1. Purposes of a study. The feasibility study is a tool for making the initial “go” or “no go” decision for project syndication. Its findings are also given to potential project investors and lenders. And it provides a foundation for preparation of the initial start-up operational plan and budget.
2. Primary drivers. Caseload and revenue are still the primary drivers of a feasibility study. Caseload and revenue determine facility size and scope. Caseload and case mix determine equipment needs. For example, the same volume of cases would require one OR for GI and two ORs for orthopedics.
3. Capital costs. Caseload and case mix drive capital costs and equipment costs. Construction costs are affected by facility size. Working capital is driven by caseload, case mix, operating costs and capital costs.
4. Equity requirements. The equity requirements depend on underwriting criteria and customary business needs. Commercial underwriting criteria affect how much can be borrowed and how much must be contributed in cash. Ramp-up requirements affect working capital needs
Beyond the obvious quantifiable needs, an allowance for unexpected contingencies is now required.
5. Operating revenues. Operating revenues must be based on verifiable sources of data. Acceptable primary and secondary data sources must be used. Medicare reimbursement rates play a role in estimating net revenue. The difference between procedures and admissions must be understood and factored into revenue estimates.
6. Operating expenses. Operating expenses must be specific to the scope of business anticipated in the surgery center. Service lines must be defined because they affect revenue per case. Staffing projections must be tailored to the anticipated case mix, and supply projections must be tailored to anticipated case mix.
7. Projected return on investment. Projected return on investment must meet the expectations of investors. Cash available for distribution must be based on ongoing operating and equipment reserves and working capital. Keep in mind this measure is different than net income. Physician investors expect returns that are realistic, but also attractive.
8. When feasibility process ends. The initial feasibility study is only illustrative. The feasibility study does not end until the project’s syndication process is complete and verifiable data has been collected and analyzed.
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