MMHA 6999 Strategic Planning In Health Care

Question: ABC Hospital is a rural facility in Medford, Oregon that competes with two other hospitals in delivering quality patient care in the Rogue Valley. One of the competing hospitals provides cancer treatment services similar to ABC Hospital and has been gaining a larger market share in the last 12 months because of its television and billboard ads. Recently, the local news station covered a story about a report published by an independent research company stating that in the last five years, the Rogue Valley has experienced a steady increase of residents with pancreatic and testicular cancer. In response to this report and because of the shrinking market share, the chief executive officer (CEO) of the hospital has tasked the chief strategy officer (CSO) and the chief financial officer (CFO) with exploring whether it should make additional investments in cancer treatment services that will allow the organization to increase its capacity to serve more patients and gain a larger sector of the market. Based on their analysis, the CSO and CFO have presented you with the following two options to review prior to the meeting with the CEO: Option 1:ABC Hospital invests $11,995,000 in the development of a new state-of-the-art cancer treatment center. Based on their estimates, the first year cash flow will be $2,000,000, the second year cash flow will be $4,000,000, the third year cash flow will be $5,000,000, and the fourth year cash flow will be $8,000,000. The expected return of 8.9% is used as the discount rate. Option 2:ABC Hospital invests $5,095,000 in a joint venture with a reputable oncology group and the hospital agrees to a 55% interest in the joint venture. Based on the estimates, the first year cash flow will be $1,500,000, the second year cash flow will be $3,000,000, the third year cash flow will be $4,500,000, and the fourth year cash flow will be $6,500,000. The expected return of 8.9% is used as the discount rate. Answer: Years Cash inflows for option 1 (in $) 0 -1,19,95,000 1 20,00,000 2 40,00,000 3 50,00,000 4 80,00,000 Cash and cash equivalents $2,275,884 Short-term investments $3,945,998 Receivables, less doubtful accounts $4,958,923 Other current assets (inventory) $2,667,391 Total current assets $13,848,196 Limited-use assets $2,397,421 Property and equipment $4,510,961 Other long-term assets $2,301,810 Total assets $23,058,388 Current portion of long-term debt $850,000 Accounts payable $3,120,692 Estimated third-party settlements $962,908 Accrued salaries, wages, and fees $5,837,624 Other accrued liabilities $2,163,187 Total current liabilities $12,934,411 Long-term debt, net $2,450,873 Other noncurrent liabilities $938,578 Total liabilities $16,323,862 Unrestricted $400,000 Temporarily restricted $600,000 Permanently restricted $5,734,526 Total net assets $6,734,526 Total liabilities and net assets $23,058,388 Particulars Amount (in $) Monthly utilities 590 Annual utilities 7,080 Monthly health/wellness staff 2,500 Annual health/wellness staff 30,000 Monthly arts/crafts staff 2,000 Annual arts/crafts staff 24,000 Monthly supplies 800 Annual supplies 9,600 Monthly fitness equipment maintenance contract 200 Annual fitness equipment maintenance contract 2,400 Total annual fixed cost 73,080

MMHA 6999 Strategic Planning In Health Care

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MMHA 6999 Strategic Planning In Health Care

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