Your final assignment has two parts. Based on the case below and using the Excel spreadsheet located in the Books and Resources for this Week area, you will first prepare a business plan for a joint venture outpatient facility, and then prepare a five-year financial projection for the venture.
ABC a not-for-profit Health System has been experiencing a small but steady decrease in market share over the last five years. ABC has been facing increased competition from three competing health system in ABC primary and secondary service markets, who have opened outpatient facilities in the service areas, and from two national drug store chains who have opened urgent care centers in their stores.
ABC has not opened any outpatient facilities, ABC has believed that these centers do not increase market share and just “cannibalize” existing patients and increase the cost of providing service. An example of ABC thought the process is opening outpatient radiology centers. ABC market survey has shown if they open an outpatient center 80% of the center’s volume would come from its existing facility. Stand-alone the new center looks profitable, but if you account for the system as a whole the lost revenue from the existing facility causes the entire venture to be unprofitable. ABC would need to duplicate equipment and staff with only a minor increase in volume. Given these facts, ABC has not opened outpatient facilities.
However competition has and over a five year period ABC has seen its market share in its primary service area decrease by 7%, and 12% in its secondary market. ABC knows it needs to meet this competition in the long run, even if there are short-term losses.
ABC has been approached by the major mall which is right on the eastern border of its primary and secondary service area. With the downsizing of retail stores, the mall has 70,000 square feet available for rent. The mall operator has approached ABC to see if ABC would have interest in opening a healthcare facility in the available space. ABC believes the mall operator has also approached the other healthcare systems. The mall operators are willing to pay for the necessary renovations to convert the space from retail to medical and will charge ABC the cost of the renovations in its rent over 15 years.
If ABC moves ahead with the project it will offer the following services at the location.
- Surgical Center
- Urgent Care Center
- Radiology Services:
- CT Scan
- Diagnostic Radiology
- Pet Scan
For the success of the project, ABC is considering a joint venture model allowing physicians to be owners of the venture. However, the physician ownership will dilute the income earned by ABC. Also as a joint venture, the venture will need to be established as a for-profit company making it subject to federal and state taxes as a for-profit tax entity.
The Excel worksheet, which you will need to download, shows the projected volume, revenue, and expenses for each service and the percent new volume versus “cannibalized”. ABC projects for every $1 dollar of “cannibalized” revenue from its existing facility ABC could reduce costs $0.50.
Prepare a business plan for a joint venture between physician groups and a healthcare system to provide outpatient services, which will include a discussion on the following:
The economic implications of the increase in competition between healthcare providers and the effect the growth of non-hospital-based facilities has had on the growth in healthcare cost in America.
The state in which ABC operates does not have a Certificate-of-Need (CON) program. CON programs require healthcare organizations to prove the community need for large expenditures and expansion of programs. Without CON healthcare organizations can develop any programs they wish without the approval of a healthcare planning board.
Consider the lack of CON in your answer and include a short pro and con of CON programs.
Finally, prepare a five-year projection of the joint venture. Do not forget to include the analysis and the effect of this venture will have on cannibalization of services already provided by the organization.
Total Assignment Length: 7-10 pages, not including title and reference pages
Resources: Include a minimum of 5 scholarly resources to support your assignment.
Your assignment should demonstrate thoughtful consideration of the ideas and concepts presented in the course by providing new thoughts and insights relating directly to this topic.