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46 Cases in Healthcare Finance EXHIBIT 5.3 Consortium Employee Utilization and Cost Data: Other Facility Services Skilled nursing facility care Current average daily cost 25.2

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46 Cases in Healthcare Finance EXHIBIT 5.3 Consortium Employee Utilization and Cost Data: Other Facility Services Skilled nursing facility care Current average daily cost 25.2 days per year per 1,000 members $650 Inpatient mental health care ($0 copay! Current average daily cost 64.4 days per year per 1,000 members $740 Hospital-based surgery ($0 copeyi Current costs 41.7 cases per year per 1,000 members $1,800 per case Emergency department care ($15 copay) Current costs 132 visits per year per 1,000 members S250 per visit (see note) Note The emergency department cost is the total charge for facility services, some of which would be covered by the $25.oopay 100% > Tulsa MEMORIAL HOSPITAL (TMH), an acute care hospital with 300 beds and 160 staff physicians, is one of 75 hospitals owned and operated by Health Services of America, a for-profit, publicly owned company. Although there are nine other acute care hospitals serving the same general population, TMH historically has been highly prof- itable because of its well-appointed facilities, its fine medical staff, its reputation for quality care, and the amount of individual attention it gives to its patients. In addition to inpatient services, TMH operates an emergency department within the hospital complex and a stand-alone urgent care center located across the street from the area's major shop- ping mall, about two miles from the hospital. According to a Wall Street Joumal article, urgent care centers are increasingly visited by patients who need immediate treatment for an illness, such as the flu or a sore throat, or an injury, such as a nail-gun wound. Urgent care centers are distinguished from similar types of ambulatory healthcare providers, such as emergency departments and retail clinics, by the scope of illnesses treated and the presence of on- site facilities. These centers help mitigate the problems of primary care physician shortages and already crowded (and typically very expensive) emergency departments. Urgent care centers, notes the Wall Street Journal article, are staffed by physicians, offer short wait times, and charge between $60 and $200 per procedure. Furthermore, to appointments are necessary and evening and weekend hours are frequently available. Finally, many centers offer discounts to the uninsured, and for those with coverage, copavments are 60% em doors. Furthermore, a review of several years of financial data revealed that TMH's urgent care center does not have a pronounced seasonal utilization pattern Next, Nicole met several times with the center's administrative director. The primary purpose of the meetings was to estimate the add- tional costs that would have to be borne if center volume tone above the current January/February average level of 45 visits per day. Any incre- mental usage would require additional expenditures for administrative and medical supplies, estimated to be $4.00 per patient visit for medical supplies, such as tongue blades and rubber gloves, and $1.00 per patient visit for administrative supplies, such as file folders and clinical record sheets Because of the relatively low volume level, the urgent care cen- ter has purposely been staffed at the bare minimum. In fact, some center employees have started to grumble about not being able to do their jobs well because of overwork. Thus, any increase in the number of patient visits would require immediate administrative and medical staffing increases. Furthermore, as the number of visits increase the center would have to hire additional staff members. The incremental costs associated with increased volume are summarized in Exhibit 6.2. The wrgent care center's building is leased on a long-term basit TMH could cancel the lease, but the lease contract calls for a can celatio peculty of the motit rent or 537.500 at the current loc rate. In addition, Nicole was started to read m the newspaper that Baptist Blogital, TM's major competito, ladjunt bought the city's tangent primary care practice and Baptist's CEO a quoted say itur that mucoup practice que te planned as the hospital herved to embrace healthcare com Nicole wondered whether Bapt Titre actions wereld influence is decision marching the agent cate Cente Finik Neotem will Amandato la mort the prepared | (ie tu tional leatherOSEOIS dos provide it die mees including pool examination for vestream of the occurs nnte elated mus, especially the CO Mithune the athletes the US cord hold ile 1) pupelime pic ENG US typically much less than for emergency department visite. There are cur- rently about 9,000 of these contes around the country, including about 1.500 that are hospital affiliated. The Urgent Care Association of America has established criteria for designation as a Certified Urgent Care Center. Currently, about half of the centers in the United States have this certification. Accord- ing to MedLibrary.org, these criteria define scope of service, hours of operation, and staffing requirements. A qualifying facility must accept walk-in patients of all ages during all hours of operation. It should treat a 'broad-spectrum of illnesses and injuries, and have the ability to perform minor procedures. An urgent care center must also have on site diagnostic services, including phlebotomy and x-ray." (For more information on urgent care centers, see www.ucaoa.org.) In addition to certification, urgent care centers can obtain accreditation through The Joint Commission as part of its ambulatory healthcare accredita- tion program. (For more information, see www.jointcommission.org.) Brandon Harley, TMH's chief executive officer, is concerned about the urgent care center's overall financial soundness. About ten years ago, several area hospitals jumped onto the urgent care center bandwagon. and within a short time, there were 15 such centers scattered around the city. Now, only 11 are left, and none of them appears to be a big moneymaker. Brandon wonder if I MH should continue to operate its center or close it down. The center is currently handling a patient load of 45 visits per day, but it has the physical capacity to handle many more --- up to 85 visits a day. Brandon's decision is complicated by the fact that Amanda Daniels, TMH's marketing director, has been pushing to embark on a new marketing program for the clinic. She believes that an expanded marketing effort aimed at focal businesses would bring in the number of new patients needed to make the clinic a financial winner Brandon has asked Nicole Williams, I'Mil's chief francut offi- cer, to look into the whole matter of the urgent care center. In their meeting, Brandon stated that he visualizes the potential outcomes for the center til it could be closed, 2) it could continue to oper ate is is that is, willout expanding its marketing program; or 13 could continue to operate, accompanied by the expanded marketing effort. As starting point for the analyses, Nicole collected the most freent historical financial and operating data for the center which are Smatrex in Exhibiting the historical datashe noted that one tapeting interfecenti Dember 2013 cosed is 3 / 4 60% . 74 requites i marketing assistant who will run the clini's UHS program Additionally, the new marketing program would incur advertising costs for newspaper, radio, and TV ads as well as for brochures and handouts The incremental costs associated with the new marketing program are also summarized in Exhibit 6.2. (To learn more about OHS, start at the American College of Occupational and Environmental Medicine website, www.scoern.org.) With a blank spreadsheet on her computer screen, Nicole began to construct a model that would provide the information needed to help the board make a rational informed decision. At first, Nicole planned to conduct a standard capital budgeting analysis that focused or the profitability of the clinic as measured by net present value or internal rate of retum. Then she realized that the expanded marketing programu requires no capital investment. She also realized that no valid data are available on the incremental increase in visits that would be generated by cither an increasing population base of the expanded marketing program. Finally, she remembered that Brandon requested that the analysis consider the inherent profitability of the clinic with out the expanded marketing program With these points in mind, Nicole thought that a break-even analysis would be very kseful in making the final decision. Specifit cally, she wanted to develop answers to the following ustione praed by Brandon: 1. What is the projected profitabidity of the urgent care center for the entire year it some contestit current level How many additional visits per day would be required to break even without the new marketing program 3. How many additional visits per day would be red tohtok even assuming that the new meling Po detalen Haman total daily site wild the new pitam have to bring in to make it would regarder wall profitability of the clinic In additie Nicole wondered if the clinical tofitability calcul the time bected to fill in the set ale on all New Case 6: Tulsu Menorial Hospital 51 concerned whether or not the analysis was giving the clinic full credit for its financial contributions to the hospital. She did not want to change the spreadsheet at this late date, but she did want to make sure that any additional financial value was at least considered qualitatively. Overall, Nicole must consider all relevant factors--both quantitative and qualitative and come up with a recommendation regarding the future of the urgent care center ENG US 200 istorical Financial Data MH Urgent Care Center EXHIBIT 61 Monthly Averages avfab 2014 Feb 2014 2013 Uan 2014 Row CY 2013 Num 14.522 $548,747 1,365 $55,028 1,335 $54,748 1.210 $45,729 $54,808 $47,037 Salatlar $13,540 18.000 3.215 De Trac 538 $154,250 192.000 31,440 5.365 8.112 189 11.820 1,260 $13,544 18,000 3.216 665 843 0 1,029 142 105 12,500 7,923 $57.958 843 0 1.124 135 105 12,500 8.152 $58,152 $12,854 16,000 2,820 447 678 16 9e5 106 105 12.979 8.648 $55,435 $13.52 18,000 3.215 602 543 0 1,077 138 106 12,500 8,038 $58,050 $12.952 16,288 2,706 489 700 14 988 110 105 12,910 8,561 $85,810 F WE ante Bu On Totapang 1.700 155.246 103.723 $565.220 5116,4731 IS 3,124 38,770 $ 3.218) $ 9,706 $ 3,173 Nepal 187% 212 -5.7% -212 -6.9% 741 2 e a Com 6: Tulad Memorial Hospital 5 Number of Additional Visits per Day 0 1-10 11-20 21-30 31-40 EXHIBIT 6.2 TMH Urgent Care Marthy Increma Cast Data Variabile Costs Medical Supplies Administrative supplies $4.00 per visit 100 per vist Total variable costs per visit $500 per visit Semified Costs Salaries and wages Physician fees $ 5.000 $ 6,000 $7,000 $ 8.000 12.000 12,000 12,000 18.000 Tous monthly semifixed costs S 0 $17000 $18.000 $19,000 $24,000 Fixed Costs Marketing assistant's salary Advertising expenses $ 3.000 $ 3.000 $3,000 3.000 $ 3.000 400 4000 4,000 4,000 4,000 Total monthly fixed $2,000 $ 7,000 $ 7.000 5 7000 S 7,000 46 Cases in Healthcare Finance EXHIBIT 5.3 Consortium Employee Utilization and Cost Data: Other Facility Services Skilled nursing facility care Current average daily cost 25.2 days per year per 1,000 members $650 Inpatient mental health care ($0 copay! Current average daily cost 64.4 days per year per 1,000 members $740 Hospital-based surgery ($0 copeyi Current costs 41.7 cases per year per 1,000 members $1,800 per case Emergency department care ($15 copay) Current costs 132 visits per year per 1,000 members S250 per visit (see note) Note The emergency department cost is the total charge for facility services, some of which would be covered by the $25.oopay 100% > Tulsa MEMORIAL HOSPITAL (TMH), an acute care hospital with 300 beds and 160 staff physicians, is one of 75 hospitals owned and operated by Health Services of America, a for-profit, publicly owned company. Although there are nine other acute care hospitals serving the same general population, TMH historically has been highly prof- itable because of its well-appointed facilities, its fine medical staff, its reputation for quality care, and the amount of individual attention it gives to its patients. In addition to inpatient services, TMH operates an emergency department within the hospital complex and a stand-alone urgent care center located across the street from the area's major shop- ping mall, about two miles from the hospital. According to a Wall Street Joumal article, urgent care centers are increasingly visited by patients who need immediate treatment for an illness, such as the flu or a sore throat, or an injury, such as a nail-gun wound. Urgent care centers are distinguished from similar types of ambulatory healthcare providers, such as emergency departments and retail clinics, by the scope of illnesses treated and the presence of on- site facilities. These centers help mitigate the problems of primary care physician shortages and already crowded (and typically very expensive) emergency departments. Urgent care centers, notes the Wall Street Journal article, are staffed by physicians, offer short wait times, and charge between $60 and $200 per procedure. Furthermore, to appointments are necessary and evening and weekend hours are frequently available. Finally, many centers offer discounts to the uninsured, and for those with coverage, copavments are 60% em doors. Furthermore, a review of several years of financial data revealed that TMH's urgent care center does not have a pronounced seasonal utilization pattern Next, Nicole met several times with the center's administrative director. The primary purpose of the meetings was to estimate the add- tional costs that would have to be borne if center volume tone above the current January/February average level of 45 visits per day. Any incre- mental usage would require additional expenditures for administrative and medical supplies, estimated to be $4.00 per patient visit for medical supplies, such as tongue blades and rubber gloves, and $1.00 per patient visit for administrative supplies, such as file folders and clinical record sheets Because of the relatively low volume level, the urgent care cen- ter has purposely been staffed at the bare minimum. In fact, some center employees have started to grumble about not being able to do their jobs well because of overwork. Thus, any increase in the number of patient visits would require immediate administrative and medical staffing increases. Furthermore, as the number of visits increase the center would have to hire additional staff members. The incremental costs associated with increased volume are summarized in Exhibit 6.2. The wrgent care center's building is leased on a long-term basit TMH could cancel the lease, but the lease contract calls for a can celatio peculty of the motit rent or 537.500 at the current loc rate. In addition, Nicole was started to read m the newspaper that Baptist Blogital, TM's major competito, ladjunt bought the city's tangent primary care practice and Baptist's CEO a quoted say itur that mucoup practice que te planned as the hospital herved to embrace healthcare com Nicole wondered whether Bapt Titre actions wereld influence is decision marching the agent cate Cente Finik Neotem will Amandato la mort the prepared | (ie tu tional leatherOSEOIS dos provide it die mees including pool examination for vestream of the occurs nnte elated mus, especially the CO Mithune the athletes the US cord hold ile 1) pupelime pic ENG US typically much less than for emergency department visite. There are cur- rently about 9,000 of these contes around the country, including about 1.500 that are hospital affiliated. The Urgent Care Association of America has established criteria for designation as a Certified Urgent Care Center. Currently, about half of the centers in the United States have this certification. Accord- ing to MedLibrary.org, these criteria define scope of service, hours of operation, and staffing requirements. A qualifying facility must accept walk-in patients of all ages during all hours of operation. It should treat a 'broad-spectrum of illnesses and injuries, and have the ability to perform minor procedures. An urgent care center must also have on site diagnostic services, including phlebotomy and x-ray." (For more information on urgent care centers, see www.ucaoa.org.) In addition to certification, urgent care centers can obtain accreditation through The Joint Commission as part of its ambulatory healthcare accredita- tion program. (For more information, see www.jointcommission.org.) Brandon Harley, TMH's chief executive officer, is concerned about the urgent care center's overall financial soundness. About ten years ago, several area hospitals jumped onto the urgent care center bandwagon. and within a short time, there were 15 such centers scattered around the city. Now, only 11 are left, and none of them appears to be a big moneymaker. Brandon wonder if I MH should continue to operate its center or close it down. The center is currently handling a patient load of 45 visits per day, but it has the physical capacity to handle many more --- up to 85 visits a day. Brandon's decision is complicated by the fact that Amanda Daniels, TMH's marketing director, has been pushing to embark on a new marketing program for the clinic. She believes that an expanded marketing effort aimed at focal businesses would bring in the number of new patients needed to make the clinic a financial winner Brandon has asked Nicole Williams, I'Mil's chief francut offi- cer, to look into the whole matter of the urgent care center. In their meeting, Brandon stated that he visualizes the potential outcomes for the center til it could be closed, 2) it could continue to oper ate is is that is, willout expanding its marketing program; or 13 could continue to operate, accompanied by the expanded marketing effort. As starting point for the analyses, Nicole collected the most freent historical financial and operating data for the center which are Smatrex in Exhibiting the historical datashe noted that one tapeting interfecenti Dember 2013 cosed is 3 / 4 60% . 74 requites i marketing assistant who will run the clini's UHS program Additionally, the new marketing program would incur advertising costs for newspaper, radio, and TV ads as well as for brochures and handouts The incremental costs associated with the new marketing program are also summarized in Exhibit 6.2. (To learn more about OHS, start at the American College of Occupational and Environmental Medicine website, www.scoern.org.) With a blank spreadsheet on her computer screen, Nicole began to construct a model that would provide the information needed to help the board make a rational informed decision. At first, Nicole planned to conduct a standard capital budgeting analysis that focused or the profitability of the clinic as measured by net present value or internal rate of retum. Then she realized that the expanded marketing programu requires no capital investment. She also realized that no valid data are available on the incremental increase in visits that would be generated by cither an increasing population base of the expanded marketing program. Finally, she remembered that Brandon requested that the analysis consider the inherent profitability of the clinic with out the expanded marketing program With these points in mind, Nicole thought that a break-even analysis would be very kseful in making the final decision. Specifit cally, she wanted to develop answers to the following ustione praed by Brandon: 1. What is the projected profitabidity of the urgent care center for the entire year it some contestit current level How many additional visits per day would be required to break even without the new marketing program 3. How many additional visits per day would be red tohtok even assuming that the new meling Po detalen Haman total daily site wild the new pitam have to bring in to make it would regarder wall profitability of the clinic In additie Nicole wondered if the clinical tofitability calcul the time bected to fill in the set ale on all New Case 6: Tulsu Menorial Hospital 51 concerned whether or not the analysis was giving the clinic full credit for its financial contributions to the hospital. She did not want to change the spreadsheet at this late date, but she did want to make sure that any additional financial value was at least considered qualitatively. Overall, Nicole must consider all relevant factors--both quantitative and qualitative and come up with a recommendation regarding the future of the urgent care center ENG US 200 istorical Financial Data MH Urgent Care Center EXHIBIT 61 Monthly Averages avfab 2014 Feb 2014 2013 Uan 2014 Row CY 2013 Num 14.522 $548,747 1,365 $55,028 1,335 $54,748 1.210 $45,729 $54,808 $47,037 Salatlar $13,540 18.000 3.215 De Trac 538 $154,250 192.000 31,440 5.365 8.112 189 11.820 1,260 $13,544 18,000 3.216 665 843 0 1,029 142 105 12,500 7,923 $57.958 843 0 1.124 135 105 12,500 8.152 $58,152 $12,854 16,000 2,820 447 678 16 9e5 106 105 12.979 8.648 $55,435 $13.52 18,000 3.215 602 543 0 1,077 138 106 12,500 8,038 $58,050 $12.952 16,288 2,706 489 700 14 988 110 105 12,910 8,561 $85,810 F WE ante Bu On Totapang 1.700 155.246 103.723 $565.220 5116,4731 IS 3,124 38,770 $ 3.218) $ 9,706 $ 3,173 Nepal 187% 212 -5.7% -212 -6.9% 741 2 e a Com 6: Tulad Memorial Hospital 5 Number of Additional Visits per Day 0 1-10 11-20 21-30 31-40 EXHIBIT 6.2 TMH Urgent Care Marthy Increma Cast Data Variabile Costs Medical Supplies Administrative supplies $4.00 per visit 100 per vist Total variable costs per visit $500 per visit Semified Costs Salaries and wages Physician fees $ 5.000 $ 6,000 $7,000 $ 8.000 12.000 12,000 12,000 18.000 Tous monthly semifixed costs S 0 $17000 $18.000 $19,000 $24,000 Fixed Costs Marketing assistant's salary Advertising expenses $ 3.000 $ 3.000 $3,000 3.000 $ 3.000 400 4000 4,000 4,000 4,000 Total monthly fixed $2,000 $ 7,000 $ 7.000 5 7000 S 7,000

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