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General Medical Center

Not-for-profit 500 bed community based hospital.
by

Courtney Powell

on 9 July 2013

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Transcript of General Medical Center

Itinerary
Background
Introduction to Cardiac Imaging Options
Decision Tree
Preview of Cost Information & Assumptions
Assignment Questions
Patient has Symptoms
Assumptions
Category
Cost Information
Resolution
The answer to this question will rely on:

An investigation of hospital services utilization/better understanding of patients profiles.
Needs and Resources
Understanding the hospital needs and resources will assist with future goals.
Concerns that must be addressed about purchasing this equipment and will it provide the patient with:
Better Quality of Care
Better Quality of Life/Save Lives?
Cost-effectiveness

The General Medical Center is known as an institution that is committed to providing cutting-edge health care, with potential positive implications for the hospital's ability to attract quality physicians. For many considerations, it is not clear whether they would favor Thallium or PET.

Examples:
(1) the likelihood that specificity, sensitivity, disease prevalence rates and cardiac catheterization costs will change over the life of the scanners,
(2) the possibility that costly software or hardware upgrades for the scanners will be needed in the future and
(3) the possibility that the scanners' useful lives will be shorter than expected (perhaps because of the appearance of even more sophisticated equipment).
Capital investment decision that includes not only the usual considerations encountered in technology settings , but also entails risks involving human health and life expectancy.
Background
Not for profit 500-bed community based-hospital. Located in a metropolitan area with a population of one million people, which has six major hospital systems that provide cardiovascular services. It is the third "busiest" cardiovascular center in the metropolitan area when judged on the number of catheterizations performed.
Under a capitated system, costs triggered by mis-diagnosis are borne by the hospital. In effect, this payment method merges the insurance function in that a portion of the financial risk is borne by the provider. By merging the insurance and provider functions the capitated payment system encourages the provider to analyze the appropriateness (quality of care). It also provides the short term financial incentive to reduce costs by under treating patients.
GMC participates in a capitated payment system, its revenue is more "fixed" than it was under the former fee-for-services arrangement. Capitated payments are per-patient payments.
Since revenues will not increase with the number of procedures performed, they will need to be concerned about performing unnecessary catheterization procedures. The capitation approach strives to lower the cost of care, subject to quality standards, and match the financial risks with the quality of care. Dr. Westford and the other physicians are convinced that the higher accuracy of the PET scanner vis a vis the more conventional Thallium scanner will result in more medically appropriate referrals of patients for cardiac catheterization.
Decision Tree
Examination by Physician
No Further Evaluation
Cardiac Imaging
Positive Scan
(Abnormal Result)
Negative Scan
(Normal Result)
(No Further Evaluation)
Cardiac Catherization
No Evident Coronary Problem
(No Further Evaluation)
Evident Coronary Problem
Medical Treatment
Coronary Angioplasty
Bypass Surgery
Purchase Price Equipment
Equipment Maintenance (Per Month)
Medical Supplies (Per Patient)
Nuclear Isotope (Per Month)
Lease Space (Per Month)
Utilities (Per Month)
Secretary (Per Month)
Nuclear Technician (Per Month)
Nursing Personnel (Per Month)
Employee Benefits (% of Salary)
Cost of Cardiac Catheterization
$450,000
$3,750
$100
$20,000
$2,000
$500
$1,667
$2,500
$2,917
28%
$2,000
$1,600,000
$13,333
$100
$27,000
$3,000
$1,000
$1,667
$2,500
$2,917
28%
$2,000
Thallium Scanner
PET Scanner
Sensitivity
Specificity
Useful Life of Equipment
Patient Scan Days Per Month
Patient Scans Per Day
CAD Rate in Patients
Hospital Cost of Capital
Inflation Factor for Catheterization
Procedure
Inflation Factor for Personnel
Inflation Factor for Other Costs
Tax Rate for Hospital

85%
65%
7 years
20
8
25%
10%
3.2%

3.5%
2.8%
0%

95%
95%
10 years
20
8
25%
10%
3.2%

3.5%
2.8%
0%

Evaluate the strengths and weaknesses of the analysis prepared by the CFO.
Use the information on sensitivity, specificity and disease prevalence in the population to develop a framework for incorporating the costs of misdiagnoses into the CFO's analysis.
As the decision tree explains, cardiac problem candidates who return a high probability are those who receive a positive scan and those who return a low probabiltiy are those who receive a negative scan for cardiac catheterization.
A Framework for Analysis
Diagnosis of Health
Diseased (Positive Scan)
Normal (Negative Scan)
True Positives(a)
False Negatives(c)
a+c
False Positives(b)
True Negatives(d)
b+d
a+b
c+d
a+b+c+d
Prevalence of Disease
Sensitivity: a/(a+c) 85% for Thallium
95% for PET
Specificity: d/(b+d) 65% for Thallium
95% for PET

Patient Population: a+b+c+d= (8 scans/days/month x 12) = 1,920 patients
(a+c)/(a+b+c+d) = 25%
Quantify the costs of the expected annual number of cardiac catheterizations that will result from both the Thallium scanner and the PET scanner. After taking these additional costs into account, is the purchase of the Thallium scanner still indicated?
How should the costs of the False Negative diagnoses (i.e. classifying diseased patients as normal) be handled?
Option 1: Thallium Scanner
Thallium has been the standard in cardiovascular medicine for years. It offers the advantages of lower initial outlay, lower annual maintenance costs and a general acceptance by the medical community.
Option 2: Positron Emission Technology (PET Scanner)
The more technologically advanced Positron Emission Technology (PET) scanner was largely restricted to academic medical centers until a few years ago because of its cost. More recently, commercial PET scanners have become available that offer greater clinical accuracy than Thallium scanners. Although the initial costs and maintenance fees of PET have decreases in the last few years, they are still substantially higher than those associated with Thallium imaging.
Meet the Doctors
The analysis prepared by the CFO has both strengths and weaknesses.

Strengths included in the analysis are as follows:

Relevant costs
Present value concepts
Seven-year life of the Thallium scanner vs. the ten-year life of the PET scanner.
Equivalent Annual Cost (EAC) metric.

Weaknesses included in the analysis are as follows:
Quantitative factors
Qualitative factors
Dr. Courtney A. Powell
Dr. Naquisha Larks
0
1
2
3
4
5
6
7
$450,000
0
45,000
45,000
45,000
45,000
45,000
45,000
108,810
112,619
116,560
120,640
124,862
129,232
133,756
462,000
474,000
488,234
501,905
515,958
530,405
545,256
1,824,000
1,882,368
1,942,604
2,004,767
2,068,920
2,135,125
2,203,449
450,000
2,394,810
2,514,923
2,592,398
2,672,312
2,754,740
2,839,762
2,927,461
450,000
2,177,100
2,078,448
1,947,707
1,825,225
1,710,477
1,602,972
1,502,250
$13,294,179
Chart A
Revised Analysis of the Thallium Scanner Considering the Costs of Additional Catheterizations
Chart B
Revised Analysis of the PET Scanner Considering the Costs of Additional Catheterizations
Year
0
1
2
3
4
5
6
7
8
9
10
Total
-0-
160,000
160,000
160,000
160,000
160,000
160,000
160,000
160,000
160,000
108,810
112,619
116,560
120,640
124,862
129,232
133,756
138,437
143,282
148,297
$1,600,000

564,000
579,936
596,026
612,715
629,871
647,507
665,638
694,275
703,435
723,131
1,056,000
1,089,792
1,124,665
1,160,655
1,197,796
1,236,125
1,275,681
1,316,503
1,358,631
1,402,107
1,600,000
1,728,810
1,942,203
1,997,251
2,054,010
2,112,529
2,172,864
2,235,075
2,299,215
2,365,348
2,433,535
1,600,000
1,571,646
1,605,126
1,500,565
1,402,916
1,311,714
1,226,526
1,146,946
1,072,601
1,003,139
938,233
14,379,412
General Medical Center
Dr. Joyce James
Dr. Paul Hanchett
Dr. Leisha Clark
Dr. Ashley Collins
Relevance
Focusing on additional cardiac catheterizations instead of PET
Incorrectly diagnosing normal individual as diseased as well as incorrectly diagnosing disease as normal

*Cost
Diseased patients (Follow up cost)

*Follow Up Treatment Cost
48 Diseased patients -30 need further examination and treatment
6 patients will will return each year for 5 years
$4000.00 per visit

30 Patients, 6 will return yearly, totaling 5 years, $4,000 a patient.


*The Thallium scanner is even less attractive than the PET scanner.
Thank you Dr. Dodor for a wonderful fall semester in Accounting!

Dr. Leisha Clark
Dr. Ashley Collins
Dr. Paul Hanchett
Dr. Joyce James
Dr. Naquisha Larks
Dr. Courtney A. Powell
November 15, 2012
Ask the Doctors?
Dr. Westford is concerned that Mr. Alexander has failed to consider the cost of inappropriate referrals in his analysis of the imaging equipment purchase. This is also of concern to the physicians since they typically are directly penalized in their compensation for inappropriate patient referrals.
Cost classification scanner
Thallium scanner
pet scanner
Disease
Normal
Total
Year
intial cost
Maintenance
personnel
other
catheterization
Total cost
present value
Initial cost
maintenance
personnel
other
catheterization
total costs
present value
Full transcript