Purchase of Hospital Equipment - Case Study Example

Purchase of Hospital Equipment Section IV: Final Project Summary A hospital plays a crucial role in the society, and no community can afford to exist safely without health care facilities. This is because regardless of how developed a country may be, people are still bound to fall sick, and suffer injuries, which calls for medical attention. However, the ability of a health care institution to provide quality health care to patients depend on how equipped the hospital is to be able to handle the patients that visit the hospital with all manner of problems. As such, it is always important for any given health care institution to ensure that there is enough equipment in place to be able to meet all its goals. Otherwise, the hospital may not be in a position to meet all its goals. The capital purchases that have been made have certainly enabled the hospital to meet most of its goals. One of the core goals of the hospital is the quality assurance to patients in the society. Initially the hospital was not in a position to meet this goal to all patients who visit the hospital since the hospital lacked some of the capital equipment necessary to meet their needs. However, this problem has so far been solved since the hospital purchased the capital equipment because the hospital can now attend to all patients without having to refer them to other hospitals with these facilities. CAT scan is one of the capital expenditures that have brought a lot of changes in the hospital since it was introduced in the hospital. This is because the hospital has seen an upsurge of patients seeking for health care services in the hospital. This has help improve the revenue collection from the many patients seeking services of the hospital for diagnosis using the new equipment. Efficiency is also another key goal of the hospital. Efficiency in this case pertains to the provision of medical services with minimal or no error. The hospital believed that by acquiring CAT scan, the efficiency of health care providers would improve considerably in diagnosis of fractures and tumors, as well as treatments to patients. This has in turn increase satisfaction of both health care practitioners and patients a core value, which the hospital stands for. The capital expenditure has also enabled the hospital improve in the area of research and development, which the hospital has been yarning for several years in the area of fractures and tumors. Purchasing the CAT scan has also enabled the hospital achieve its revenue generation target, which has also improved the profit of the hospital. This is because the number of patient seeking the hospital’s services has improved significant since the hospital invested on the CAT scan. The purchase of the CAT scan is also justified since it has received backing from the hospital’s key stakeholders. This is because the effectiveness of any capital expenditure can only be judged through the responses received from the key stakeholders who are affected directly by the capital expenditures in an organization. The hospital did receive a positive response from the key stakeholder after conducting an interview on the impacts of the capital expenditure on them. The key stakeholders interviewed included the patients, health care providers, and the government with all accepting the expenditure as a good move towards improving the quality in health care service delivery. Economic feasibility study conducted with the aim of understanding how beneficial the move to purchase the CAT scan has been shows that the move has brought a lot of benefits to the hospital. The study was conducted using pro forma and financial analysis. From the analysis, it became apparent that the hospital has been able to reduce cost significant, which has in turn saw revenue increase tremendously. The pro forma indicates clearly how the hospital will be able to benefit from the capital expenditure in the next five years, which will see revenue increase from $2,000,000 to $2,500,000. This significant increase could not have been possible if the hospital could not have made the move to purchase this important equipment. Therefore, since the capital expenditure have helped transform the status of the hospital, it is imperative for all stakeholders of the hospital to provide the necessary support to help improve the hospital. As technology changes yearly, it is imperative for the hospital to keep up with the changes in order to ensure quality in service delivery. However, since the hospital is not in a position to fund all the expenditures, it will be necessary for the government and other stakeholders to provide the hospital with financial backings to enable it meet all its goals. Section II: Establishing Acceptability A hospital setting has a number of stakeholders with interest in the management of a hospital. As a result, it is always important that any capital purchase made in the organization take into consideration their interest since the capital purchases require huge capital outlay to be able to acquire (Casolari and Womack, 2010). For example, the capital purchases that have been made here are worth more than $5,000. Therefore, it is imperative to take into consideration the benefits that the items are likely to bring to the organization before deciding to purchase the equipment. Indeed these are the factors that were taken into consideration before purchasing the items that have seen most key stakeholders of the hospital accept the capital purchases. The computed Axial Tomography (CAT scan) is one of the capital expenditure bought to improve the quality of service delivery in the hospital. The equipment cost the hospital $50,000 to acquire. Nevertheless, despite its cost, the hospital’s key stakeholder have accepted it based on the benefits it has started bring to the company. Key hospital stakeholders such as doctors, patients, government, and community have accepted the purchase of computed Axial Tomography citing it as one of the best investment that the hospital has made in the recent years. The stakeholders argue that the purchase of computed Axial Tomography was long overdue based on the fact that some major hospital has benefited from diagnosing of fractures and tumors using the CAT scan. In addition, doctors accepted computed Axial Tomography arguing that the equipment will make their work easy and will increase the efficiency and quality of service deliver. This is because the equipment is able to reveal all the fractures and tumors regardless of part of the body with clarity (Absolute Medical Equipment, 2012). Patients also lauded the equipment arguing that they will no longer have to be referred to other hospitals with the equipment. The government as a key stakeholder also lauded the hospital for purchasing the equipment citing the move as best for the country. The hospital also received the backing of key stakeholders for purchasing CAT scan machine arguing that it will position the hospital competitively in the market. Before this equipment was bought, the hospital used to refer patients to other hospitals for diagnosis because health care providers were not in a position to provide diagnosis related to tumors and fractures, which cannot be detected using the old X-ray machine, which could not provide enough, and clear images of the fractures and tumors. Furthermore, the hospital used to lose revenue that could be generated from diagnosis to other hospitals, which had the equipment. This made such hospitals have a competitive advantage over the hospital. This is now set to change with the equipment in place. Patients have particularly lauded the purchase of the CAT scan machine. They argue that the procedure the equipment does not subject them much to high radiation that may put their lives in danger as was the case with the other equipments that the hospital used for diagnosing tumors and fractures. As a result, they see the move as a quality assurance as far as diagnosis and treatment of patients is concerned. The hospital’s health care practitioners have also lauded the purchase of the CAT scan machine arguing that the machine is very efficient thereby increasing their accuracy in diagnosis as the images can be seen clearly. This enables them to observe even the smallest tumor or fractures on patients. As a result, they no longer refer patients to other hospitals that have the equipment for diagnosis. They also argue that their acceptance of the CAT scan is because it has improved their efficiency, it also makes diagnosis faster thereby leading to high satisfaction of both patients and health care practitioners. Determine organizational risk and compliance issues related to purchase and use of the capital item. Despite the benefits of having the equipment in the hospital, there are also some organizational risks associated with the equipment. One of the major risks is that CAT scan is complicated and requires expertise who understands how it is used in order to operate it. This implies that the company will have to incur additional costs for training the health care providers, which puts the hospital at risk of having to incur additional costs. It is reported that CAT scan requires high computer skill in order to operate during diagnosis (Davey and Ince, 1999). However, since some of the health care providers may not be skilled enough to operate the machine, this puts the organization at a big risk. In addition, the organization will be required to comply with the guidelines related to the purchase of capital equipment, which is sometimes challenging. Further, the hospital is required to insure all the capital purchases as compliance requirement, which adds additional cost to the hospital. The organization may also suffer the risk of uncertainties as to whether the equipment will be able to work effectively (Casolari and Womack, 2010). This is because it is the first time that the company is introducing the equipment in the hospital. In addition, the risk may also result from defectiveness of the machine if no proper test is performed before buying the equipment. Risk Avoidance Strategies The risks can be avoided by conducting a research in time on the potential risks related to the purchase of the equipments in order to prevent or control the risks. For instance, the organization should train its staff in advance on how to use the equipment before introducing it in the hospital. Risks related to damages can be managed by insuring the capital expenditures for any damage that may occur to the equipment (Gourdon, 2010). This will ensure that the hospital will be compensated accordingly in case of damage to the equipment of failure. The risk of failure to operate as expected can be managed by obtaining both a warrantee and guarantee of the CAT scan machine to ensure that the hospital is secure as to the risk of defectiveness. Roles of management with regard to risk and compliance The management has to play a great role in ensuring that the company complies with all the requirements before the hospital can make such a purchase. In this regard, the management has to seek for permission from the relevant authority to have the equipments in place. With regard to risks, the burden of mitigating and managing the risks rests on the management. As such, it has to make sure that risks are effectively managed and prevented to prevent the hospital from suffering losses (Gourdon, 2010). Section III-Economic Feasibility Capital Budget Capital Budget Item Cost ($) Computed Axial Tomography 50,000 Total 50,000 Financial Analysis Patient volume 100,000 Operating costs $ Salaries 1,000,000 Supplies 100,000 Depreciation 10,000 Electricity 5,000 Equipment maintenance 50,000 Total Operating costs 1,165,000 Equipment Cost Computed Axial Tomography 50,000 Total Equipment Costs 50,000 Revenue 2,000,000 Based on the statement of comprehensive income above, it can be seen that despite the hospital spending huge sums of money to acquire the capital equipment, the reward is huge evident from the profits made after deducting all the costs incurred in running the hospital. Pro-forma The pro forma worksheet statement shows how the expenses incurred and revenue received will look like in the next five years. The Hospital Pro forma in the next five years Patient volume 150,000 Operating costs $ Salaries 1,000,000 Supplies 50,000 Equipment maintenance 30,000 Depreciation 10,000 Electricity 5,000 Total Operating costs 1,095,000 Revenue 2,500,000 Profit $1,405,500 Based on the pro forma it is evident that the costs and expenses have reduced considerably from $1,165,000 to $1,095,000. As a result, the hospital’s profits have also improved significantly. The increase in the revenue and profits is attributed to the fact that the hospital’s efficiency and productivity has improved as a result, many patients are seeking for services from the hospital, which according to the statement improved to 150,000 up from 100,000. The expenses of the hospital have also reduced because the hospital has become efficient. References Absolute Medical Equipment (2012). Medical equipment - hospital equipment - medical supplies. Retrieved from http://www.absolutemed.com/. Casolari, C., & Womack, S. (2010). Prioritizing capital projects when cash is scarce. Retrieved from http://www.hfma.org/Templates/Print.aspx?id=18049. Davey, A., & Ince, C.S (1999). Fundamentals of operating department practice. New York, NY: Cambridge University Press. Gourdon, C. (2010). Hospitals’ overall economic situation, access to capital and capital spending trends. Webinar Transcript: January 7, pp. 1-5. Read More