Question

You are the manager of a cardiology department with 10 general cardiologists. The department performs approximately 6000 EKG’s annually. They currently have 4 EKG machines; 2 are 10 years old and fully depreciated and the other 2 are 6 years old and will be fully depreciated in one year. None are integrated with their EHR so the staff needs to scan the results into the EHR and the billing has to be done manually. As manager, you believe that purchasing new units that are integrated with the EHR will be more efficient. The new units are $30,000 each. There are IT costs for the integration and a maintenance contract as well as supplies that need to be purchased. You must present to the CFO for approval. Prepare a short proposal describing how the new units will impact finances (i.e. increase/decrease revenue and expenses). Identify what information do you need to have to establish revenue and cost. How many units do you recommend and why and what financial tools you would use to determine the impact on finances as well as what resources might be used to obtain information to support the finances.

Answer 1

PROPOSAL

Subject:

Requisition for fund to buy 4 No’s of EKG [Electrocardiogram] machines with EHR [Electronic Health Record] facilities.

Objective:

• To satisfy the demand of incoming patients.
• To increase the quality of service.
• To reduce overall operation cost and time.

Statement of Problem:

The department performs approximately 6000 EKG’s annually. We currently have 4 EKG machines; 2 are 10 years old and fully depreciated and the other 2 are 6 years old and will be fully depreciated in one year. None are integrated with their EHR so the staff needs to scan the results into the EHR and the billing has to be done manually which is increasing operational cost and time. As manager, I believe that purchasing new units that are integrated with the EHR will be more efficient.

Expense and Income

• Cost of Expense:
  • Cost of 4 EKG’s Machine (A)= 30,000 × 4 = 1,20,000
  • IT cost for integrating EKG’s with EHR facility (B)= 2,500 × 4 = 10,000
  • Total Cost of Investment (C)= (A) + (B) = 1,20,000 + 10,000 = 1,30,000
• Expected Income:
  • Average Cost of one EKG scan [75$]
  • Income from 6000 EKG Scans (A) = 6000 × 264 [Working Days] = 4,50,000
  • Operating Expense –20$ per scan [Inclusive of operational & labor cost] (B)= 6000 × 20= 1,20,000
  • Average Income Per Year = (A) – (B) = 4,50,000 - 1,20,000 = 3,30,000
• Return on Investment:
  • Return on Investment = [Average Income Per Year/ Total cost of Investment] × 100 = [3,30,000/1,30,000] × 100 =2.538461538 × 100 = 253.8461538%
• Payback period:
  • Income per month = 3,30,000 / 12 = 27,500
  • Payback period = 1,30,000/27,500 = 4.727272727 months i.e. the total investment can be retrieved within 4.72727.. or approximately 5 months

Conclusion:

I expect all 4 machines to be replaced instead of 2 for the following reasons:

• If only two machines are bought and other two are left till they depreciate, EHR cannot be fully implemented.
• Further 6000 EKG’s Scan per year means approximately 22 Scans per day when 264 working days is considered. Based on queuing analysis made, if less than 4 EKG’s machine are bought it will be burden to overall operation. If more than 4 EKG’s machines are bought the excess one will be idle for most of the time.
• Hereby considering the operational burden due to current EKG machine and prospects of buying new EKG integrated with EHR through above stated financial statements I would kindly request you to grant finance for the same.