Healthcare Budgeting and Financing of a Primary Care Facility

Introduction

The proposed private primary care is the Shadge Hospital. Its main specialization will entail monitoring patient’s health data by use of wearable monitoring devices. The business model of this private primary care is built around the need to over value to customers by monitoring their health remotely (Grayston, Fairhurst & McKinstry, 2019). The potential customers for the business include the aged population which is at a high risk of blood pressure and heart disease (Vu, Bales & Bredenkamp, 2020). The data obtained from their customers will be relayed to a data center for action.

Healthcare Budgeting and Financing of a Primary Care Facility

Volume of Patient Visits

The Shadge hospital is located in a community of 650,000 people. Within this community, there isn’t any primary care health facility that offers the same services. However, the population of the target customers is 4 percent since the larger majority are the youth. Thus, it is likely to experience a maximum volume of patient visits of about 26,000 patients. This volume might however change depending on the demographic changes in the coming years.

Revenues

While calculating revenue for Shadge Hospital, all calculations were based on a single estimated sale price, which is $400 and a single estimated purchase price, which is $300. The materials cost for Shadge Hospital’s products is calculated by using this equation:

𝑀𝑎𝑡𝑒𝑟𝑖𝑎𝑙 𝑐𝑜𝑠𝑡 = 𝑆𝑎𝑙𝑒𝑠 𝐸𝑠𝑡𝑖𝑚𝑎𝑡𝑒𝑑/𝑠𝑎𝑙𝑒𝑝𝑟𝑖𝑐𝑒 × 𝐸𝑠𝑡𝑖𝑚𝑎𝑡𝑒𝑑 𝑝𝑢𝑟𝑐ℎ𝑎𝑠𝑒 𝑝𝑟𝑖𝑐𝑒. The following statements and reporting give a projection of Shadge Hospital’s monthly and annual revenue as per the provisions of López, Rich & Smith, (2015)

Financial Projection #1: Shadge’s Hospital Revenue.

The Shadge Hospital
Monthly Annually
Target profit (includes. owner 3,500 42,000
salary)
loan servicing 500 6,000
Income after taxes 4,000 48,000
Taxes 24% 960 11,520
funding requirements 4,960 59,520
loan interest 80 960
Required) 5,040 60,480 (A)
Fixed cost
target salaries 2,000 24,000
rent 800 9,600
electricity, heat, water 200 2,400
advertising 150 1,800
insurance 150 1,800
transport 150 1,800
telephone/internet 250 3,000
stationery/postage 50 600
repairs/renewals 50 600
depreciation 600 7,200
local taxes
Total fixed cost 4,400 52,800 (B)
Revenues 9,440 113,280
Purchases +materials and supplies 4,500 54,000
(net of VAT)
Net sales required 13,940 167,280
VAT 24% 3,804 45,648
Total Projected Revenue 17,744 212,928

The Shadge Hospital

Projected Expenses

Fixed cost
target salaries 2,000 24,000
rent 800 9,600
electricity, heat, water 200 2,400
advertising 150 1,800
insurance 150 1,800
transport 150 1,800
telephone/internet 250 3,000
stationery/postage 50 600
repairs/renewals 50 600
depreciation 600 7,200
local taxes
Total Expenses 4,400 52,800 (

Assumptions to justify all Volumes, Revenues and Expenses

There’s an obvious logic as to why the 26,000 volume of patients is logical. As mentioned in prior sections, the Shadge hospital is located in a community of 650,000 people. Within this community, there isn’t any primary care health facility that offers the same services. However, the population of the target customers is 4 percent since the larger majority are the youth. Thus, it is likely to experience a maximum volume of patient visits of about 26,000 patients. The revenue projection forecasts the amount of sales the healthcare facility can generate in a year’s time. Similarly, the expenses calculator gives a projection of the hospital’s total fixed costs in a year’s time.

3-year Operating Budget

                                                               The Shadge Hospital

Th

Monthly Annually 3 years
Sales 17,744 212,928 638,784
Variable costs
materials 13,248 158,976 476,928
direct wages
other
Total variable costs 13,248 158,976 476,928
Gross profit/contribution 4,496 53,952 161,856
Fixed costs
target salary (incl. taxes) 2,000 24,000 72,000
rent 800 9,600 2,880
electricity, heat, water 200 2,400 7,200
advertising 150 1,800 5,400
insurance 150 1,800 5,400
transport 150 1,800 5400
telephone/internet 250 3,000 3000
stationery/postage 50 600 1800
repairs/renewals 50 600 1,800
depreciation 600 7,200 21,600
local taxes
other
Total fixed costs 4,400 52,800 158,400
Net profit 96 1,152 3,456
Break-even point = A/B x C 17,365 208,381 625,143

Break-even Analysis

Total fixed costs 4,400 52,800 (
Net profit 96 1,152
Break-even point 17,365 208,381

Hint: Break-even Point is given by A*B*C.

Internal Rate of Return

To determine the Internal Rate of Return, it is critical to calculate the initial investment first as below:

The Shadge Hospital – Investment calculation

Rental deposits (3 months)
85m2 (900Sqft) furnished accommodation in EXPENSIVE 2,700
areas
Renovation 4,000
Telephone, fax, copying, internet 250
Computers and software 3,000
Furnishings & fixtures 1,500
Supplies 1,000
Marketing investment 1,000
Registration fee 225
Initial inventory (100 devices x 300 dollars) 30,000
Working capital 10,000
Total capital requirement 53,675

If Year 1’s Cash flow is 17,361, year 2’s cash flow is 208,381, and year 3’s capital investment is 625,143, then the IRR is 132.56%.

Net Present Value

Present Value of Cash Inflows (PVIFA) = 657,678

Net Present Value (NPV) = 604,003

Assessment of the Financial Risk

Starting the Shadge Hospital is a calculated financial risk. From the cash flow analysis above, it is evident that business will definitely work out. The business has a strong business model of offering primary care to aged population and at the same time, selling them wearable technologies to monitor their conditions. The fundamental aspects that have to be taken into consideration when implementing these projections include keeping all factors constant, more so when it comes to marketing.

Another fundamental that can be reflected in the finance projections above is the lack of competition. Within this community, there isn’t any primary care health facility that offers the same services. However, the population of the target customers is 4 percent since the larger majority are the youth. Thus, it is likely to experience a maximum volume of patient visits of about 26,000 patients. The revenue projection forecasts the amount of sales the healthcare facility can generate in a year’s time.

References

  • Grayston, J., Fairhurst, K., & McKinstry, B. (2019). Using new technologies to deliver test results in primary care: structured interview study of patients’ views. Primary Health Care Research & Development, 11(02), 142. doi: 10.1017/s146342360999034x
  • López, D., Rich, K., & Smith, P. (2015). Auditor size and internal control reporting differences in nonprofit healthcare organizations. Journal Of Public Budgeting, Accounting & Financial Management, 25(1), 41-68. doi: 10.1108/jpbafm-25-01-2013-b003
  • Vu, L., Bales, S., & Bredenkamp, C. (2020). What drives utilization of primary care facilities?: Evidence from a national facility survey. International Journal Of Healthcare Management, 1-7. doi: 10.1080/20479700.2020.1752984