The New Orthopaedic Service Line - Term Paper Example

?Running head: Service line development Insert Insert Grade Insert 2 March Trinity community hospital - Case study Introduction A hospital is a complex system of interrelated functions requiring constant movement of people and goods. Functional design of a hospital can promote skill, economy, convenience, and comfort. Nonfunctional design of a hospital can impede activities of all types, detract from quality of care, and raise costs to intolerable levels. Trinity community hospital is one such facility compromising of various patient services varying from gastroenterology to neurology. Its dedicated medical staff guarantees quality healthcare to the community. However, the declining volume of patients has led to losses this year. An orthopedic service is important in a hospital; however, trinity community hospital lacks this service line. Lack of this service makes it prone to competition, especially from regional hospital, which has a 350-bed facility inclusive of strong orthopedic services. Trinity community hospital is a 150-bed facility, and therefore, to stand at a competitive advantage, the hospital needs to develop an orthopedic service line through building, buying, or leasing. According to the case study, 5000 square foot is required for the orthopedic service line; construction will cost $120 per square foot, while price for building is $700,000. The rate of lease is $20 per square foot. The hospital management is also expected to cater for repair costs and taxes as well. This essay will discuss whether the best option for the hospital is to build, buy, or lease space for the new orthopedic service line. Service Line Development Advantages of Building space for the new orthopedic service line Currently, building adjacent to the hospital will cost $700,000; however, the campus is running out of space to expand. Needless to say, the constructed building will have depreciable life of 20years. Despite the high expenses of building a service line, the hospital will have the opportunity to suggest its plan, which is not the case when leasing an already built building. According to Neducin, Krkljes & Folic (2010, p.294), hospital facilities should comprise of a friendly environment, which is inviting and attractive. Such an environment is less stressful for recovering patients, and contains outdoor spaces. Building a facility enables the management to choose an appropriate location where construction takes place by taking environmental factors into consideration. Today, hospitals lack a positive healing environment, as they are located on limited space, especially in urban places, and therefore, blocking the access to the green environment or landscape views, which foster quick recovery. The proposed orthopedic service line will deal with the treatment of musculoskeletal system, which consists of joints, tendons, and muscles, and as a result, such patients require a friendly environment. Building is advantageous compared to leasing space; this is because the hospital may not manage to find an amicable rental space. However, it may consider renting the building if the price if affordable. The rise in costs and the increasing competition influences healthcare facilities to find ways of increasing their market share. Trinity community hospital has chosen to add an orthopedics service line, which is aimed at improving healthcare, as well as the financial performance. In addition, when building a facility, it can be designed in the desired manner, hence avoiding conflict of interest. Finally, once the hospital builds the orthopedic facility, it officially belongs to them, and can lease any extra space available. Advantages of buying space for the new orthopedic service line When buying space, the advantage is that fixed costs are included in the contact, and therefore, the management is aware of the amount to be spent. In addition, the management can rent out additional spaces, which increase their financial returns. Buying space can be attractive, as the building is readily available. Moreover, purchasing a facility gives room for further expansion. Purchasing a facility is a brilliant idea for a health facility, mainly because there is a possibility of remaining in one location, which is well known to the community. As a buyer, it is possible to determine the location of the desired facility; therefore, the management can manage to purchase space in their desired location as opposed to leasing. A 100% ownership is attained after purchasing a facility; therefore, any expansions or renovations can be done as opposed to a leased facility. In addition, the hospital management can purchase a facility in a competitive location, where their competitors have not ventured; as a result, trinity community hospital will be able to achieve a competitive advantage. Nevertheless, owning a facility influences the ability to budget and plan for long-term costs. Advantages of leasing space for the new orthopedic service line According to Hardy (2010), leasing a facility cannot affect the hospital’s future borrowing ability. The cost of leasing a facility normally remains constant, and as a result, the hospital will be in a position to predict its expenditures. Generally, leases have proven easier to finalize due to their less complex nature. In addition, the community hospital is exempted of maintenance and repair costs, as these are the owner’s responsibilities. As a result, the orthopedic service line will concentrate on its duties, leaving any maintenance or repair costs to the owner (Hardy, 2010). The hospital will be capable of acquiring a facility with only limited initial expenditure compared to building or purchasing a facility; this is because leases rarely require down payments. According to Adams (N.d, p.1), credit can be avoided as opposed to building or purchasing, which may involve borrowing of funds to complete acquiring a facility. Flexibility can also be achieved in leasing whether expansion or reduction of space, which results to change of facility to accommodate the lessee needs. Disadvantages of Building space for the new orthopedic service line Building the orthopedic service line requires huge amounts of expenses and enough space as well; however, according to trinity community service case study, the campus is running out of space for construction. This leaves the hospital at a disadvantage and with the options of either leasing or purchasing. The financial losses experienced lately by the company affect its capability to invest in building, which involves huge expenses. In addition, the proposed orthopedic service line will take time to construct, for instance, close to a year or more time may be required, and as a result, the hospital will continue loosing orthopedic patients to their competitors. However, purchasing takes minimum time to acquire a facility legally, as opposed to the time it takes to construct one. Disadvantages of Buying space for the new orthopedic service line Buying space for this service line is expensive; this can be related to real estate, where the owners will construct a building but sell it for a profit. As a result, the buyer spends a lot of money through purchasing compared to building his own. According to the case study, the hospital has currently been experiencing losses due to decrease of patients; therefore, it requires an affordable investment that will not contribute to its financial crisis. In addition, the hospital will be responsible for all the repairs and maintenance. Moreover, the facility will depreciate after some years of service. Adams (N.d, p.2) adds that, property value may decline, which can alter the hospital’s ability to provide effective orthopedic services. In addition, ownership of a facility may destruct the healthcare’s mission, and as a result, involving investing time in unrelated healthcare activities. Disadvantages of Leasing space for the new orthopedic service line Leasing a facility does not build up equity, and in case of an excess space, the hospital will continue paying rent for if even when it is not being utilized. Hardy (2010) adds that, leasing a facility contributes to the loss of control over the facility due to lack of ownership. In addition, an owner of the facility may increase the cost of the facility even beyond its value, and as a result, the hospital may be forced to relocate. This will inconvenience the orthopedic patients, who may opt to seek these services from trinity hospital’s competitors. In addition, the hospital may lose value of improvements made to the facility, due to lack of ownership. However, the hospital management can do little if the owner allows the facility to deteriorate. As a lessee, it is impossible to build equity; this is because the lessee cannot realize an increase in the facility’s value. In addition, a lessee has limited choice on the facility’s location, since he did not construct it. The hospital in this case is the lessee, and as a matter of fact, fostering growth of the leased facility will be impossible. Adam (N.d, p.1) adds that, lease costs may escalate depending on the market conditions; in addition, any costs by the lessee directed either to renovation or other adjustments is lost at the end of the lease. Recommendation Trinity community hospital is in a dilemma of whether to build, purchase, or lease the new orthopedic service line, having researched on the merits and demerits of the three proposed solutions. I think that purchasing a facility is the quickest and effective means of attaining a new orthopedic service line. Buying a facility may be expensive; however, ownership is very important compared to leasing, which may be associated with re-locating once the lease period is over. Ownership is associated with the ability to plan and budget for long-term costs. Nevertheless, the decision to build, buy, or lease may seem difficult to make for a healthcare facility. Trinity community hospital seeks to maximize on its financial gain as well as attract patients to its facility by gaining a competitive advantage. Needless to say, building a facility requires space and it has proven to be the most expensive solution. With the healthcare facility experiencing losses from the previous year, minimizing expenses is essential at this point. By buying space, the hospital can choose the preferred location, which is competitive and with the ability of increasing returns. Conclusion The decision to build, lease, or purchase space is debatable. From the above research, all the proposed solutions require expenses and commitment. Purchasing space has proven to be the most desirable; this is because a leased facility can never be owned by the lessee, and the chances of development are minimal. Building requires space and huge expenses, and it takes time to construct a building. However, purchasing space may be the most convenient solution; this is because, ownership is attained instantly, and the buyer is free to choose the location of the facility. For trinity community hospital to be at a competitive advantage and increase returns soonest, purchasing is the best option, as it is fast and effective. References Adams, D. (N.d). Lease versus Buy: Considerations for Behavioral Healthcare Organizations, Community Health Facilities Fund. Retrieved from http://www.chffloan.org/downloads/Lease_vs_Buy.pdf Hardy, P. (2010). Lease versus Purchase of Public Facilities: Pros and Cons. Purchasing--Lease agreements. Retrieved from http://www.mtas.tennessee.edu/Knowledgebase.nsf/0/8CD7CF39AE65B6D7852577BD006684BD Neducin, D. Krkljes, M., & Folic, N. (2010). Hospital outdoor spaces - therapeutic benefits and design considerations. Architecture and civil engineering, vol. 8, no 3, 2010, pp. 293 – 305. Retrieved from http://www.doiserbia.nb.rs/img/doi/0354-4605/2010/0354-46051003293N.pdf. Read More