Orthopedic Service Line - A Case Study of Trinity Community Hospital (Case Study Sample)

Orthopedic Service Line - A Case Study of Trinity Community Hospital Student’s Name Institutional Affiliation Course Name Professor’s Name Date Orthopedic Service Line - A Case Study of Trinity Community Hospital 1 Introduction Hospitals have people moving in and out of various departments. At times, changes need to be made in terms of restructuring the buildings to ensure that they are functional enough. Functional hospital designs enhance comfort, and convenience while non-functional ones impede these aspects and make the facility incur high costs (Razak et al., 2012). The key aspects that must be considered are the patient’s comfort and their care. According to Horst (2015), when hospitals re-design or put up designs, they should ensure they are flexible and durable such that they accommodate the changes that come with technology, treatment approaches, and demographics. Trinity Community Hospital is a 150-bed facility based in the southeast US and offers services such as gastroenterology, urology, and neurology among others. The hospital hopes to provide orthopedic services and hence a center must be established. The challenge that management faces during such times is whether to build, lease or buy a space. As such, this paper will develop a business summary that will highlight the advantages and disadvantages of buying, leasing, or building a space for the new orthopedic service line. 2 The Case of Trinity Community Hospital Trinity Community Hospital must create additional space to accommodate the 5,000-square-foot physical therapy (PT) center meant to support the development of the orthopedic program. Accordingly, the hospital has three options – the center can be constructed on the campus, purchased, or leased next to the campus. The price for the building close to the hospital is —$700,000 which includes $575,000 for the building and $125,000 for the lot. The cost of leasing the 5,000-square-foot center will be $100,000 (5,000*20) and includes the necessary renovations but the hospital will be responsible for all the repair costs and taxes. Construction will cost the hospital $600,000. If the center is purchased or constructed, its depreciable life is 20 years. 3 Advantages of the Three Options * Building a Space The first benefit of building a new orthopedic service center is that hospital management will have full control of the space, thus making the decisions that serve them and their patients best (Daniels Construction, 2018). Additionally, the new building has a chance of appreciating in the new future since it is an appreciating asset and if sold, the management will benefit from huge profits. If they decide to lease, the rates will also be higher. A new building will also support the hospital’s long-term strategies such as quality care and safety and reflect its values and goals (Daniels Construction, 2018). Building a new center may be more expensive but is a long-term investment that the management can pride themselves in – it will offer a chance for innovation which are necessary for the new center. A new building will also be constructed in a way that accommodates the new technology, ideas, demographic changes, and new treatment options. These cannot be done when leasing or purchasing a space. The hospital will also build the center at a strategic location where physicians and patients can easily access it. In addition, as compared to the costs of buying the building new the hospital ($700,000), constructing a new space is cheaper ($600,000). The hospital will be making a long-term investment here and can rent the property and get additional income. In addition, the depreciation life is for 20 years, hence there are tax benefits for this option (Daniels Construction, 2018). The hospital will build a space that accommodates its current and future needs and is efficient for its doctors' and patients’ needs (Daniels Construction, 2018). The hospital can also change its layout or the use of the space as it pleases because the building will be theirs. * Buying a Space By buying a space right now, the hospital will purchase at a cheaper rate but sell at a high price, thus benefiting from the real estate aspect of this option. The hospital will have an asset that benefits them in the end as they incorporate their strategic long-term goal. While buying a new building for the orthopedic line is a bit costly, this option will save the hospital a lot of time. The option also comes with a parking lot which will cater to the many physicians and patients that the center will accommodate. When compared to leasing, the hospital will not incur any additional costs. It is also strategically located since it is near the campus, hence easily accessible. Furthermore, there is no owner of the property who controls decisions on expanding, altering, or renovating the building; the management has control over the premises (Miller, 2022). Buying a new building gives the hospital more space for future developments. The additional space can also be leased and the hospital will get additional rental income (Miller, 2022). There are also tax benefits because of the depreciation life of 20 years. The premises can also be used as collateral for equity or debt financing in case the hospital needs more funds (Ward, 2022). As per capital valuation, the hospital will enjoy profits because of the appreciating asset it will buy. * Leasing a Space Leasing has great benefits too. Even though a deposit, prelease inspection fees, and attorney fees are required, there is more liquidity and less cash is tied up since there is no need for a down payment (Miller, 2022). Qualifying for a lease will be easier for the hospital as compared to qualifying for a real estate loan to buy or build the new center. The lease payments will reduce the tax payments that the hospital will be making. The process is quicker since the market has more leasable properties than buildings up for sale. The monthly costs are also fixed and thus, no worry about increases or unanticipated additional expenses (Miller, 2022). In addition, the leasing charges seem to suggest that the building is in a prime or strategic location, which is exactly what is needed here. 4 Disadvantages of the Three Options * Building a Space The costs of building the center will be quite expensive ($600,000). There will also be costs incurred during site selection, appraisals when getting regulatory approvals and permits, and in accessing knowledge for the appropriate design to build. If the building is not constructed well, it may impede activities and the costs for re-structuring will be high. Building a new space will take a lot of time that the hospital may not necessarily have. The tax deductions when one owns a building are not as predictable as when leasing premises. The hospital might need to hire a contractor to focus on the management of the construction, which is expensive. * Buying a Space There is a chance of a decline in the value of a property if the hospital decides to sell or move out. Harsh business conditions, neighborhood changes, and increased taxes can make the value decline, making the hospital incur losses (Ward, 2022). There is high upfront spending because of the huge down payment needed to secure spaces when buying them (Miller, 2022). It is also difficult to qualify for commercial real estate loans in case the hospital has a low credit score, hence getting trouble financing the purchase (Miller, 2022). The hospital will also be liable for any accidents or injuries that occur in the new space. Buying a space also comes w...