It is estimated that the gross charges will increase by 4% per year. It is a growing community and St Francis management expects that the volume will grow by 2% per annum. Based on their current insurance contracts, the Net Revenue is expected to increase by 3% per year. Also, expenses are expected to increase by 4% per year.

Using the information given above, you are asked to develop a business plan for this Outpatient Diagnostic center. The business plan should include the following data/information

Would you recommend opening this new Diagnostic Center?

1. What other factors including internal and external would you consider when doing this business plan?
2. There is a rumor that a big national company is also looking to open a free standing diagnostic center in that area within the next two years. It is estimated that if the new diagnostic center is opened, it will result in decrease in volume for St. Francis by 5% per year (in year 3-5). Also, Commercial/Managed Care insurance companies

are looking ways to cut their cost by reducing hospital reimbursement. One way is to index their reimbursement to Medicare. Managed Care/Commercial insurance are considering paying 150% of Medicare rates starting year 3. Assuming everything else remains the same, show the impact this will have on net revenue, income statement, payback period and NPV using 12% cost of capital. What would be your recommendation based on the new information?