1. Paperless Charting: A staff substitution enabler. HSCI 740 Keith Fawcett June 7, 2004

2. The Hospital Unit 34 beds, 16 rooms. 34 beds, 16 rooms. 2 staff shifts: night shift & day shift. Each 12 hours. 2 staff shifts: night shift & day shift. Each 12 hours. RN must perform and chart a physical assessment every 12 hours for each patient. RN must perform and chart a physical assessment every 12 hours for each patient. The required charting results in a significant amount of time spent on paperwork by the RN. The required charting results in a significant amount of time spent on paperwork by the RN. Paper work that should be completed includes: Identification sheet, MD orders, Progress notes, PT teaching form, falls risk form, physical assessment form, neurovascular assessment form and pain rating form. Paper work that should be completed includes: Identification sheet, MD orders, Progress notes, PT teaching form, falls risk form, physical assessment form, neurovascular assessment form and pain rating form.

3. LPN: The RN substitute. The Licensed Practical Nurse can perform a great number of tasks with regards to patient care. However, there are legal limits which prevent the LPN from being able to complete a great deal of the paperwork. The Licensed Practical Nurse can perform a great number of tasks with regards to patient care. However, there are legal limits which prevent the LPN from being able to complete a great deal of the paperwork. LPN’s can cut costs on a unit substantially. Unfortunately, the paperwork is a limiting factor in employing the use of LPN’s. LPN’s can cut costs on a unit substantially. Unfortunately, the paperwork is a limiting factor in employing the use of LPN’s. 3 RN’s and 5 LPN’s could handle the care of 32 patients, but 3 RN’s could not handle the paperwork of 32 patients. 3 RN’s and 5 LPN’s could handle the care of 32 patients, but 3 RN’s could not handle the paperwork of 32 patients. Before dealing with the paperwork problem. First, we should try to determine what the best mix of LPN’s and RN’s on the unit would be considering the cost of labor and the fact that there must be some RN’s. Before dealing with the paperwork problem. First, we should try to determine what the best mix of LPN’s and RN’s on the unit would be considering the cost of labor and the fact that there must be some RN’s.

4. Cost Minimization First, assume that the unit always has 32 patients. First, assume that the unit always has 32 patients. Second, assume the wage for an RN is $25/hour and the wage for an LPN is $16/hour. Second, assume the wage for an RN is $25/hour and the wage for an LPN is $16/hour. Suppose: q = 8*LPN.5 RN.5 Minimize: w 1 RN + w 2 LPN Subject to: 32=8*LPN.5 RN.5 Lagrangian for this problem:  =w 1 RN + w 2 LPN +  (32 – 8 LPN.5 RN.5 )  (lamda) is a multiple which relates to the marginal utility from consumption. First order conditions (derivative): #1.  /  RN= w 1 -  (4 LPN.5 RN -.5 ) #2.  /  LPN= w 2 -  (4 LPN -.5 RN.5 ) #3.  /  = 32 – 8(LPN.5 RN.5 ) -continued-

5. Cost Minimization Manipulate Equations #1 and #2: w 1 / w 2 =  (4 LPN.5 RN -.5 )/  (4 LPN -.5 RN.5 ) = MPRN /MPLPN = RTSRN, LPN =LPN/RN Substitute Manipulated equation into First order #3: 32 = 8(w 1 / w 2 *RN).5 * RN.5 4 = (w1 / w2 *RN).5 * RN.5 4 = w 1.5 * w 2 -.5 * RN w 1 = $25 & w 2 = $16 So: 4*w 1 -.5 * w 2.5 = RN Likewise: 4*w 1.5 * w 2 -.5 = LPN Minimization ratios:RN = 3.2 & LPN = 5 Check: 32 = 8LPN.5 RN.5 TC=Total Cost TC = 3.2(25) + 5(16) vs. 8(25) = 200 TC = 160

6. Results $40 hourly savings $40 hourly savings Problem: RN’s overwhelmed with paperwork Problem: RN’s overwhelmed with paperwork Therefore, these ratios cannot be maintained unless something is done with the paperwork. Therefore, these ratios cannot be maintained unless something is done with the paperwork. Paperless charting is a solution to this problem. Paperless charting is a solution to this problem. We will need to construct a computer network on our 32 patient unit to create paperless charting. We will need to construct a computer network on our 32 patient unit to create paperless charting. Will the cost savings of our new staffing ratios outweigh the costs of our computer network? Will the cost savings of our new staffing ratios outweigh the costs of our computer network?

7. Financial Analysis This question will be best answered through conducting a net present value and discounted cash flow analysis. This question will be best answered through conducting a net present value and discounted cash flow analysis. First, imagine that the computer network is an investment that will produce revenues by enabling the use of the optimal ratios of RN’s and LPN’s. Annual revenues can be calculated by multiplying the hourly savings of $40 by the number of hours in one year. First, imagine that the computer network is an investment that will produce revenues by enabling the use of the optimal ratios of RN’s and LPN’s. Annual revenues can be calculated by multiplying the hourly savings of $40 by the number of hours in one year.

8. Revenues YearUnit PriceUnit SalesRevenue 1$40.008760$350,400.00 2$40.008760$350,400.00 3$40.008760$350,400.00 4$40.008760$350,400.00 5$40.008760$350,400.00 6$40.008760$350,400.00

9. Technology Cost Type USD Amount SunkUSD Variable per Annum Fixed Cost per Annum 8 note pad computers$16,000.00$10,000.00$5,000.00 1 Server$5,000.00 Wire Infrastructure$2,000.00 3 desktops$3,000.00 Additional Hardware$2,000.00 Set-up Cost$25,000.00 Software Cost$15,000.00 Total$68,000.00$10,000.00$5,000.00

10. Modified Accelerated Cost Recovery System Year Beginning Book ValueDepreciationEnding Book ValueMACRS Percentage 1$68,000.00$13,600.00$54,400.0020 2$54,400.00$21,760.00$32,640.0032 3$32,640.00$13,056.00$19,584.0019.2 4$19,584.00$7,833.60$11,750.4011.52 5$11,750.40$7,833.60$3,916.8011.52 6$3,916.80 $0.005.76

11. Pro-forma Income Statement 123456 Unit Price$40.00 Unit Sales8760 Revenues$350,400.00 Variable Costs$10,000.00 Fixed Costs$5,000.00 Depreciation$13,600.00$21,760.00$13,056.00$7,833.60 $3,916.80 EBIT$321,800.00$313,640.00$322,344.00$327,566.40 $331,483.20 Taxes (34%)$109,412.00$106,637.60$109,596.96$111,372.58 $112,704.29 Net Income$212,388.00$207,002.40$212,747.04$216,193.82 $218,778.91

12. Operating Cash Flow 0123456 EBIT $321,800.00$313,640.00$322,344.00$327,566.40 $331,483.20 Depreciation $13,600.00$21,760.00$13,056.00$7,833.60 $3,916.80 Taxes $109,412.00$106,637.60$109,596.96$111,372.58 $112,704.29 Operating Cash Flow $225,988.00$228,762.40$225,803.04$224,027.42 $222,695.71

13. Capital Spending Initial Outlay -$68,000.00 Aftertax Salvage $2,046.00 Capital Spending -$68,000.00$2,046.00

14. Projected Total Cash Flows 0123456 Operating Cash Flow0$225,988.00$228,762.40$225,803.04$224,027.42 $222,695.71 Change in NWC$0.00 Capital Spending-$31,000.00$2,046.00 Total Project Cash Flow-$31,000.00$225,988.00$228,762.40$225,803.04$224,027.42 $224,741.71 Cumulative cash Flow-$31,000.00$194,988.00$423,750.40$649,553.44$873,580.86$1,097,608.29$1,322,350.00 Discounted Cash Flow at 15%$196,511.30$172,977.24$148,469.16$128,088.41$111,381.22$97,162.04 Discount Factor0.8695652170.7561436670.6575162320.5717532460.4971767350.432327596 $854,589.38$823,589.38 NPV=$823,589.38 IRR730% payback109.83 days