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.
Similarly, for this service, they plan to charge such that after all Medicare and various discounts, they are receiving $4000 per print in net revenue. However, hesitant to invest significant capital up front, they decided to use a third party vendor to both design and manufacture the 3D prints. This vendor has a minimal turn around time of one week for each procedure, therefore limiting usage to less emergent cases that would require a 1–2 day turn around time.
Subsequently, the hospital has determined that 20 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 with 22 prints at $4000/print leading to $88,000 in revenue. The two new patients per year each increased additional $40,000 surgical revenue to the hospital, assuming each surgery will generate 20,000 in revenue. Total net revenue thus is $128,000 for the first year.
The hospital will pay $4000 per print with the outside vendor.
The “results” spreadsheet 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 22 procedures at $5000 per procedure for a gross revenue of $110,000. After discounts our revenue drops to $88,000 however, we bring in new patients who have additional procedures. That additional revenue of $40,000 brings our net revenue to $128,000.
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 outsource model, there is no cost of acquisition. The sum of the costs is the net expenses. In our Year 1 case, the costs are what we are paying a vendor for the prints, which totals $4050 per print. In addition, we have the cost of a radiologist’s time at $200 per print, assuming approximately 1-hour design time from the radiologist. The total of these costs are the $93,500 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 profit of $33,500 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 23 prints. Since we only did 22 prints, we should have a loss. The additional revenue brought in gives us a positive result.
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 VII, we see an NPV of approximately $523K.