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A Feasibility Analysis for aA Feasibility Analysis for a
Fixed MRI UnitFixed MRI Unit
Amy Everage HendricksonAmy Everage HendricksonUniversity of KentuckyUniversity of KentuckyMartin School of Public Policy and AdministrationMartin School of Public Policy and Administration
Masters of Healthcare AdministrationMasters of Healthcare AdministrationCapstone ProjectCapstone Project
Spring 2008Spring 2008
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OverviewOverview
Product ReviewProduct Review Literature ReviewLiterature Review Purpose of the StudyPurpose of the Study
Managerial QuestionManagerial Question Background and Retrospective AnalysisBackground and Retrospective Analysis MethodologyMethodology Data Sources and CollectionData Sources and Collection
Prospective Situational AnalysisProspective Situational Analysis LimitationsLimitations RecommendationsRecommendations
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Product ReviewProduct Review
Magnetic Resonance Imaging (MRI) is aMagnetic Resonance Imaging (MRI) is anoninvasive diagnostic technique thatnoninvasive diagnostic technique thatproduces computerized images of internalproduces computerized images of internal
body tissues and is based on nuclearbody tissues and is based on nuclearmagnetic resonance of atoms within themagnetic resonance of atoms within thebody induced by the application of radiobody induced by the application of radiowaves*waves*
*Merriam*Merriam--Webster (2008)Webster (2008)
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Product ReviewProduct Review
*Iglehart (2006)
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Literature ReviewLiterature Review
Financial Feasibility and Future Success ofFinancial Feasibility and Future Success ofMRI ServicesMRI Services
Optimal success in the capture of imaging
Optimal success in the capture of imagingrevenue tied to appropriate staffing andrevenue tied to appropriate staffing and
technology.technology.
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Literature ReviewLiterature Review
Imaging revenues have historically been one ofImaging revenues have historically been one ofthe two most profitable business lines forthe two most profitable business lines forhospitals*hospitals*
All hospital in this study reported strong MRIAll hospital in this study reported strong MRIvolumes contributed to volume growth andvolumes contributed to volume growth andfinancial success*financial success*
MRI Technology is offering physiciansMRI Technology is offering physicians
precisions in surgery and accuracy of diagnosis,precisions in surgery and accuracy of diagnosis,particularly Cancerparticularly Cancer
*The Advisory Board Company (2005)*The Advisory Board Company (2005)
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Literature ReviewLiterature Review
Future of MRI Technology*Future of MRI Technology*
1.5T vs. 3.0T1.5T vs. 3.0T
Spine and breast images are inferior to the 1.5TSpine and breast images are inferior to the 1.5T
Coils not yet available for some servicesCoils not yet available for some services
Open vs. ClosedOpen vs. Closed
Limited image quality due to lower magneticLimited image quality due to lower magnetic
strengthstrength
*Tannenbaum (2005)*Tannenbaum (2005)
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Literature ReviewLiterature Review
Competition for MRI ServicesCompetition for MRI Services
Hospitals, radiologists, nonHospitals, radiologists, non--radiologistsradiologistsphysicians and independent testing facilities*physicians and independent testing facilities*
Hospital did have greater capture of servicesHospital did have greater capture of servicesover others.*over others.*
Importance of CON Law and application ofImportance of CON Law and application of
the Stark Lawthe Stark Law
*Mitchell*Mitchell (2007)(2007)
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Literature ReviewLiterature Review
MRI Market PotentialMRI Market Potential
6% of all outpatient imaging volume and 30%6% of all outpatient imaging volume and 30%of all imaging profits come from MRI*of all imaging profits come from MRI*
*Advisory Board Technology Watch (2005)*Advisory Board Technology Watch (2005)
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Purpose of the StudyPurpose of the Study
To analyze the feasibility of establishing aTo analyze the feasibility of establishing apermanent, fixed MRI service at Newcopermanent, fixed MRI service at NewcoHospitalHospital
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Managerial QuestionManagerial Question
Can the organization anticipate revenuesCan the organization anticipate revenuesadequate to justify this new service?adequate to justify this new service?
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MethodologyMethodology
Retrospective AnalysisRetrospective Analysis
SWOT AnalysisSWOT Analysis
Prospective Situational AnalysisProspective Situational Analysis Financial ProformaFinancial Proforma
Breakeven AnalysisBreakeven Analysis
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Data Sources and CollectionData Sources and Collection
InterviewsInterviews
Direct ObservationDirect Observation
Inpatient andO
utpatient MRI VolumesInpatient andO
utpatient MRI Volumes Manual Reports and DocumentsManual Reports and Documents
Automated Decision Support ToolsAutomated Decision Support Tools
National, State, and Area DevelopmentNational, State, and Area DevelopmentDistrict specific dataDistrict specific data
Journal ArticlesJournal Articles
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Background and RetrospectiveBackground and RetrospectiveAnalysisAnalysis
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Organizational Setting &Organizational Setting &
DescriptionDescription 96 bed, acute96 bed, acute--care, rural hospitalcare, rural hospital
NotNot--forfor--profitprofit
1 of 9 hospitals1 of 9 hospitals
Located in Eastern KentuckyLocated in Eastern Kentucky
Provides services of a community hospitalProvides services of a community hospital
FullFull--service imaging departmentservice imaging department
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Goals and ObjectivesGoals and Objectives
Mission: Improve the health and promote theMission: Improve the health and promote thewell being of the peoplewell being of the people
Formalized strategic planning process for theFormalized strategic planning process for the
organization and for the hospitalorganization and for the hospital Organizations grand strategy is to be aOrganizations grand strategy is to be a
financially viable ongoing entityfinancially viable ongoing entity
Support system objectives: by growing volumeSupport system objectives: by growing volume
and market share, improving patient satisfaction,and market share, improving patient satisfaction,and establishing quality with staffing andand establishing quality with staffing andtechnology.technology.
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GovernanceGovernance
Reports to manager of radiologyReports to manager of radiology
Administrative Responsibility/CommunityAdministrative Responsibility/Community
CEO
CEO
Reports to organizational president/CEOReports to organizational president/CEO
Governed by Board of TrusteesGoverned by Board of Trustees
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Profile of Existing ServiceProfile of Existing Service
MRI service availableMRI service available
Mobile Contract ServiceMobile Contract Service
Two days a weekTwo days a week Maximized within the 1Maximized within the 1stst year of operations inyear of operations in
20012001
Patient Satisfaction 3.35 on a 4.0 scale,Patient Satisfaction 3.35 on a 4.0 scale,
below industry benchmark of 3.55below industry benchmark of 3.55
No current marketing plan or strategyNo current marketing plan or strategy
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Revenue Cycle ManagementRevenue Cycle Management
Established charge and billing structureEstablished charge and billing structure
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Information SystemsInformation Systems
Integrated information system in placeIntegrated information system in place
Digital picture archiving systemDigital picture archiving system
No automated patient scheduling systemNo automated patient scheduling system
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FiscalFiscal
2007 work stoppage2007 work stoppage
Declines in volumes, revenue cycleDeclines in volumes, revenue cycle
efficiency, cash flowefficiency, cash flow 2007 operating loss of $6 million2007 operating loss of $6 million
NonNon--restricted days in cash is 23restricted days in cash is 23
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Human ResourcesHuman Resources
Employees represented by USWEmployees represented by USW
Negotiated salary and benefits in marketNegotiated salary and benefits in market
placeplace
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Materials ManagementMaterials Management
Centralized materials managementCentralized materials managementfunctionsfunctions
Member of large GPO
Member of large GPO
Good Leverage for competitor pricingGood Leverage for competitor pricing
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Regulatory & LegalRegulatory & Legal
Well established organizational policy andWell established organizational policy andproceduresprocedures
Approved certificate of needApproved certificate of need
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Volume and Market AnalysisVolume and Market Analysis
Current market share is 43.08%Current market share is 43.08%
MRI volume decline in 2007 due to:MRI volume decline in 2007 due to:
Private physician competitor went into businessPrivate physician competitor went into business
Work stoppage by unionWork stoppage by union Limitation of a two day a week serviceLimitation of a two day a week service
National use rate is 61.5/1000National use rate is 61.5/1000
Socioeconomic demographics and epidemiologySocioeconomic demographics and epidemiology
suggest 61.5 is a conservative estimate in this marketsuggest 61.5 is a conservative estimate in this market Slight population increase over next five yearsSlight population increase over next five years
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MRI UtilizationMRI Utilization
Newco Hospital Service Area FY 2007
Total MRI Scans at Newco Total MRI Scans in the Service
Area
#MRIScans
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Payor Mix for Newco Hospital MRI Services
34%
33%
8%
25%
Medicaid
Medicare
Self-Pay
Commercial & ManagedCare
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Community and Medical StaffCommunity and Medical StaffSupportSupport
Local Advisory committeeLocal Advisory committee
Medical StaffMedical Staff
Government officialsGovernment officials
Business leadersBusiness leaders
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Facility and Physical PlantFacility and Physical Plant
No vacant space in the hospitalNo vacant space in the hospital
Good undeveloped space adjacent to theGood undeveloped space adjacent to the
west end of hospitalwest end of hospital
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SWOT AnalysisSWOT Analysis
StrengthsStrengths
Well Established Physician Referral BaseWell Established Physician Referral Base
Vacant space available for developmentVacant space available for development
Ample Parking at site for new constructionAmple Parking at site for new construction Location of hospitalLocation of hospital
9% Imaging volume growth over the past 5 years9% Imaging volume growth over the past 5 years
Competitive salary & benefit packagesCompetitive salary & benefit packages
Experienced manager in medical imagingExperienced manager in medical imaging
Existing contract with interpreting radiologistsExisting contract with interpreting radiologists
New PACS imaging systemNew PACS imaging system
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SWOT AnalysisSWOT Analysis
WeaknessesWeaknesses
No existing space availableNo existing space available
PartPart--time mobile MRI servicetime mobile MRI service
Poor marketing and advertising for MRIPoor marketing and advertising for MRI
Congested centralized registration in imagingCongested centralized registration in imagingdepartmentdepartment
Congested centralized imaging waiting roomCongested centralized imaging waiting room Expensive benefit packagesExpensive benefit packages
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SWOT AnalysisSWOT Analysis
OpportunitiesOpportunities
Increased referral potential with full timeIncreased referral potential with full timeserviceservice
Draw commercial patients into upscale settingDraw commercial patients into upscale setting
Make services available 24/7Make services available 24/7
Kentucky CON lawsKentucky CON laws
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SWOT AnalysisSWOT Analysis
ThreatsThreats UnionsUnions
Aggressive physician practice & diagnosticAggressive physician practice & diagnostic
competitioncompetition Tertiary care centers within one hourTertiary care centers within one hour
Two strong hospitals in primary service areasTwo strong hospitals in primary service areas
Increasing trend for physician and radiologistsIncreasing trend for physician and radiologiststo compete for imaging businessto compete for imaging business
Potential for Kentucky to Lift CON lawPotential for Kentucky to Lift CON law
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Prospective SituationalProspective Situationalanalysisanalysis
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0200
400
600
800
1000
1200
1400
1600
1800
Curre
ntActivi
ty
Year1(2
7%)
Year2(4
0%)
Year3(4
5%)
Outpatient MRI
ScansInpatient MRIScans
Total MRI Scans
Projected Volume Growth of MRIProjected Volume Growth of MRIScans at Newco HospitalScans at Newco Hospital
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Scope of ServiceScope of Service
24/7 Service24/7 Service
MM--F 8F 8--4:304:30
Nights and weekends emergency on callNights and weekends emergency on callserviceservice
Population service: Cradle to GravePopulation service: Cradle to Grave
FullFull--range of MRI servicesrange of MRI services
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Capital Equipment andCapital Equipment andConstructionConstruction
Construction:Construction: Modular addition and renovated spaceModular addition and renovated space
Completed architectural planCompleted architectural plan
Hard bid construction estimatesHard bid construction estimates Total construction 1976 sq. feetTotal construction 1976 sq. feet
Cost estimate $617,089Cost estimate $617,089
Equipment:Equipment: 1.5 T closed MRI1.5 T closed MRI
Cost $1,307,279Cost $1,307,279
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Workforce AssessmentWorkforce Assessment
Modality based staffing modelModality based staffing model
Experienced MRI Technologist candidatesExperienced MRI Technologist candidates
availableavailable Training provided by vendorTraining provided by vendor
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MarketingMarketing
New Marketing Director hiredNew Marketing Director hired
Strategic marketing planStrategic marketing plan
Advertising and direct marketing visitsAdvertising and direct marketing visits
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Outcomes EvaluationOutcomes Evaluation
MeasuresMeasures
VolumesVolumes
Operational expenseOperational expense
Patient satisfactionPatient satisfaction
QualityQuality
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Financial AnalysisFinancial Analysis
EW C O H OSPIT AL
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Br k n An y is
# of Patients 1143
Total Net Revenue 714,981
C st Description Fixed Cost( )
riable CostsSupplies (
c
days ind
entory on hand) 103,556$
Fixed CostsSalaries 70,782$Payroll Taxes & Empl. Benefits 21,235$Annual service agreement on MRI Warranty
Lease( e RI 5 years with b f y o f t option) 235,310$Marketing (Intercompany standard 2% ofrevenue) 30,639$Corporate Overhead ( e RI = 23% ofRads 7%) $34,786Hospital Overhead (see corporate overhead) $109,783
Minor equipment purchases $250Interest Expense $75,578Depreciation $33,040
otal Fixed Costs $ 611, 3
Total ( ariable Cost + Fixed Cost) 714, 59. Break even inyear1
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$-
$200,
$400,
$600,000
$800,000
$1,000,000
$1,200,000
$1,400,000
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17
Months
Revenue Net evenue
Fi ed ost
ot osts
BreakevenGr phBreakevenGr ph
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LimitationsLimitations
No information is collected by any agencyNo information is collected by any agencyrelative to outpatient service statisticsrelative to outpatient service statistics
The need to rely on experientialThe need to rely on experiential
information from expert subjectsinformation from expert subjects No reporting requirements for hospitals inNo reporting requirements for hospitals in
Kentucky, Tennessee, or VirginiaKentucky, Tennessee, or Virginia N
o data sources for utilization of services inN
o data sources for utilization of services inthe private sector for physicians orthe private sector for physicians orindependent diagnostic centersindependent diagnostic centers
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Limitations ContinuedLimitations Continued
This means that all projections, whileThis means that all projections, whilebased to the extent possible on proprietarybased to the extent possible on proprietaryutilization data and national use rates,utilization data and national use rates,required educated assumptions to berequired educated assumptions to bemade from the experiential datamade from the experiential data
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ReferencesReferences
Iglehart, John K., (2006). The New Era of Medical ImagingIglehart, John K., (2006). The New Era of Medical Imaging Progress and Pitfalls.Progress and Pitfalls.
New England Journal of Medicine, 354:2822New England Journal of Medicine, 354:2822--28282828
MerriamMerriam--Websters Medical Dictionary. (2008). Magnetic Resonance ImagingWebsters Medical Dictionary. (2008). Magnetic Resonance Imaginghttp://medical.merriamhttp://medical.merriam--webster.comwebster.com
Mitchell, Jean M. (2007). The Prevalence of Physician SelfMitchell, Jean M. (2007). The Prevalence of Physician Self--Referral ArrangementsReferral Arrangements
After Stark II: Evidence from Advanced Diagnostic Imaging.After Stark II: Evidence from Advanced Diagnostic Imaging. Health AffairsHealth Affairs,,26:3,26:3, 415415--424.424.
Tanenbaum, Lawrence, N., (2006). Clinical 3T MRI: Mastering the Challenges.Tanenbaum, Lawrence, N., (2006). Clinical 3T MRI: Mastering the Challenges.Applied RadiologyApplied Radiology,, 35:11,35:11, 3434--50.50.
The Advisory Board, H*Works: Structure and Responsibilities of Diagnostic ImagingThe Advisory Board, H*Works: Structure and Responsibilities of Diagnostic Imaging
Departments,Departments, Original Inquiry BriefOriginal Inquiry Brief, May 24, 2005., May 24, 2005.
The Advisory Board, MRI:N
ew systems, applications herald future volume growth,The Advisory Board, MRI:N
ew systems, applications herald future volume growth,Technology WatchTechnology Watch, November 4, 2005., November 4, 2005. www.advisory.comwww.advisory.com
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Special Thanks To:Special Thanks To:
Committee Chair: Leonard Heller Ed.D.Committee Chair: Leonard Heller Ed.D.
Committee Member: Sarah Wackerbarth Ph.D.Committee Member: Sarah Wackerbarth Ph.D.
Committee Member: Adetokunbo Oluwole Ph.D.Committee Member: Adetokunbo Oluwole Ph.D.
Outside Advisor: Trena HallOutside Advisor: Trena Hall
Clinical Director of Corporate ProjectsClinical Director of Corporate Projects
Appalachian Regional HealthcareAppalachian Regional Healthcare
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Questions?Questions?