Trinity Hospital is community hospital located in a Southern state in the Eastern region of the United States. Trinity Hospital has an emergency department, and basic needs for patients are available such as Radiology, Physical Therapy, Diagnostic services and Nuclear medicine among other areas of treatment. Trinity Hospital operates 150 beds, 14 of which are intensive care, with the remaining 136 being general medical/ surgical. Operating rooms equal 20. The current hospital structure is 25 years old. Besides the main hospital there are four medical office buildings. Most of which are privately occupied. The areas unoccupied could be utilized to expand some of the needed services in the three potential service line areas, cardiovascular services, cancer services, and physical therapy and rehabilitation. Trinity Hospital, while experiencing a financial loss this year, has previously been financially profitable. This places them in the unique position to expand needed services, specifically the orthopedic service line to shift declining patient numbers by offering much needed services in the area, and improving their competitive advantage among the other area hospitals. Trinity hospital has a choice of building, buying or leasing facilities.
A1.A Building Advantages
“The single most critical factor in evaluating your options is where you see your business going in the future. You must plan for your facility to be able to accommodate contractions, expansion, changes in production flow, anticipated and unanticipated technological upgrades, specialized equipment, new product lines, changes in business climate and product demand decrease. By building space specifically designed for needs of the hospital, both current and long term needs can be assessed and a strategy be put in place to ensure an ability to grow into future capacity as well as design a state of the art building, in as much as can be comfortably afforded. If capitol cannot be raised to purchase the new build outright, this property can be mortgaged.
The simplistic advantage of a mortgage is, they end at some point with outright ownership being the end result, wherein a lease is perpetual. Further advantage, would be the appeal of a new space, with potential for future growth, to doctors practicing within the hospital currently. This would also help attract new and different doctors who could enhance patient volume. Patient, doctor convenience is also a positive issue in regard to building a new build. Given the land available within the Trinity Hospital property, services with such a close proximity to the main hospital and private doctor’s offices would be a great advantage for efficient treatment.
A1b. Buying Advantages The advantage to buying includes fixed cost recovery through depreciation. This process enables the building being be ensured. This coupled with the ability to fix the cost of the loan payments helps keep the total cost of building acquisition lower than a new building.
A1c. Leasing Advantages Leasing advantages are similar to purchase advantages in that, the lease payment; much like the mortgage payment can be controlled or seen as a fixed cost. This cost can be negotiated to remain fixed or very close to fixed year by year. The ability to rely on a possible professional leasing company to ensure upkeep on the space, does remove perceived pressure on Trinity Hospital board and CEO. Financing for leased property is more simplistic to acquire than financing for new builds or the outright purchase of an existing building. This is often a good solution for smaller businesses.
A2a. Building Disadvantages While generally hospitals do not pay real estate taxes, the process of accumulating funding from donor and investor sources, these investors are taxed for their shares of investments. This cost is often charged back to the hospital through a higher rate of dividends thus, increasing…