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Financial Feasibility and Modeling |
Assessing a Major Initiative for an Academic Medical Center
Client Profile: A nationally-known academic medical center
Project Type: Healthcare Strategic Planning and Business Planning; Financial Feasibility and Modeling
Challenge: To help the client make a decision about the purchase and operation of a proton beam accelerator for tens of millions of dollars. The high investment requirements had to be evaluated in the context of the organization’s commitment to clinical and research leadership.
DGA Solution and Results: Getting the latest technology is often presented as an imperative for a leading institution. Our analysis was designed to bring the uncertainty surrounding the decision to an acceptable level through a thoughtful and structured process. This allowed the institution to evaluate the likely financial realities in the context of its need to maintain its clinical and research leadership position.
Because the initiative would have a long lead time, we assessed the direction and pace of technological development to assure that it would still be state-of-the-art when completed. We assessed the financial implications of several different equipment vendors and financing mechanisms. We modeled the implications of specific hospital partners in the initiative. This allowed the hospital to compare its options objectively.
DGA engaged a range of internal constituencies, including clinical and research leaders, administration and the Board. Given this client’s situation, we concluded that they should not purchase the equipment at this time, but should treat patients at another facility through an affiliation. When technology and reimbursement questions settle, the client will reconsider acquisition.
Exploring the Options for a Distressed Hospital
Client Profile: A financially distressed New England community hospital
Project Type: Merger and Acquisition; Financial Feasibility and Modeling
Challenge: To guide a struggling acute care hospital with long-standing community ties in an affiliation exploration process, and to analyze its financial viability as an independent entity. After several years of increasing financial pressure, the hospital was reluctantly forced to consider affiliation. The client requested that we clarify the situation, determine available approaches and engage the board on criteria for affiliation. The client also sought accurate financial projections of its performance if it were to remain independent, including its ability to service debt under scenarios including potential conversion to Medicare critical access status.
DGA Solution and Results: DGA facilitated an education and planning session to guide the affiliation process, in conjunction with ACCORD, a strategic partner. We evaluated several potential partners for fit with criteria identified by the board through planning sessions, interviews, extensive research and data analysis.
DGA projected future financial performance in the absence of affiliation, based on a baseline scenario for utilization, payment, and expense levels developed in conjunction with hospital management. This analysis included assessing the impact of health reform and the scheduled sale of an unsuccessful subsidiary. We facilitated management working sessions to identify reasonable expense reductions that would increase funds available for debt service. Our projections ultimately showed overall expenses outpacing revenues even in the most optimistic scenario. These findings gave management the information needed to negotiate revised repayment terms with creditors.
We also simulated the results of operations if the hospital were designated a "Critical Access Hospital" under Medicare regulations, finding that this would allow the hospital to meet current debt service requirements. The hospital is considering additional analysis that would precede a formal application for CAH status, while continuing to engage with potential affiliates on options and approaches.
Assessing Debt Capacity During an Economic Downturn
Client Profile: Community hospital
Project Type: Financial Feasibility and Modeling
Challenge: To evaluate the ability of the hospital to finance a contemplated capital renovation, based on projected volumes, profitability and overall financial position. As a result of the economic downturn, capital availability was extremely limited, even to financially solvent entities.
DGA Solution and Results: The hospital had plans to launch new and enhanced product lines,
which would directly impact utilization and profitability. DGA worked with the Hospital to develop patient volume estimates which reflected historical trends, current and recent developments in care patterns, strategic and programmatic plans and the facility plan for the renovation project. We developed prospective financial estimates for three different scenarios, a comprehensive financial ratio analysis and comparison to industry benchmarks.
DGA provided the client with a succinct summary of the financial impact of the capital renovation project, prospective financial ratios and position for the institution and its likely overall creditworthiness. As a result, the hospital’s management and board were comfortable with moving forward on the project.
Determining Feasibility of a Surgical Specialty Hospital Joint Venture
Client Profile: Middle Atlantic multi-hospital system with major hospital facility in no-growth downtown location and significant competition in the growing suburbs.
Project Type: Financial Feasibility and Modeling
Challenge: Determine the feasibility of joint development of a surgical specialty hospital with local physicians. This bold strategic move would, if feasible, allow the health system to create additional capacity and strengthen its market position in a growing suburb by building on an extremely successful ambulatory care presence.
DGA Solution and Results: DGA supported the facility planning, deal structuring, and financial analysis for development of a 44 bed surgical specialty hospital.
DGA coordinated input from architects and managed the planning process to determine project cost and integration of the existing ambulatory care facility. We estimated market demand based on detailed discussions with physicians, and determined facility size based on these estimates. DGA performed several financial analyses, working closely with the system's finance staff, to estimate revenues based on the mix of actual cases treated by the likely physician participants. We built detailed budgets for the operation to determine expenses.
Our financial analysis gained credibility with the system board by considering both the income from the new facility and the negative impact of shifting cases out of the old facility.
DGA led the joint venture effort to bring the physicians and the system into a balanced and equitable partnership for the ownership and operation of the new hospital. We proposed the initial deal terms and worked with outside counsel to translate these terms into the final documentation needed to close the transaction.
The board approved the project, and DGA has assisted by developing the financial estimates for the offering memorandum.
Feasibility and Structuring of an Orthopedics Joint Venture
Client Profile: A 250-bed independent community hospital in Pennsylvania
Project Type: Financial Feasibility and Modeling
Challenge: To respond to market challenges caused by a competitor's new ambulatory care facility, the loss of the hospital's primary orthopedics group, and other competitive threats to the hospital's market position.
DGA Solutions and Results: DGA recommended several ambulatory/physician office strategies. We identified a premier orthopedics group and negotiated an arrangement for a satellite of the group to locate at the hospital. To ensure the arrangement's financial success, DGA completed a detailed financial analysis, including assessing the market opportunity and analyzing the financial benefits for multiple scenarios. We helped define the structure of the deal, ensuring that the different components of the affiliation met the required fair market value standards.
The hospital has now transformed devastating losses in its orthopedics service line into a significant improvement in the hospital's quality, patient volume, finances and an improved image for the hospital in its community.
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