DNP885 Module 8 assignment: business case: costs, return and funding path, a full sample

A Clinic That Costs More Than It Earns, and Why It Should Open Anyway: The Business Case for a Heart Failure Transitional Clinic

Student Name

Doctor of Nursing Practice Program, Aspen University

DNP885: Strategic Planning and Financial Management

Instructor Name

Month Day, Year

A Clinic That Costs More Than It Earns, and Why It Should Open Anyway: The Business Case for a Heart Failure Transitional Clinic

A business case asks decision makers to commit resources, and it earns their trust by stating costs completely and returns honestly. This paper argues for opening a clinic, led by a nurse practitioner, that sees heart failure patients in the week after discharge from Harlan Valley Medical Center, a composite community hospital, drawing on the strategic objectives, capital decision, and revenue projection developed earlier in the course. The clinic will not pay for itself from visit revenue. The case argues that it should open anyway, because its return is mainly clinical, regulatory, and strategic, and because its net cost per readmission avoided is known and fundable.

The Problem and the Proposal

Nearly one in four heart failure patients discharged from the hospital returns within 30 days, a readmission rate of 23.4 percent, and patients wait a median of 19 days for a first outpatient visit with a cardiologist 40 miles away. In a national Medicare cohort, hospitals in the lowest quartile for physician visits within a week of heart failure discharge had higher 30-day readmission rates than hospitals above that quartile (Hernandez et al., 2010). The clinic will see patients within seven days of discharge, with a nurse practitioner adjusting medications and a registered nurse care coordinator calling each patient within two business days. Pooling randomized trials of transitional care, one systematic review rated the evidence as high that multidisciplinary heart failure clinics lower all-cause readmission in the months after discharge, and found that these clinics also reduced deaths (Feltner et al., 2014).

Costs

The capital committee has approved $280,000 for build-out of clinic space from the current year's pool; depreciated over 10 years, it adds $28,000 a year. Annual operating costs are shown in Table 1.

Financial Returns

The revenue projection gave a base case of $127,069 and a low case of $72,575 in visit revenue; this case uses the low case as its planning figure. Reaching the strategic target of 19.0 percent would mean about 27 fewer heart failure readmissions a year among 620 discharges. That has two financial effects that pull in opposite directions. The finance department estimates that the readmission penalty, now about $310,000 a year across conditions, would fall by about $140,000 if heart failure performance reached the target. However, the penalty is calculated from several prior years of data, so the reduction would not appear until the second or third year. Meanwhile, some avoided readmissions would have been paid admissions; finance estimates the lost contribution margin at about $1,900 each, or $51,300 a year.

The Net Position

Before the penalty reduction arrives, the clinic's net annual cost is about $359,800 in the low case and $305,300 in the base case. Once it arrives, the net cost falls to about $219,800 in the low case and $165,300 in the base case. Expressed per readmission avoided, the steady-state cost is about $8,100 in the low case and $6,100 in the base case. The honest summary is that the hospital would be paying roughly $6,000 to $8,000 to keep each of 27 patients a year out of the hospital, and to give all of them a visit within a week instead of three.

If the clinic achieved only half its readmission target, reaching 21.0 percent, about 15 readmissions would be avoided, the penalty relief would be smaller, and the cost per readmission avoided would roughly double. That risk is the reason for the decision rule described below.

Nonfinancial Returns

The clinic's main returns are not on the income statement. It addresses the division's third strategic objective directly. It brings care closer to home, which is the hospital's mission, for patients who now travel 40 miles. The trial evidence includes a mortality benefit for heart failure clinics (Feltner et al., 2014), and fewer readmissions mean fewer days in the hospital for older adults, for whom each admission carries its own risks. The clinic also frees inpatient bed days at a hospital that often runs above 85 percent occupancy, which could allow other admissions; this benefit is real but not counted, since it depends on demand. Nationally, hospitals have lowered readmissions for targeted conditions since the penalty program began (Zuckerman et al., 2016), and remaining an outlier carries reputational as well as financial cost.

Funding Path

Capital: $280,000 from the approved pool in the current capital cycle, which closes June 30, 2028. Operating, first two years: the nursing division will reallocate $300,000 a year from projected contract labor savings under its second strategic objective, which targets a reduction of $1.1 million in the first year, and the hospital will apply to a regional health foundation for $100,000 a year for two years to cover the remainder in the low case. Operating, year three onward: the penalty reduction, visit revenue, and the continued reallocation, reviewed in the annual budget. The operating budget will carry the clinic as its own cost center so that its results are visible (Finkler et al., 2013).

Decision Rule and Risks

The case includes a rule for stopping or changing course. At month 18, the clinic will continue as designed if the heart failure readmission rate is at or below 21.0 percent and capture is at least 50 percent. If capture is below 50 percent, the team will first fix discharge scheduling. If readmissions have not fallen below 22.0 percent despite adequate capture, leadership will consider converting the clinic to a structured telephone support and home-visit model, which also has trial support. The main risks are low capture, contract labor savings that do not materialize and so cannot be reallocated, and difficulty recruiting a nurse practitioner, which will be addressed by beginning recruitment six months before opening.

Recommendation

Open the heart failure transitional clinic in January 2028. It will cost more than it earns, about $165,000 to $220,000 a year once penalty relief arrives, but it addresses a strategic objective, rests on high-strength evidence, has a named funding path, and carries a decision rule that limits the downside. The return is clinical and regulatory first and financial only in part, and this case states that plainly so that the decision is made on what the clinic will actually deliver.

References

Feltner, C., Jones, C. D., Cené, C. W., Zheng, Z.-J., Sueta, C. A., Coker-Schwimmer, E. J., Arvanitis, M., Lohr, K. N., Middleton, J. C., & Jonas, D. E. (2014). Transitional care interventions to prevent readmissions for persons with heart failure: A systematic review and meta-analysis. Annals of Internal Medicine, 160(11), 774-784. https://doi.org/10.7326/M14-0083

Finkler, S. A., Jones, C. B., & Kovner, C. T. (2013). Financial management for nurse managers and executives (4th ed.). Elsevier Saunders.

Hernandez, A. F., Greiner, M. A., Fonarow, G. C., Hammill, B. G., Heidenreich, P. A., Yancy, C. W., Peterson, E. D., & Curtis, L. H. (2010). Relationship between early physician follow-up and 30-day readmission among Medicare beneficiaries hospitalized for heart failure. JAMA, 303(17), 1716-1722. https://doi.org/10.1001/jama.2010.533

Zuckerman, R. B., Sheingold, S. H., Orav, E. J., Ruhter, J., & Epstein, A. M. (2016). Readmissions, observation, and the Hospital Readmissions Reduction Program. New England Journal of Medicine, 374(16), 1543-1551. https://doi.org/10.1056/NEJMsa1513024