Reference no: EM131040691

Scenario - You are the manager of the Lyndon Outpatient Clinic which is operated by a medium-sized medical center.  The administrator of the facility has informed you that the Board of Directors is currently considering the purchase of an MRI (magnetic resonance imaging) device to enhance the diagnostic services that the hospital provides. The administrator has given you the following information:

1. You need to develop a proposal that includes a financial breakdown of startup costs and projected income and expenses for five years.

2. You need to include a break-even analysis.

3. The cost of the MRI, computers, software and the renovations will be debt financed over five years.

4. Based on your analysis you need to recommend whether or not it is in the medical center's best interest to purchase an MRI device at this time. What course of action would you recommend for the future?

Use following information to develop your proposal, please use Excel format for analysis completion.

Given Information and Known Costs
Cost of MRI machine	$ 2 million
Space required	20'X20'X10' 20' x 20' = 400 Square Feet
Cost of space renovation	$45 per sq. ft.
Senior Technician wages	$55 per hour 40 Hours/week
Junior Technician wages	$35 per hour 40 Hours/week
Radiologist (Half time)	$88 per hour 20 Hours/week
Computers and software	$12,000
Consumable supplies	$10 per exam
Utilities	$10 per square foot per year

Other Assumptions:

Beginning Year 3 the service will add 8 hours per week to include Saturday mornings (4 hours) and Tuesday and Thursday evening for 2 hours each. Staffing hours for the employees will need adjustment and to include the Radiologist. The estimated number of procedures would be adjusted accordingly. The technology is capable of completing one procedure per hour.

Salaries will include a 2% wage adjustment for each year after Year One of operation.

Utilities expense will increase by 3% per year for each year after Year One. This is inflationary cost increases.

Revenue and Reimbursement
Allowable price per MRI procedure	$1,200 per session
Reimbursement: Blue Cross	85% of billable services
Reimbursement: Medicare	80% of billable services
Reimbursement: Medicaid	50% of billable services
Private Pay	100% of billable services

 

Other Information
Total population	800,000
Clinic's market share	15% of population - for Years 1 & 2 18% of population - for Years 3, 4 & 5
MRI market share	4% of overall clinic market share
Payor Mix: A, B, C, D
A: Private Pay	10%
B: Blue Cross	30%
C: Medicare	40%
D: Medicaid	20%
MRI throughput	Maximum of 8 patients per day, 5 days per week.
Loan interest	8% simple interest
Bad debt on procedures	5% per year