University of Virginia Health System: The Long-Term Acute Care Hospital Project

Abstract

This case is best taught in a first-year MBA finance course and with a series of cases based on cash flow analysis. Its primary objective is to portray the major differences in project analysis for nonprofit organizations compared to for-profit companies and to highlight the unique issues relevant in a health care environment. Students must decide, based on cash flow analysis and nonfinancial factors, whether or not to propose a long-term acute care hospital (LTAC) project to the board of directors of the U.Va. Health System. Students must use the assumptions outlined in the case to create a cash flow analysis and then compute a net present value (NPV) calculation and internal rate of return (IRR) for the project. After assessing the base-case results and sensitivity analysis of the assumptions driving those results, students must decide if the project should be taken to the board of directors.

Excerpt

UVA-F-1676

Rev. Nov. 20, 2013

UNIVERSITY OF VIRGINIA HEALTH SYSTEM:

THE LONG-TERM ACUTE CARE HOSPITAL PROJECT

On the morning of March 2, 2006, Larry Fitzgerald knew he had to complete all the last-minute details for the board meeting the following day. Fitzgerald, the vice president for business development and finance for the University of Virginia Health System (U.Va. Health System), was eager to see the board's reaction to his proposal for a new long-term acute care (LTAC) hospital. His excitement was somewhat tempered that the board had rejected the LTAC hospital concept when Fitzgerald had first joined the U.Va. Health System in 1999. Since that time, however, the regulations regarding LTAC facilities had changed, which gave Fitzgerald reason to give the project another chance. The bottom line was that Fitzgerald thought that a LTAC hospital would improve patient care and, at the same time, bring more money into the U.Va. Health System.

As he looked at the memo on his desk from his analyst Karen Mulroney regarding the LTAC facility, Fitzgerald began to consider what guidance he could give her that would lead to the best possible proposal to present to the hospital's board of directors.

. . .

Keywords: development and finance, long-term acute care, capital investments, financial projections