Jan 19, 2017 Hui Jenny Chen, MD and Michelle Gabriel, MS, MBA
(This blog is adapted from our A Roadmap from Idea to Implementation: 3D Printing for Pre-Surgical Application: Operational Management for 3D Printing in Surgery)
To demonstrate a financial analysis, we have created spreadsheets, which you can use as a basic framework to construct a financial plan for setting up a 3D printing service (Link). [29,30] The following is a discussion of two hypothetical scenarios to demonstrate how this spreadsheet works. Please be aware that the values used could vary widely and should not be used as reference numbers. For example, construction of a dedicated area for a 3D printer is highly variable depending on the hospital, geography, type of machine, regulatory requirements, etc.
In Hospital 3D Printing Service Financial Plan (Link):
Scenario (“Worksheet” part):
A community based subspecialty hospital wants to justify setting up a 3d printing center for cardiothoracic surgeries. They want to expand this service to other specialties but want to start with the cardiothoracic department, using 3D printed models for as part of patient education and pre-surgical planning. For this service, they plan to charge such that after all Medicare and other discounts, they are receiving $4000 per print in net revenue. The hospital has determined that 30 patients out of 300 patients per year would benefit from the model and that the new service will attract two new patients as a result. Thus, the hospital will start their planning calculations for the first year at 32 prints at $4000/print leading to $128,000 in revenue. The two new patients per year each increased additional $40000 surgical revenue to the hospital. Total net revenue is $168,000 for the first year.
Next they determine what equipment is to be purchased based on their application and needs. Since this is used in pre-surgical planning, precision/accuracy, good resolution and sterilizable material are all important. In cardiac cases, time is often of the essence where turnaround time needs to be in 1 or 2 days. Thus, a high speed printer is required. Multicolor is extremely useful in showing complex anatomies including the vascular structures. A typical machine that meets these requirements would be Stratysys Objet500 Connex 3, which costs roughly $300,000 including a maintenance contract.
The hospital has a well-developed radiology team who is versed in 3D imaging. To make the 3D print, a radiologist will spend on average 4 hours more than their usual time, at $200/hr to perform the detailed segmentation. Approximately $26,000 will therefore be spent on radiology time.
The technologist requirement is estimated to start and remain at one half person for 10 years. Their salary is estimated $60,000 per year so the technologist cost is $30,000 per year.
The installation fees (including transportation) is $1000. Remodeling costs are estimated at $400 per square foot in a 150 square foot room, for a total of $60,000. Cost of training is estimated at $5000. It is assumed that any insurance needs are already covered by the hospital, thus no additional insurance is required. Again, these numbers are highly hypothetical and will vary significantly, depending on existing infrastructures.
Results:
The “results” spreadsheet (Table VI) looks at the cash flow over 10 years. First the gross revenue is calculated by multiplying the number of procedures by the amount charged per procedure. The revenue is then adjusted to take into account the mix of discounts and patients with Medicare, Medicaid, etc. Added to this is any additional revenue generated, such as from new patients, over and above that from the new procedure. This sum is the net revenue — the additional cash taken in due to the 3D printing. In our example in the out-source model in Year 1, we have 32 procedures at $5000 per procedure for a gross revenue of $160,000. After discounts ,our revenue drops to $128,000. However, we attract in new patients who have additional procedures. That additional revenue of $40,000 brings our net revenue to $168,000.
Next the costs are accounted for. As described earlier, there are fixed and variable costs, which are seen in the in-house model. For the in-hospital model, there is significant cost of acquisition, which amounts to $367,600.
The annual fixed cost is estimated to be 32,000, assuming an additional half-time technologist is needed. The variable cost is about 800 per print, assuming a total of four hours of post processing time is needed from the radiologists. The total annual fixed cost is therefore, again, 25,600.
The sum of the costs is the net expenses. In our Year 1 case, the costs are what we are paying to set up the 3D printing center and to hire new technologist. In addition, we have additional cost of a radiologist’s time at $200 per print, assuming approximately 4-hour post processing time from the radiologist. The total of these costs are the $425,200 of expenses.
The net income is the difference between the net revenue and the net expenses. If the number is positive, you have a profit. If it is negative, there is a loss. Our example shows a loss of $257,200 for the first year.
The breakeven volume is the number of procedures needed to have no profit — where the revenues and the expenses match. In this spreadsheet, the additional revenue comes from new procedures attracted due to employment of the new technology. We assume two new patients will be attracted for year 1. We also assume a subsequent of 10% increase in new patients in subsequent years. Obviously, patients come in integer, and 10% is more of an average annual percentage growth spread over 10-year period. The Year 1 breakeven is 125 prints. Since we only did 32 prints, we end up with a loss, even accounting for additional procedural revenue.
The net present value (NPV) is the value of the 10 years’ worth of net income in today’s dollars. Due to inflation, $10 today is worth more than $10 a year from now. To determine the total worth of the project for 10 years in today’s dollars, the values for Years 2–10 need to be discounted. The rate at which they are discounted is decided by the analyst. That rate is filled in on the Worksheet tab and is used to calculate the results. Using a 2% discount rate, which is set on B57 on the “worksheet” section of Table VI , we see an NPV of approximately $ $1,359,600 over 10 years.
To be continued…)
Download Financial Spreadsheet for In-House 3D Printing Service here.
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