FEASIBILITY ANALYSIS OF EXPANSION OF PERSHING GENERAL HOSPITAL

Transcription

1 TECHNICAL REPORT UCED 2003/04-01 FEASIBILITY ANALYSIS OF EXPANSION OF PERSHING GENERAL HOSPITAL UNIVERSITY OF NEVADA, RENO 1

2 FEASIBILITY ANALYSIS OF EXPANSION OF PERSHING GENERAL HOSPITAL Study Conducted by: Alexa Marx and Thomas R. Harris Alexa Marx is a research associate with the Small Business Development Center, School of Business Administration, University of Nevada, Reno. Thomas R. Harris is a Professor in the Department of Applied Economics and Statistics and Director of the University Center for Economic Development at the University of Nevada, Reno. May 2003 UNIVERSITY OF NEVADA RENO The University of Nevada, Reno is an Equal Opportunity/Affirmative Action employer and does not discriminate on the basis of race, color, religion, sex, age, creed, national origin, veteran status, physical or mental disability, and in accordance with university policy, sexual orientation, in any program or activity it operates. The University of Nevada employs only United States citizens and aliens lawfully authorized to work in the United States. 2

3 This publication, Feasibility Analysis of Expansion of Pershing General Hospital was published by the University Center for Economic Development in the Department of Applied Economics and Statistics at the University of Nevada, Reno. Funds for this publication were provided by the United States Department of Commerce Economic Development Administration under University Centers Program contract # This publication's statements, findings, conclusions, recommendations, and/or data represent solely the findings and views of the authors and do not necessarily represent the views of the U.S. Department of Commerce, the Economic Development Administration, the Pershing General Hospital Board, Pershing County Commissioners, the State of Nevada Commission on Economic Development, the University of Nevada, Reno, or any reference sources used or quoted by this study. Reference to research projects, programs, books, magazines, or newspaper articles does not imply an endorsement or recommendation by the authors unless otherwise stated. Correspondence regarding this document should be sent to: Thomas R. Harris, Director University Center for Economic Development University of Nevada, Reno Department of Applied Economics and Statistics Mail Stop 204 Reno, Nevada Phone: 775/ UCED University of Nevada, Reno Nevada Cooperative Extension Department of Applied Economics and Statistics 3

4 Introduction This study was undertaken to estimate the feasibility of an expansion of Pershing General Hospital in Lovelock, Nevada. Hospital administrators have proposed securing USDA loan funding as a means to move the pharmacy from its current location to a more private area, purchase new equipment, and to establish a new eleven (11)-bed wing for long-term care patients. The new long term care wing would then be able to generate revenue for the hospital as a whole through new patient fees. There are several variables on both the demand and supply side of this equation that needed to be considered. The available supply of skilled nurses is low in Nevada, and many hospital administrators, including Pershing General Hospital, must resort to using expensive contract labor to make up shortfalls in required nursing levels. Lovelock, being a rural area, has difficulty in staffing nurses from its local population. The local population, which would demand elderly care facilities, is forecasted to decline as a whole through the next 20 years. Although the number of those in the cohort of 65 years of age and over, who would most likely need care, will be increasing, albeit rather slowly. Table 1 shoes the forecasted change through 2020 for Pershing County. Table 1: Pershing County Population Estimates and Projections, * Year Males Females Total as % of Population 12.86% 13.35% 13.89% 14.46% 15.12% 15.50% 16.23% 18.22% 19.99% *Pershing County ASRHO Estimates and Projections , Nevada State Demographer, Assumptions Excel was used as the means to layout and determine the different scenarios that could occur, and each variable parameter was changeable. Certain assumptions had to be made to give shape to the study, in particular those of loan amounts, staffing levels, and wages. These were based on current information and understanding of the facility needs. This model assumed that, for this new wing containing 11 long term care beds, an additional staff of 1 LPN, 1.5 CNAs, 1 activity aid, and 1 housekeeper would be needed, regardless of how many of those 11 beds were filled. Table 2 displays the assumed wage amounts that would be paid. 4

5 Table 2: Employee Salaries (hourly rate)* LPN CNA AA Housekeeper Staff $15.68 $10.72 $10.00 $6.50 Contract $40.00 $30.00 n/a n/a *The hourly rate figures are from Jon Smith at NRHP. It was also assumed that nurses, regardless of contract or staff status, would be needed 24 hours a day, 365 days a year. The activity aid would be required about 40 hours per week, and the housekeeper would be required approximately 10 hours per week. Additional compensation costs per contracted nurse were assumed to be at $30 for food/day, $72 for travel/day, and $50 for an overnight motel/day, for a total of $152 in associated costs per day per contract hire nurse. The USDA loan, which would be required to establish this facility and move the pharmacy, is another issue in the overall cost of the project. Only two scenarios were considered; one, a loan for $592, 360 which would be the bare minimum necessary to pay for facility and equipment upgrades, and two, a loan for $1,425,092 to pay for the facility upgrades and all the equipment on the hospital wish list. Feasibility The next two tables present the final results from the model that was built to test different combinations of labor, costs, and demand. Table 3, below, shows the layout of profit/loss given a loan amount of $592,360. The first column, all permanent nurses, assumes that the nursing staff of 1 LPN and 1.5 CNAs would be all on permanent staff. The half contract column assumes that the LPN nurse would be on contract, but the 1.5 CNAs would be on staff. After running the model with only half contracted labor, it became apparent that the facility would be unable to sustain all nurses on contract, and so those figures were not calculated. Indeed, reviewing the results here shows that none of these scenarios are feasible, or would require a subsidy with any amount of contracted labor. 5

6 Table 3: Tabular Results (1 LPN, 1.5 CNAs, 1 activity aid, 1 housekeeper) Assumed Loan Amount of $592,360 Number of Beds Filled All Permanent Nurses Half Contract (1 LPN) Half Contract (1.5CNA) 6 ($138,691.72) ($363,656.18) ($428,912.97) 7 ($80,047.57) ($305,012.02) ($370,268.80) 8 ($21,403.41) ($246,367.85) ($311,624.64) 9 $37, ($187,723.69) ($252,980.48) 10 $95, ($129,079.53) ($194,336.31) 11 $154, ($70,435.36) ($135,692.15) Table 4 shows results for a similar analysis as in Table 3 except for the loan amount is assumed to be $1,425,092. As in Table 3, the results that requires contract labor is infeasible or requires a subsidy. Table 4: Tabular Results (1 LPN, 1.5 CNAs, 1 activity aid, 1 housekeeper) Assumed Loan Amount of $1,425,092 Number of Beds Filled All Permanent Nurses Half Contract (1 LPN) Half Contract (1.5CNA) 6 ($235,691.74) ($460,656.18) ($525,912.97) 7 ($177,047.57) ($402,012.02) ($467,268.80) 8 ($118,403.41) ($343,367.85) ($408,624.64) 9 ($59,759.24) ($284,723.69) ($349,980.48) 10 ($1,115.08) ($226,079.53) ($291,336.31) 11 $57, ($167,435.36) ($232,692.50) Supply: From Tables 3 and 4, the costs of contract labor would result in large losses or subsidies for the facility, regardless of the amount of loan or the combination of contract labor. It is necessary that all the nurses be on staff for this project to be feasible. Unfortunately, due to the nursing situation in Nevada, it may be unlikely to find the additional staff nurses necessary to completely staff this new wing. Demand: Determining the exact nature of the demand for long term care beds in Lovelock was beyond the scope of this study and would be better determined by hospital administrators familiar with local conditions and local demand. Bed occupation projections must be determined so as to gauge which loan amount could be managed. 6

7 There may be some demand for long term care beds, especially as the local population ages in the next 17 years. However, the real question is if there would be enough demand to fill nine or more beds on a regular basis in order to generate income for the facility rather than lose money yearly on the project. Analysis: Due to these concerns, it would be advisable that a smaller loan be secured if demand proves sufficient to fill at least 9 beds and staff nurses can be found to work at Pershing General Hospital. This would allow for some leeway in fluctuation of the number of beds given the overall declining population, still provide the service to the community, and secure funding for movement of the pharmacy and other needs the hospital may have. Unfortunately, the nursing situation may inhibit the project even if local demand proves to be sufficient to warrant the need of a new wing for long-term care patients. Alternative Option It became apparent while working with labor combinations that if the amount of CNAs were equal to one rather than one and a half, there would be greater allowance for the use of contract labor, fluctuation in demand, and the amount of loan that the facility could undertake. In Table 5, 1 LPN, 1 CNA, a 40-hour/week activity aid, and a 10- hour/week housekeeper are presented. It is assumed in the half contract situation that only the CNA would be contract labor, the one LPN must be on staff. Table 5: Tabular Results (1 LPN, 1 CNA, 1 activity aid, 1 housekeeper) Assumed Loan Amount of $592,360 Number of Beds Filled All Permanent Nurses Half Contract (1 CNA) Half Contract (1LPN) 7 ($17,647.98) ($211,128.80) ($242,612.43) 8 $40, ($152,484.64) ($183,968.27) 9 $99, ($93,840.48) ($125,324.10) 10 $158, ($35,196.31) ($66,679.94) 11 $216, $23, ($8,035.77) 7

8 Table 6: Tabular Results (1 LPN, 1 CNA, 1 activity aid, 1 housekeeper) Assumed Loan Amount of $1,425,092 Number of Beds Filled All Permanent Nurses Half Contract (1CNA) Half Contract (1LPN) 8 ($56,003.82) ($308,128.80) ($280,968.27) 9 $2, ($249,484.64) ($222,324.10) 10 $61, ($190,840.48) ($163,679.94) 11 $119, ($73,552.15) ($105,035.77) Again, in this situation it would be impossible to have any type of contract labor with the larger loan amount (Table 6). Instead, though, if it were necessary to have the CNA on a contract basis this could be achieved with the smaller loan amount. This scenario would not work with a contract LPN, instead of a contract CNA, because of the greater hourly costs for an LPN. Conclusion The proposed expansion of Pershing General Hospital would have its benefits, such as the ability to better care for patients in the community through better equipment, expansion of facilities, and available local care for those who choose to remain in Lovelock. However, given the cost parameters, the labor situation, and hospital needs, the current plan does not necessarily prove feasible. It could also be harmful to the community if the facility were to be built and then services withdrawn because of higherthan-foreseen labor costs, an unexpected drop in demand, or other unexpected costs that could burden the hospital with large deficits and force it to close that wing or stop offering those services. 8