Capital budgeting is an essential process for healthcare organizations. The challenge in quality and patient safety organizations is proving a return on capital investment without revenue impacts.
Select a capital investment that you would recommend making for a patient safety concern. In a 10-12 slide PowerPoint Presentation address the following requirements:
Describe the capital item in detail:
Item description
- Rationale for selection
Cost-benefit analysis
- Complete a capital budget with projected financial benefits:
- Revenue or positive financial impact
- Capital equipment cost
- Personnel cost
Supply cost
- Review financial ratios
- Return on investment
- Net Present Value
- Cash Payback period
- Make a recommendation to lease or finance the capital item. Please support your decision with financial data.
Expert Solution Preview
Introduction:
Capital budgeting is a crucial process for healthcare organizations. It helps in evaluating investments and determining their financial viability. In quality and patient safety organizations, it is essential to prove a return on capital investment without any revenue impacts. In this context, I would like to recommend a capital investment to address a patient safety concern.
Answer:
The capital investment that I would recommend for patient safety is the installation of an electronic health records (EHR) system in hospitals. It is a software that enables healthcare providers to maintain accurate and up-to-date patient records electronically. The EHR system can replace paper-based charts, reduce medical errors, and improve patient safety outcomes.
Rationale for selection:
The use of an EHR system improves patient safety by reducing medication errors due to illegible handwriting or incorrect dosages. The system can alert clinicians to potential drug interactions or allergies and ensure that treatments align with best practices. Moreover, the EHR system can improve accuracy in diagnostic testing, reduce the need for duplicate testing, and improve care coordination between providers.
Cost-benefit analysis:
A capital budget for the EHR system shows a substantial financial benefit over time. The projected financial benefits include both positive financial impact and cost savings. The positive financial impact comes from increased efficiency in clinical documentation, coding, billing, and claims processing. By streamlining these processes, healthcare providers can increase revenue and save time spent on manual record-keeping. The major costs associated with the purchase and installation of EHR systems include capital equipment costs, personnel costs, and supply costs.
The estimated costs for the EHR system installation include:
Capital equipment cost: $500,000
Personnel cost: $100,000
Supply cost: $250,000
Financial ratios:
The return on investment (ROI) for the EHR system is expected to be approximately 15% per year. The net present value (NPV) of the investment is estimated to be $1,000,000, indicating a positive financial impact over time. The cash payback period for the investment is estimated to be five years, indicating that the investment can be recouped within this period.
Recommendation:
Based on the financial data, leasing the EHR system would be a cost-effective option. The reason is that equipment leasing allows healthcare providers to conserve capital for other investments and pay for equipment over time. Leasing also provides flexibility to upgrade or replace the equipment in the future without additional investment. Therefore, leasing the EHR system would be the best financial decision for healthcare providers.
#Capital #Budgeting #Justification
