Feasibility Study Sample: $100 Million Sage Rock Medical Center

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Executive Summary

This paper presents a solid feasibility case for the $100 million health care facility buildout near Sage Rock City as envisioned by the newly-formed Sage Rock Doctors League (SRDL). SDRL is an association spearheaded by 20 medical professionals who intend to build an initially mid-sized hospital complex, 30 miles from the Sage Rock City proper. To date, there are at least a dozen existing health care facilities of note in the area, which makes the task of clearly establishing Sage Rock Medical Center’s service differentiation paramount. To differentiate the Sage Rock Medical Center brand from those of other health care facilities in the area, the proposed health care complex will leverage the aggregate experiences of some of the most prominent SRDL members in the field of adult care surgeries, and build the Sage Rock Medical Center brand around this elite group’s very high degree of surgical competence. In addition, the health care complex will strongly capitalize on advanced medical equipment (specifically those related to the target specialties) and on above-average hospital facilities. 

Applying the findings of the famous Fable Hospital Model (Sadler, 2011) the proposed health care facility will be constructed based on hospital design and architecture that are strongly aligned with the essential mission of health care as well as with the emergent “green” designs that are gaining substantial traction in both the architectural world as well as the realm of public opinion. Said study demonstrated measurable improvements in patient care that are directly attributable to sound modifications on the health care facility’s design, architecture, and décor. In addition to patient care improvement, even profit margins were demonstrated to have improved in the long run following such modifications:

“Too often, cost-cutting discussions have overlooked the hospital structure. Changes in the physical facility provide real opportunities for improving patient and worker safety and quality while reducing operating costs.” (Sadler, 2011)

While aiming for the acquisition and operation of near-upscale facilities, Sage Rock Medical will be operated as a general hospital with a complete line of health care support and a clear vision of providing quality but financially accessible and practical services—at least to its target market composed of health care consumers belonging to the mid- to the high-income brackets. Understandably, a workable but yet to be optimized funding for financially challenged patients will be available at the start of operations and will form part of Sage Rock Medical’s corporate social responsibility (CSR) initiatives in the long term.

The core plan is to allocate part of the projected $100 million seed fund for the acquisition of real estate blocks in the area upon which a mid-sized but advanced health care facility complex will be constructed. This complex and its related service infrastructure is intended to meet the health care demands of the steadily growing population which is concentrated in the city proper and extends beyond the metropolitan outskirts.

The Sage Rock Medical Center will initially be scaled as a mid-sized complex, with provision for further expansions as hospital operations begin to stabilize in the mid-term. By then, cost analyses and feasibility studies may be drawn more accurately by the CFO’s team and the board of stakeholders to determine which fields/specialties will be the most profitable candidates before proceeding with the upgrade or establishment of their support infrastructure.

These service differentiators were determined based on a careful study of the current health care landscape in the US as a whole, as well as the prevalent local conditions and health care dynamics in Sage Rock City. In addition, this proposal considered financial, legal, and socio-economic aspects that will increase in relevance with the continued operations of the health care complex. Alternative operational models are also examined not only as possible approaches in the enhancement of Sage Rock Medical’s service differentiation but also as a way to effectively increase profit margins.

In a nutshell, the following represent the immediate challenges and risks that Sage Rock Medical will need to address upon its entry:

  1. Longer distance (30 miles) from the population center compared to other existing health care facilities.
  2. Operational scale and market share of competitors
  3. Payment source imbalance where bulk of patient care is covered only by federal and state insurance; and a limited number of private HMO contracts with less than favorable terms [towards Sage Rock Medical].

To effectively address these challenges, Sage Rock Medical needs to firmly establish its service differentiation early in the game. As envisioned by SRDL, Sage Rock Medical’s value proposition as it enters an arena where more established players are currently in operation should include the following key components:

  1. Resident practitioners’ high degree of surgical competence. This should allow the showcasing of two or three specialties in press releases, reviews, and other marketing campaigns.
  2. Above-average medical facilities and equipment. The quality of facilities and equipment at Sage Rock Medical should be easily noticeable among health care consumers and should generate a feeling of adequacy and satisfaction.
  3. Strongly health care-aligned, and eco-friendly building design.  This is based on a multi-year study (Sadler, 2011) that clearly demonstrated palpable effects of building design on patient care improvement as well as on expense reduction over the long term. In particular, the following areas are the major design considerations: excellent quality of clinical structures, above-average support facilities for hospital staff, operational efficiency, family-oriented facilities, alignment of design with CSR goals, and ecological sustainability.
  4. Use of solar panels for non-critical sections and facilities in the complex. This is partially intended to capitalize on the public’s growing awareness of environmental issues and strong preference for green-inspired innovations in structures, processes, equipment, and products. It is also aimed at building incremental long term savings by significantly cutting the facility’s utility bills.
  5. Entry as a mid-sized complex with provision for upscaling  Scale has been found to be a success determinant in the hospital management business, specially in the subsector of general hospitals. Launching Sage Rock Medical as a mid-sized health care facility with obvious intent and groundwork for expansion is a sound strategic positioning with respect to existing competition in the area. Note that a federal study cited small size as a possible cause of financial difficulties of many general hospitals in New Jersey.
  6. Advanced emergency medical services to support population groups within a 35 mile radius. In addition to its charity care component, Sage Rock Medical’s advanced emergency medical services will be partly utilized for the organization’s CSR initiatives.
  7. Aggressive engagement with private HMO’s to broaden consumer support scope as well as to gain PPO (Preferred Provider Organization) status.  This is a critical success component as the main risk in the operation of Sage Rock Medical is the possibility of an imbalanced payment source matrix where the main fund sources are federal agencies—such as Medicare and Medicaid—and less than favorable contracts with HMO partners. By achieving the target payment source mix at the soonest possible time (mid-term goal is to close 36 HMO contracts, including 6 to 8 under a PPO status), a comfortable buffer against revenue blocks will be established. 

The process of identifying these design preferences followed K.R. Andrews’ strategy formulation guide wherein any process leading to product design or policy implementation should address the following key factors: “market opportunity, corporate competence and resources, personal values and aspirations, and acknowledged obligations to society.” (Brown, 1992)

The US Health Care Landscape

The American health care system is made up of a number of key players belonging to different subsectors. On one hand, hospitals, clinics, and other health care facilities are privately owned and operated. Consumption of the services offered by these facilities, on the other hand, are financed by a range of health insurance plans, around 60% of which is accounted for by government funding through plans such Medicare and Medicaid.

In terms of sheer financial weight, the US health care industry is formidable, currently valued at over 2 trillion dollars in annual expenditures or almost three times the annual US defense budget. This amount accounts for around 16% of the country’s gross domestic product and is further forecasted to maintain a steady rise over the years. Notably, the aging US population will also certainly increase in the next few decades but so will the cost of providing and acquiring sufficient health care, especially if the current industry issues remain unresolved.  It is forecasted that health care organizations that are not agile enough to adapt to these mounting pressures and create fresh new solutions will eventually become untenable to operate.  In other words, cost efficiency will be the primary driver of profitability in health care organizations. (Cleverly, 2011)

Currently, public debates as well as the promulgation of new legislation on health care remain among the most heated and anticipated in the US. This is understandable considering the apparent discrepancies and ironies that people observed about the American health care system. The major issues underlying these debates include the right of citizens to decent health care, accessibility, cost, and quality.

In terms of expenditures, for example, the US incurs almost double the cost of similar health care packages when compared with other industrialized countries. Even then, the country is still significantly being outperformed by other rich nations on health indicators such as infant mortality rate and life expectancy. In addition, health care coverage does not extend to all Americans, unlike in Western European nations such as Norway and other rich, highly industrialized countries. To address the issue, Congress enacted the Patient Protection and Affordable Care Act (PPACA). This Act is of paramount importance to the strategic and financial positioning of health care facilities in the United States because funding for consumer health care are coursed through public and private health and insurance plans which are significantly affected by the new law.

Currently, payments for covering healthcare expenditures come from several sources including private out-of-pocket transactions, other type of private funds, private health insurance plans, and public health insurance plans. Out of pocket payments are those paid for by private citizens themselves. People may also choose to set up health spending accounts and use those for acquiring health care. Private health insurance plans include popular industry players such as Unitedhealth Group, Wellpoint Inc., and Kaiser Foundation. In the US, government participation in citizen health care is coursed through two main health care agencies: Medicare (funded by the federal government) and Medicaid (funded by both the federal and relevant state government). There are also public health care coverage for Native Americans, military personnel, and other groups. In terms of source funding composition, around half of health care expenditures are paid for by public funds, 35% by private health insurance, the rest through out-of-pocket payments. (Buchbiner, 2007)

Sage Rock Medical Center: Strategic Planning, Buildout & Operations

In formulating this proposal, the criteria set by RK Andrews were taken as guidelines. These criteria include “market opportunity, corporate competence and resources, personal values and aspirations, and acknowledged obligations to society”. (Brown, 1992)

Marketing Strategy. How can Sage Rock Medical leverage the specific population demographics in order to present its services as an equal or a better alternative to the health care services already available in the area? Is the number of retirees and elderly people on the uptrend? What’s the median income grade of the population?

Corporate Competence and Resources. How adequate will Sage Rock Medical Center’s staff complement be? While the planned equipment acquisitions have been narrowed only for high-grade quality brands, will the actual number of each type of these equipment be sufficient to meet the demands of health care consumers in the area?

Corporate Values and Aspirations. Because SRDL intends to operate a general hospital, what will be the final mix of offered services that will be aligned with the strategic goal of focusing on key medical fields as a means of differentiating Sage Rock Medical Center from other hospitals operating in the area?

Societal Obligations.  How will SDRL and Sage Rock Medical view health care? In the context of the Patient Protection and Affordable Care Act (PPACA), is it a right or a privilege? How will Sage Rock implement and finance its charity care component and other CSR initiatives in the long run?

Based on these criteria, the protocol for addressing strategic and operational issues can be firmly established: how to respond to changing conditions in the health care system, resource allocation, managing competition, and management of Sage Rock Medical Center’s different departments and functional units.

Other considerations used in this buildout proposal are based on George Moseley’s take on handling market information. Decisions with respect to various criteria were made: how much money the average health care consumer in the area will likely be willing to spend on Sage Rock Medical services; which new innovative medical technologies to acquire and implement; which pending health care related proposals in Congress are likely to be passed and the effects of these on Sage Rock Medical Center’s financial position; and what will be the most dominant consumer value preferences given the demographic trends in the area (Moseley, 2009).

Buildout Plan

Sage Rock Medical Center will operate as a general and surgical hospital, providing a comprehensive range of inpatient and outpatient services. To quarter these services, a contemporary and ecologically-aligned structure will be constructed 30 miles from the city proper.

The medical center is being envisioned as a midsized complex with excellent building infrastructure that noticeably incorporates the following key considerations: above average clinical and laboratory facilities and equipment, adequate staff support, family-oriented features, ecological sustainability, and cost-efficiency through the use of power-optimization features. In addition, top-of-the line equipment and facilities for the center’s core medical and surgical competencies will be integrated into the complex.

Sage Rock Medical Center will initially operate as an 80-bed hospital of approximately 180,000 square feet of floor area. Provisions for expanding the center’s servicing capacity to 120 beds will also be set in place.

Sage Rock’s functional units will include superior clinical laboratories, inpatient care areas, diagnostic and treatment sections, imaging departments, surgery sections and intensive care units, administrative sections, a chapel and a hospice section, food services and housekeeping sections, and a warm, relaxing lobby area. In addition, the network of corridors, hallways, stairs, elevators, and internal communication systems will be implemented in a manner that intuitively makes sense to health care consumers while significantly enhancing inter-department coordination and efficiency. In a nutshell, the following sections will constitute the main blocks of the medical complex:

  • inpatient, bed-related sections
  • outpatient sections, including the emergency room
  • diagnostic and treatment sections
  • administrative sections
  • hospitality sections, including the food and housekeeping departments
  • research and teaching sections

At the outset of the design process, the architectural firm and the contractor will be tasked not only to comply with applicable building regulations, codes, or certifications but also to consider functionality and operational efficiency as a paramount design considerations; in strict accord with the dictum popularized by Hardy and Lammers: “A functional design can promote skill, economy, conveniences, and comforts; [while] a non-functional design can impede activities of all types, detract from quality of care, and raise costs to intolerable levels.” (Carr , 2011).

Moreover, the needs of hospital personnel, patients, support staff, suppliers and other stakeholders of Sage Rock Medical Center, will be integrated as functional requirements in the building design. As outlined in the Whole Building Design Site, the following key attributes will be implemented for Sage Rock Medical Center:

Efficiency and Cost Effectiveness. The design for Sage Rock Medical Center should promote staff efficiency and provide for an intuitive management of the center’s logistical requirements. This attribute allows for the inclusion of all required sections but strongly prohibits redundancy. In addition, functional transitions should be logical in terms of which section should be adjacent to the other. For example, operating rooms should be adjacent or in close proximity to intensive care units.

Flexibility and Expandability. Because SDRL envisions Sage Rock Medical as a mid- to large-size health care facility, provisions for expansion should be set in place even at the outset of the construction process. To support this requirement, the smart use of modular concepts in the building layout will be adopted.

Therapeutic Environment. Through the use of modern, research-based techniques, hospitals should be able to integrate design elements that will dramatically reduce or totally eliminate feelings of fearfulness, confusion and discomfort among patients who visit the threatening or cold premises of traditional hospitals. Some techniques that could usher in sensations of warmth, comfort, familiarity, and healing include the use of warm and culturally relevant materials such as plants, artwork and other crafts. In addition, the use of ample natural lighting as well as cheerful and varying colors and textures specially in inpatient sections will reduce patient stress and accelerate the healing process. Windows with panoramic views of the outdoors are also recommended.

Cleanliness and Sanitation. This hospital attribute can not be overstated. Easy-to-clean and germ-resistant finishing materials are to be preferred and installed in locations where their presence can directly increase the healing chances of health care consumers, specially those admitted in the inpatient sections.

Controlled Internal Traffic. The network of hallways, corridors, stairs, elevators, and other routes should be designed in such a way that will prevent sensory encounters between Sage Rock stakeholders who do not need to interact or whose mutual encounter may cause feelings of discomfort or even the transfer of contagious diseases. For example, outpatients should be able to acquire health care services without traversing inpatient sections. Dedicated routes for food and other similar logistics should also be considered.

Aesthetics. Design elements that enhance Sage Rock Medical Center’ public image, complement the facility’s therapeutic environment, and improve staff morale and patient care should be implemented.

Security and Safety. Adequate security measures should be set in place to protect hospital property and assets and all the people who has a stake in Sage Rock Medical Center’s operations—health care consumers, physicians, staff, family members of patients, and others.

Sustainability. Sage Rock Doctors’ League places a high premium on sustainability and targets a gold-level certification from LEEDS (Leadership in Energy and Environmental Design). This requires the use of innovative materials and equipment as well as the implementation of ecologically-aligned operational practices.

Sage Rock Medical Center: Project Objectives by Launch Date

Hospital type: General medical and surgical

Number of beds: 80 (scalable upwards to 120)

Revenue Mix:

  • payments from health care consumers that are channeled through public health plans and private health insurance plans
  • grants, other direct payments, contributions

Target Number of HMO Contracts:

  • at launch: 20, including 4 preferred provider organization (PPO) status
  • mid-term: 36, including 6 to 8 PPO status

Community Outreach

    Charity care
    Health fairs
    Health screenings


Services [Specialties]: Geriatrics, Heart & Heart Surgery, Diabetes & Endocrinology

Services [Inpatient]:

    Arthritis Center
    Birthing room
    Elderly/Disabled (skilled nursing care)
    Heart catheterization—diagnostic (adult)
    Heart catheterization—diagnostic (child)
    End-of-life services (Hospice, Pain management, and Palliative care)
    Heart surgery (adult)
    Heart surgery (pediatric)
    Infection isolation room
    Heart catheterization—treatment (adult)
    Heart catheterization—treatment (child)
    Cancer services

Services [Inpatient]:

    Bariatric/weight control services
    Breast cancer screening/mammograms
    Certified trauma center
    Dental services

    Heart catheterization—diagnostic (adult)
    Heart catheterization—diagnostic (child)
    Fitness center
    Geriatric services
    Heart catheterization—treatment (adult)
    Heart catheterization—treatment (child)
    Kidney dialysis
    Physical rehabilitation
    Psychiatric services (Child/adolescent services, Consultation and Geriatric services)
    Sports medicine
    Wound management services

Services [Patient & Family Support]

    Assistance with government services
    Chaplaincy/pastoral care services
    Cancer services
    Patient support groups
    Patient representative/ombudsman
    Transportation for elderly/handicapped
    Translation services

Services [Diagnostic & Therapeutic]

    CT scanner
    Diagnostic radioisotope facility
    Magnetic resonance imaging (MRI)
    Multislice spiral CT
    Single photon emission CT


Based on extensive market analysis of the area, including the competitor landscape and population demographics, the local demand for a general hospital of the scale and capability similar to those described in this proposal is more than sufficient to justify the buildout of Sage Rock Medical Center. In addition to the demonstrable demand for more health care organizations in the area, support for the establishment and profitability of Sage Rock Medical, in particular, are strongly undergirded by the following value proposition:

Resident practitioners’ high degree of surgical competence. This factor is imputed in the buildout wherein the support infrastructure for Geriatrics, Heart Care/Heart Surgery, and Diabetes/Endocrinology are given primary importance. Based on the area’s demographics, the population in the city proper and its outskirts are steadily aging and a consistently available quality health care for this consumer segment has become a service imperative in the region.

Above-average medical facilities and equipment. The high quality of facilities and equipment at Sage Rock Medical is intended to draw most of the consumers who consult other small- to mid-scale hospitals in the metropolitan area to try acquiring health care from a perceptibly better equipped and staffed health care organization.

Modern, sustainable, and power-efficient facilities. The allocation of Sage Rock Medical Center’s buildout budget reflects the stakeholders’ strong preference for quality over scale. In fact, one of the buildout objectives is the acquisition of a Gold-level certification from LEEDS. In summary, the following constitute the facility’s basic design requirements:

  • excellent quality of clinical structures
  • above-average support facilities for hospital staff
  • operational efficiency
  • family-oriented facilities
  • alignment of design with CSR goals
  • ecological sustainability


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