Financial Analysis Worksheets (Downloadable) for 3D Printing in Hospitals – Guide 5/5

In the previous section of this guide, we went in-depth about the financial issues surrounding 3D printing in hospitals, which includes discussions on reimbursement, revenue strategies, and cost analysis for 3D printing in hospitals. In this final section of this guide, we created a sample financial analysis spreadsheet, which you can use as a basic framework to construct a financial plan for setting up a 3D printing service. (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, the construction of a dedicated area for a 3D printer is highly variable depending on the hospital, geography, type of machine, regulatory requirements, etc. Also, the pricing of machines, tools, and materials has also changed significantly as 3D printing is an ever-changing landscape that experienced exponential growth since the publication of the original book. While we update these guides regularly to reflect such changes, the numbers should be used as hypothetical, and not literal, values.

  1. Introduction:  What is operational management?
  2. Technical Background
  3. Strategic Issues
  4. Tactical Issues
  5. Financial Issues       
  6. Financial Worksheet
  7. Acknowledgments/References

In Hospital 3D Printing Service Financial Plan:

Downloadable version (Paid Members Only)

The Worksheet:

Revenue:

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 as part of patient education and pre-surgical planning.  For this service, they plan to charge $5000 per printing service. After accounting for all Medicare/Medicaid discounts, or insurance reimbursement, 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 an additional $40000 surgical revenue to the hospital.  The total net revenue is $168,000 for the first year.  

Capital Expense:

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 useful in showing complex anatomies including the vascular structures.  Options for a flexible material to create models with tactile features are also gaining popularity for pre-surgical practice in high stake cases. A typical machine that meets these requirements would be Stratasys Objet500 Connex 3, which costs roughly $300,000 including a maintenance contract.  

The hospital has a well-developed radiology team that 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 radiologists’ time per year for 32 cases. 

The technologist requirement is estimated to start and remain at a one-half person for 10 years.  Their salary is estimated at $60,000 per year so the technologist’s cost is $30,000 per year. 

The installation fee (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.  The 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 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 an 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 gross revenue of $160,000.  After discounts, our revenue drops to $128,000. However, we attract 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 a 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 a new technologist.  In addition, we have the 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 is $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 the employment of the new technology. We assume two new patients will be attracted for year 1. We also assume a subsequent 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 a 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.

Outsource 3D Printing Service Financial Plan:

Downloadable version (Paid Members Only)

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 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 upfront, they decided to use a third-party vendor to both design and manufacture the 3D prints. This vendor has a minimal turnaround time of one week for each procedure, therefore limiting usage to less emergent cases that would require a 1-2 day turnaround 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.  The total net revenue thus is $128,000 for the first year.   

The hospital will pay  $4000 per print with the outside vendor. 

Results:

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 an 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 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 outsourcing 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 of design time from the radiologist.  The total of these costs is $93,500 in 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 the employment of the new technology. We assume two new patients will be attracted for year 1. We also assume a subsequent 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 a 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.

 With these two hypothetical scenarios, a graph of return on investment over a ten-year period can be generated.

3DHEALS Guides (Collective) – This is where we dive deep into subjects that you will find helpful for your projects and career.

3DEALS Expert Corner (Collective) – This is where we invite field experts to write their perspectives in a first-person narrative. To write for this column, please email: info@3dheals.com

3DHEALS From Academia (Collective) – This section features recent, relevant, close to commercialization academic publications in the space of healthcare 3D printing, 3D bioprinting, and related emerging technologies.

Comments

  • Hi Jenny
    Thank you for this very clear illustration of the value of 3DPRINTING in Healthcare care. We are doing this at UCSF but the difference is that we are printing in house and amuch lower cost per model. I look forward to your book and 3DHEALS 2018!

    blank