purpose of the current analysis is to determine the impact of the machine on the effectiveness of the service delivery in the clinic. The proposal will include the cost-benefit analysis and determine whether the acquisition of the MRI machine and the billing software will be viable.
Environmental Factors Influencing the Budget
The budget is developed based on the income flow within the clinic. The first environmental factor to consider is government policies on billing and reimbursement. The introduction of value-based reimbursement requires hospitals to reduce the cost of medication and this could affect the budget developed. The healthcare institution can respond to the force by prioritizing the budget, and in this, acquiring the MRI because of the high return value it presents. Furthermore, the calls for the universal health coverage requires that healthcare institutions offer the best care at a lower cost. In this case, the pricing for the services offered may have to be reduced to increase access to care (Budget structure reforms and their impact on health financing systems: Lessons from Kyrgyzstan, 2020). Such reforms means that the healthcare institution will have to lower the MRI test pricing to make the care delivery affordable and accessible to all the patients. In such a case, the revenue margin will have to reduce and so the organization may have to seek more affordable options. Furthermore, the Affordable Care Act was enacted in March, 2010 and this had a significant impact on the accessibility of insurance, financing of the medical care and the insurance coverage. The healthcare institutions are forced to shrink their treatment costs and this means that they have to avoid the unnecessary expenses.
The 2017 Operating Budget
The current expenditure on the MRI in the clinic is $450,000; the amount is outsourced to other facilities with the machine. The clinic seeks to reduce its expenses and find a cheaper option of doing the MRI tests for their clients. It would be recommended for the clinic to go for Magnetom Aera 1.5T MRI machine, which would cost about $1.2million and $350 for the billing machine. The estimated annual maintenance fee for the machine is $20,000. According to Vassiliou et al. (2018), the essential hardware for an MRI includes the magnet, radiofrequency, shim coils, gradient coils and computer hardware and software. The estimated costs for the coils for the recommended MRI machine will be $380,000. The clinician may need two personnel and the estimated annual cost for the radiologist is $163,000. The MRI machine is a heavy machine that weighs between 8,000 and 10,000 pounds (Designing MRI suites: Navigating structural design considerations for success, 2018). The clinic is likely to incur the cost of building a structure for the machine at $190,000. The Ferra Guard safety is commonly used in detecting the ferromagnet hazard, and this will cost about $15.000 annually for the maintenance and servicing of the machine. The table 1 indicates the summary of the operating budget for 2017. The clinic is expected to generate about $99,000 annually and save about $450,000 which could have been used in outsourcing. The company is likely to make a profit of $ 3,641,104.16 in the next five years.
How This Proposed Budget Aligns With the Target Profit Margin
The cost-benefit analysis is an important approach used in determining whether a project is worth pursuing or not (Bilinski et al., 2017). Similarly, the analysis indicates that the proposed budget aligns with the targeted profit margin. Offering better and efficient
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services due to the availability of the MRI machine will attract more patients, and this will result in increased revenue and reduced costs that were initially incurred by the clinic to outsource the services. The estimated income generations from the clinic will be $99,000 from the income generated for the first year: $99,000. The revenue is expected to grow with time at an estimated rate of 10% annually. Besides, the improved efficiency and reduced turnaround time will be a major benefit to the clinic. Therefore, the MRI machine will produce both direct and indirect benefits. Also, the accurate and timely diagnosis will enhance the reputation of the clinic and may involve patients seeking other services as well.
Measures to Implement to Track Financial Performance over the Next Year
Tracking the financial performance is necessary to help the company evaluate their operational efficiencies. In this case, the use of financial ratios including ROE and ROA will be calculated annually to track the financial performance. Secondly, the statement of cash flow and income statements will also be used. On the other hand, the financial performance will be evaluated based on the company’s ability to minimize the expenses and maximize on the profit. A high ROE will be an indicator of positive progress.
Conclusion
The cost to be incurred in the project for the next five years is less compared to the income and benefits to be accrued over time. The budget summary indicated the detailed analysis of the costs and the benefits linked with the acquisition of the MRI machine in the clinic. It is highly recommended that the healthcare institution acquire the MRI machine because of the high return associated with it. Other than relying on outsourcing services, the clinic should buy the MRI machine and control their turnaround time.
COST-BENEFIT ANALYSIS
Step 1: Enter cost amounts as future value (FV) expectations. The future value will be automatically converted to present value (PV). Step 2: Enter benefit amounts as FV expectations. The FV will automatically be converted to PV.
Step 3: Subtract the total PV benefits from the total PV costs to get the net benefit.
References
Bilinski, A., Neumann, P., Cohen, J., Thorat, T., McDaniel, K., & Salomon, J. A. (2017). When cost-effective interventions are unaffordable: Integrating cost-effectiveness and budget impact in priority setting for global health programs. PLOS Medicine, 14(10), e1002397. https://doi.org/10.1371/journal.pmed.1002397
Budget structure reforms and their impact on health financing systems: Lessons from Kyrgyzstan. (2020, July 1). WHO | World Health Organization. https://www.who.int/publications/i/item/WHO-UHC-HGF-HEF-CaseStudy-20.14
Designing MRI suites: Navigating structural design considerations for success. (2018, May 1). HGA. https://hga.com/designing-mri-suites-navigating-structural-design-considerations-for-success/
Vassiliou, V. S., Cameron, D., Prasad, S. K., & Gatehouse, P. D. (2018). Magnetic resonance imaging: Physics basics for the cardiologist. JRSM Cardiovascular Disease, 7, 204800401877223. https://doi.org/10.1177/2048004018772237