Dr. Nate Greene, director of the Middletown General EmergencyDepartment (ED), looked out over the patients on mobile beds linedup in the hallway. He could barely meet their eyes, understandingfully how upsetting a lack of privacy and impressions ofsubstandard care are to vulnerable people in need. Unfortunately,overcrowding in the ED was commonplace due to a scarcity ofinpatient beds in the main hospital. There was no place for thesepatients to go until an inpatient bed opened up. “There has to be abetter way to manage this, at least for the sickest patients,” hemuttered to himself. Greene knew that day the ED had already moved10 patients into the hospital on observation status, and he wishedhe could call those back and send some of his sickest patientsupstairs instead. “If I had a safe place to hold observationpatients down here in the ED, it would make a world of difference,”he thought. Middletown General Hospital is a tertiary care hospitalwith 400 inpatient beds. In 2011, the Middletown Hospital EmergencyDepartment (ED) saw about 200 patients each day. On average, 150were discharged after being seen, but about 50 stayed overnight.About 20% of these patients were on “observation” status, meaningthat an admission decision had not been made, pending test resultsor the results of an overnight observation stay. The remaining 80%were admitted directly. All patients who stayed overnight (whetheradmitted or on observation status) were put into an inpatient bed.That is, there was no separate observation area. The averageadmitted patient stayed 5.8 days and represented about $3,500 inprofits to the hospital. The average patient under observationoccupying an inpatient bed netted the hospital about $3,300 inprofits. Observation patients stayed on observation status for anaverage of 1.2 days before being either discharged or admitted(upgraded to inpatient status). Eighty percent of observationpatients were discharged, and 20% were upgraded to inpatientstatus. After admission, observation patients stayed an average of5.8 days before discharge and netted the hospital $3,500. SeeFigure 1. town General Patient Intake Flow Chart dischargedobservation 20% admitted 80% 200/day 50/day Hospital $3500Observation status to staff than inpatient beds due to the morestringent code requirements associated with an inpatient stay. Inaddition, in Certificate of Needi states regulators make increasingobservation bed capacity much easier than increasing licensedinpatient bed capacity. While it was obvious that the extra spaceprovided by an observation unit would alleviate congestion, Greeneknew that it would never be built unless he could make a soundeconomic case for it to the hospital administration. He made somerough calculations and estimated that if an observation unit wasavailable, the average profit per observation patient who wasdischarged without being admitted would be $3,700. He alsoestimated the fixed investment required to construct (and equip) anED observation unit to be $5 million plus $60,000 per bed. Weary ofcompiling numbers and trying to make sense of them in the scraps oftime he was able to steal between shifts in the ED, Greene decidedto give the project to a group of business students from a localuniversity who had been assigned to him as part of a projectcourse. “Team, I need a business case. You can assume that allvacated beds will be backfilled by new admitted patients, and thatall of those new patients come in on admitted status and sorepresent $3,500 in profits to the hospital,” he said. “What I wantto know is whether an observation unit makes economic sense forMiddletown.”
Just need help with 1 and 2 below
4. Assume that an observation unit of your recommended size isbuilt and running and that the hospital experiences the same flowrates as in 2011. Ignoring the fixed costs of constructing andequipping the room, what would be the benefit (indollars/day) to the hospital for having the observation unitrelative to status qua? Also, assume that all of theinpatient beds that were formerly filled by observation patientscan now be filled by inpatients, who stay on average 5.8 days, andnet the hospital $3,500 each.
- There is a critical assumption in question 4. What is it? Howwould you check whether that assumption is justified at MiddletownGeneral?
- Is there a financial business case to be made for building theED observation unit, taking into consideration both fixed andvariable costs and revenues?
