Trinity community hospital is located in the southeast of the United States with a bed capacity of 150 patients plus an intensive care unit of 14 beds. The hospital offers all the basic support services which include internal medicine, radiology, pharmacy, urology, general surgery, gynecology, neurology among other services. All these services are offered by a team of 89 staff members who are qualified and registered by the board. The campus on which the hospital sits measures about 25-acre that is easily accessible. Trinity community hospital has a main hospital and an addition of four medical office buildings (MOBs) with an area of 60,000 square feet.
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The management of the hospital is faced with the possibilities of constructing on its land, purchasing or to lease the area where the orthopedic service line will be established. All the three options available for putting up the orthopedic service line have pros and cons as it will be analyzed.
Building Orthopedic Service Line
The strategic plan of the hospital stipulates that over 5000 square foot of physical therapy and rehabilitation center is required in order to set up a regional orthopedic service line. In addition to this, a renovation of an empty space in MOB 1 is required to cater for oncology center.
Advantages of Building Orthopedic Service Line
In building, the hospital will get a style and exact design required of orthopedic service line. The constructed service center will be integrated right inside the hospital compound and interrelated with other core functions of the hospital. It will also enhance proper utilization of space and put into use vacant space like that in MOB 1. The hospital already owns the 25-acre piece of land, this translates to few legal requirements and procedures when setting up the orthopedic center as the buildings will be constructed on own land. This will lead to the realization of the strategic plan within the stipulated time.
Most private physicians have leased office blocks at the expense of hospital scramble for space. The physicians can be relocated to create space and room for the orthopedic service line. One major reason for the hospital to construct an orthopedic service line is to boost its financial performance and at the same time maintaining confidence in the surrounding community. The established orthopedic service line will have a major impact only if the building facilities are brand new to create a positive perception to the community.
Buying Space for Orthopedic Service Line
The location of the hospital gives it an advantage of availability of unoccupied land adjacent to the hospital which can be acquired for the construction of orthopedic service line.
Advantages of Buying Space for Orthopedic Service Line
The Chief finance officer of Trinity Community hospital in his letter to the hospital’s chief executive officer has clearly stated of lack of enough space to expand existing facilities and has rooted for off-campus options for some facilities in the hospital. This is a clear indication that buying space is preferable than building on the hospital campus grounds. The cost of building orthopedic service line next to the hospital is approximately $ 700,000 as compared to that of constructing which amounts to about $ 600,000. The marginal difference of $ 100,000 is not much considering the need of space for hospital’s future expansion.
The hospital’s management could still negotiate with the owner of the adjacent land and settle for better deal that is less expensive. Another advantage of purchasing space is that it comes up with its competitive structure whereby the community will develop a positive attitude towards the hospital as the acreage it occupies will increase hence expansion. The development of orthopedic service line requires a physical layout with consideration of traffic flow, speed and operational efficiency which can only be achieved on an ample space acquired through buying (Langabeer, 2008).
Leasing Orthopedic Service Line
Leasing is acquiring an asset, equipment or piece of land for an agreeable period of time with the lessor. Trinity community hospital has an opportunity to lease its development space for setting up an orthopedic center instead of building on its own land.
Advantages of Leasing Orthopedic Service Line
Leasing will save the hospital the cost of purchasing or building new hospital buildings which may be left redundant if the orthopedic service line proves not economic viable. This is possible in cases where the hospital’s competitors which include tertiary medical center and regional hospital decides to set up a more superior orthopedic center that may overshadow the one set by Trinity community hospital making it redundant.
The chief finance officer clarifies that triple net lease is the type of lease available in hospital’s case. This has an advantage whereby the taxes, maintenance cost and insurance on the leased property are deducted from the total tax payable. Leasing also saves on the capital outlay as less money is used as compared to purchasing and buying. The hospital may also decide to redesign the leased property when renovating to make it suite the planned design and adhering to all the rules and regulations required (Atkin & Brooks, 2009).
Disadvantages of Building Orthopedic Service Line
It will cost the hospital about $ 600,000 for constructing 5,000-square foot. This amount is far much more as compared to the budgeted amount. The construction of new buildings on the hospital campus will crowd the hospital and strain free space allocated for future expansion. This is evident where the chief finance officer advised the chief executive officer of the need to preserve some space for future expansion of the hospital. Building an orthopedic service line requires a lot of planning and designing, this takes considerable effort and more time. There is always additional cost apart from the one planned for the purpose of construction, these includes cost for decoration, landscaping and other minor fittings.
Disadvantages of Buying Orthopedic Service Line
The hospital may be forced to demolish the current structures in the bought space as they may not fit with an orthopedic center thus incurring more cost. Buying a constructed building space denies the new owner an opportunity to design the layout of the building to suite the purpose its intended for as it may sometimes be uneconomical to demolish some building structures on site. It requires a lot of capital investment to buy orthopedic service line space; this capital will have to take time for it to be recouped back. When buying a building, the new owner becomes the sole caretaker of the property and must comply with all the set regulations such as firefighting equipment, health and safety precautions inflating the operational cost.
Disadvantages of Leasing Orthopedic Service Line
One major disadvantage of leasing is that the property under question does not change ownership regardless of the leased duration. This denies the hospital the opportunities that come with acquiring a new asset. The lessee has to bear taxes, maintenance cost and insurance as part of expenses associated with the leased premises. Trinity community service hospital may lose the benefit of potential capital gain in case the property value increases during the leasing period. It may not be possible for the hospital to terminate the contract before the end of the lease period and heavy fines are imposed if the contract is terminated prematurely
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Trinity community hospital currently has a land of 25-acre plot. This land is limited as compared to hospital and the need to expand as more needs arise. It is not advisable to start congesting the hospital land space of 25-acres and the adjacent land is available for purchase or lease. In most of the cases, land is an asset that keeps on appreciating. There is a need to purchase it before it gets to extreme price levels and also the availability of land in prime areas.
Buying land space adjacent to the hospital to put up orthopedic service line center is the best way to go about it as this will give more space for future expansion. The main hospital will also be left with an ample space for expansion and putting up medical office buildings as the need arises. This may be necessitated by the increase in the number of patients who may require the hospital specialized services.
Atkin, B., & Brooks, A. (2009). Total Facilities Management. New York: John Wiley & Sons.
Langabeer, J. R. (2008). Health Care Operations Management: A Quantitative Approach to Business and Logistics. London: Jones & Bartlett Learning.