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Healthcare Budgeting and Financing of a Primary Care Facility

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.

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:

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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