MHA 542 CT 2

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Colorado State University, Global Campus *

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Health Science

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Jan 9, 2024

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COST-BENEFIT ANALYSIS RECOMMENDATION Cost-Benefit Analysis Recommendation Jessica Cook Colorado State University Global HCM 542: Healthcare Operations Management Professor Michelle Oddi November 26, 2023 1

COST-BENEFIT ANALYSIS RECOMMENDATION 2 Cost-Benefit Analysis Recommendation A new radiology service line is being considered at Simi Regional Hospital. When starting a new service the company will need to estimated the initial costs, along with fees and potential revenue that will be generated. A breakeven analysis can be conducted to help determine how long it will take to no longer see loss and yet not profit at that moment (Tannen, 2020). This proposal will utilize the breakeven analysis to compare two different investments proposals, therefore leading to the best decision based on the data discovered. Breakeven Analysis Simi Regional Hospital will be introducing a new radiological service line and as a new manager the first step will be to evaluate the standard cost, fees, and reimbursement to understand when the hospital will break even. The fixed costs are estimated at $1 million dollars, with an estimated reimbursement of $1500 per procedure performed. There also additional fees that will need be considered in the costs of each procedure, for this the providers salary us $340, and the operating expenses are $160 for each procedure performed. While reviewing the costs and estimated reimbursement it is important to evaluate at what point will the hospital break even in the costs of implementing the new radiological service line. A breakeven analysis can be conducted to help analyze the above estimates to find where the costs will begin to equal the return gained on the procedures (Langabeer & Helton, 2021). In the result the result will yield a net profit of zero dollars. By using excel and the estimates provided, table 1 will show the result of the breakeven analysis by using the goal seeking application. To breakeven the hospital will need to perform 667 procedures to zero the costs and revenue. Table 1 Radiology Service Line Breakeven Analysis

COST-BENEFIT ANALYSIS RECOMMENDATION 3 Items Amount Fixed Costs $1,000,000 Net reimbursement $1,500 Per procedure Providers Salary $340 Per procedure Operating Expenses $160 Per Procedure Number of Procedures 667 Total Cost $1,000,500 Total Revenue $1,000,500 BEP $0 Adjustments in Initial Investments While establishing this proposal for costs, it will be beneficial to consider any alterations to the initial estimates provided. Semi Regional has discovered a way to reduce the initial $1 million dollar investment to $600,000. With the initial investment dropping, so to will the reimbursement amount per procedure to $1200. By changing the new values into the excel equation for break even, table 2 will show that it will now only take 500 procedures to reach a break even point in costs. Table 2 Adjusted Cost and Reimbursement Breakeven Analysis Items Amount Fixed Costs $600,000 Net reimbursement $1,200 Per procedure Providers Salary $340 Per procedure Operating Expenses $160 Per Procedure Number of Procedures 500 Total Cost $600,500 Total Revenue $600,500 BEP $0 Recommendation Now that both analysis chart have been created, let us review the outcome of each investment by calculating the results of 1,000 procedures performed. Table 3 will evaluate the results of the $1 million investment and table 4 will evaluate the $600,000 investment.

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