MMU Simi Regional Hospital Simplified Cost Benefits Analysis

Simplified Cost Benefits Analysis Paper

You are a newly hired operations manager within Simi Regional
Hospital. Prior to your arrival, based on customer feedback, the
executive leadership team has developed interest in the purchase,
installation, and employment of a new radiology service line. Using a
planning process to define a new radiology service line, a decision is
being requested, but leadership feels they do not have a complete answer
to proceed. Bear in mind that a decision matrix gave the new radiology
service line a high priority.

Administrators want to evaluate its
financial feasibility, but, as the newest member of the team, they first
want to hear your input. Estimated fixed costs are $1 million, and the
estimated net reimbursement level is $1,500 per procedure. Physicians
and other provider salaries on a direct basis are $340 per procedure,
and total operating expenses will add another $160 per procedure.
Calculate the breakeven point for this potential new service line.

  1. If Simi Regional discovered a way to reduce the total initial
    investment to $600,000, causing the average pricing level to fall to
    $1,200 and the other assumptions to stay the same, how many procedures
    would be required to break even?
  2. Assuming that the hospital conservatively estimates that it can
    deliver 1,000 procedures in the first year, which option should be
    chosen? Is it financially feasible to purchase, install, and employ the
    new radiology line? Or should the new radiology service be cancelled?

Using the breakeven analysis, and your own research on the
proposal, provide a written recommendation to the executive leadership
team and the Board of Directors regarding the benefit (or lack thereof)
of proceeding with the purchase and further developing the service line
for Simi Regional Hospital.

Required Textbook:

J. R., & Helton, J. (2016). Healthcare operations management: A
systems perspective (2nd ed.). Burlington, MA: Jones & Bartlett
Learning. ISBN-13: 978-1284050066

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