Health Service Feasibility Analysis – 5 things you should consider before taking action

Have you thought about expanding your current services or adding a new one?    There are many reasons one might consider doing this and they range from, providing a needed service to the community, to economic reasons. If you’re starting to go down this path, the first thing you will need to conduct is a health service feasibility analysis.

Health Service Feasibility Analysis – 5 things you should consider

1. The cost of the project

It is important to fully load all costs into the project. Most costs, such as equipment and space, are obvious but there are other costs that could significantly impact your bottom line. A common error is adding in the cost of additional space whether it is being leased or purchased, but not adding in the additional associated costs for utilities, insurance, and taxes. Another example is adding the cost of staff without considering the costs of a ramp-up period where you are paying for salaries, equipment and overhead but are not yet at full utilization.

2. How will you finance the project?

Will you need a loan or lease for equipment? Each method has cash flow and tax implications. What is the appropriate term of the financing to make sure your cash flow is positive? The debt service should allow for positive cash flow. Longer terms are better. Don’t get in over your head. You can structure your financing so that you can pay off your loan early without prepayment penalties while also having a long term in case you need some breathing room.

3. Calculate the potential revenue of the project

Use actual CPT codes, local reimbursement rates, and projected volume.  Be sure to calculate best and worst case scenarios and be realistic about volume.

4. Is there demand for the service?

Do you receive requests for the service or are there currently long waits for the service in your community?

5. What is the current and future regulatory environment?

Do you need any special licensing? Plan for the amount of time it will take to obtain the license. For example, if you start an onsite laboratory you will need a CLIA certificate which is granted by the state.  These are easily obtained and are granted relatively quickly, usually 45-60 days. If you want to start a surgery center you may need a Certificate of Need from the state. This is a lengthy and complicated process in many states.

Plan carefully and your project will go smoothly. You can generate that additional revenue or provide that badly needed service to your community.