NR 533 Week 5 Business Case for Two Beds Example

Business Case: Reopening Two Palliative Care Beds, a Three-Year Pro Forma With 3.7 Recurring Nursing Positions Shown as Plainly as the $127,900 First-Year Contribution, and the Hospice Rate That Could Erase It

Student Name

College of Nursing, Chamberlain University

NR 533: Financial Management in Healthcare Organizations

Instructor Name

Month Day, Year

Business Case: Reopening Two Palliative Care Beds, a Three-Year Pro Forma With 3.7 Recurring Nursing Positions Shown as Plainly as the $127,900 First-Year Contribution, and the Hospice Rate That Could Erase It

The Request

I request approval to reopen two patient rooms on the inpatient palliative care unit, taking it from 12 to 14 beds from the start of next fiscal year. The rooms were patient rooms until four years ago, when they were converted to equipment storage during a period of low census. They still have their headwalls, oxygen and suction. Reopening them requires a one-time investment of about $46,000 and a recurring commitment of about 3.7 full-time nursing positions. On the assumptions below, the two beds would contribute about $127,900 a year to the hospital's margin before allocated overhead, recover the one-time cost within the first year and relieve intensive care of patients waiting for a palliative bed.

Why Now

The unit's average occupancy is forecast at 87% next year, up from 81%, mainly because one of our two referring hospices closed its own inpatient facility. At that occupancy, a unit whose admissions cannot be scheduled regularly has no bed available when needed. Over the last six months, comfort-care patients in the intensive care unit waited a total of 31 days for a palliative bed, and eight hospice patients were placed on medical units because we were full. These patients are receiving care in the wrong place: intensive care is the most expensive bed in the hospital, and medical units are not staffed or designed for dying patients and their families.

Assumptions

Volume. The two beds would be occupied 80% of the time, lower than the unit's forecast occupancy, to allow for the fact that added beds absorb peaks rather than average demand. That gives 584 additional patient days a year.

Revenue. The finance office reports average net revenue per patient day on the unit of $1,340 across all payers, after contractual allowances, for the last twelve months. This blends Medicare inpatient payments, commercial per diem rates and the hospice contract rate of $1,150. I have assumed a 2% increase in net revenue per day each year, which is below the hospital's recent average.

Variable cost. The unit's draft budget gives a direct expense per patient day of $1,121, covering nursing salaries and benefits at the unit's staffing standard, supplies and pharmaceuticals. I have treated the whole amount as variable, because the staffing standard adds nursing hours in proportion to patient days. I have assumed a 3% increase in this cost each year.

One-time cost. Relocating the stored equipment to space identified by facilities costs about $8,000. Two beds, recliners for families and bedside furniture cost about $18,000. Painting, flooring repair and a check of the medical gas outlets cost about $20,000. The total is $46,000.

Not included. Allocated facility and administrative overhead is not included, because those costs are fixed at the hospital level and would not rise with two beds in existing space. Savings from shorter intensive care stays are also not included in the base case, for reasons explained below.

The Pro Forma

Table 1 sets out the three-year projection.

Table 1

Three-Year Pro Forma, Two Additional Palliative Care Beds

The Recurring Obligation

The pro forma's largest line is not the one-time cost. It is the nursing staff the beds commit the hospital to for as long as they stay open. At 11.5 worked hours per patient day, 584 patient days require 6,716 worked hours a year. With the unit's 12% non-productive time, that is 7,632 paid hours, or about 3.7 full-time positions, costing about $572,900 a year in salaries and benefits. This cost does not end after three years, and it cannot easily be reduced if occupancy falls, because nurses are hired as people, not as hours. If the added beds were occupied only 60% of the time rather than 80%, the hospital would carry most of the staffing cost with a quarter less revenue.

I am recommending that the positions be filled in two steps: two positions at opening and the remainder after three months, if occupancy of the new beds reaches 70%. Until then, per diem nurses would cover the gap. This costs more per hour but keeps the obligation reversible during the period when the demand assumption is least tested.

Risks

The hospice contract rate. The hospital's current hospice contract rate of $1,150 a day is below the unit's variable cost of $1,121 plus inflation by the second year, and far below the full cost of a day, which the unit's cost worksheet estimates at about $1,583 including overhead. If the added days are mostly hospice days rather than a mix of payers, the contribution per day would fall to about $29 in the first year and turn negative in the second. The business case therefore depends on renegotiating the hospice contract, which is due in nine months. I have presented the base case at the blended rate because that is the unit's current payer mix, but the hospice rate is the single biggest risk.

Staffing. The unit has one vacancy now. Recruiting 3.7 more positions in a tight market may take months, during which per diem costs would be higher than budgeted.

Demand. If the closed hospice reopens its facility, demand could fall back. Filling positions in two steps limits the exposure.

The Case Beyond the Unit

The pro forma counts only the unit's own revenue and cost. The larger benefit falls elsewhere. Comfort-care patients waiting in intensive care occupy the hospital's most expensive beds. In a large matched study, hospital palliative care consultation was associated with net savings in direct costs per admission and per day, including lower intensive care costs (Morrison et al., 2008), and a meta-analysis found that palliative care consultation for hospitalized adults with serious illness was associated with lower costs, with larger savings for patients with more complex illness (May et al., 2018). I have not added a figure for intensive care savings to the pro forma, because it would depend on how quickly intensive care beds are refilled and whether that produces revenue or only relief. The finance office can estimate it if leadership wants the wider view.

Financial texts for nurse managers recommend presenting both the direct financial return and the broader organizational effects of a proposal, while keeping them separate so that neither is inflated by the other (Finkler et al., 2013). This business case does that: the pro forma stands on the unit's own numbers, and the case beyond the unit is stated without being counted.

References

Finkler, S. A., Jones, C. B., & Kovner, C. T. (2013). Financial management for nurse managers and executives (4th ed.). Elsevier.

May, P., Normand, C., Cassel, J. B., Del Fabbro, E., Fine, R. L., Menz, R., Morrison, C. A., Penrod, J. D., Robinson, C., & Morrison, R. S. (2018). Economics of palliative care for hospitalized adults with serious illness: A meta-analysis. JAMA Internal Medicine, 178(6), 820-829. https://doi.org/10.1001/jamainternmed.2018.0750

Morrison, R. S., Penrod, J. D., Cassel, J. B., Caust-Ellenbogen, M., Litke, A., Spragens, L., & Meier, D. E. (2008). Cost savings associated with US hospital palliative care consultation programs. Archives of Internal Medicine, 168(16), 1783-1790. https://doi.org/10.1001/archinte.168.16.1783