Paperless Charting: Paperless Charting: A staff A staff

substitution substitution enabler.enabler.HSCI 740HSCI 740

Keith FawcettKeith Fawcett

June 7, 2004June 7, 2004

The Hospital UnitThe Hospital Unit 34 beds, 16 rooms.34 beds, 16 rooms. 2 staff shifts: night shift & day shift. Each 12 2 staff shifts: night shift & day shift. Each 12

hours.hours. RN must perform and chart a physical RN must perform and chart a physical

assessment every 12 hours for each patient. assessment every 12 hours for each patient. The required charting results in a significant The required charting results in a significant

amount of time spent on paperwork by the RN.amount of time spent on paperwork by the RN. Paper work that should be completed includes: Paper work that should be completed includes:

Identification sheet, MD orders, Progress Identification sheet, MD orders, Progress notes, PT teaching form, falls risk form, notes, PT teaching form, falls risk form, physical assessment form, neurovascular physical assessment form, neurovascular assessment form and pain rating form. assessment form and pain rating form.

LPN: The RN substitute.LPN: The RN substitute. The Licensed Practical Nurse can perform a great The Licensed Practical Nurse can perform a great

number of tasks with regards to patient care. However, number of tasks with regards to patient care. However, there are legal limits which prevent the LPN from being there are legal limits which prevent the LPN from being able to complete a great deal of the paperwork. able to complete a great deal of the paperwork.

LPN’s can cut costs on a unit substantially. LPN’s can cut costs on a unit substantially. Unfortunately, the paperwork is a limiting factor in Unfortunately, the paperwork is a limiting factor in employing the use of LPN’s. employing the use of LPN’s.

3 RN’s and 5 LPN’s could handle the care of 32 patients, 3 RN’s and 5 LPN’s could handle the care of 32 patients, but 3 RN’s could not handle the paperwork of 32 but 3 RN’s could not handle the paperwork of 32 patients. patients.

Before dealing with the paperwork problem. First, we Before dealing with the paperwork problem. First, we should try to determine what the best mix of LPN’s and should try to determine what the best mix of LPN’s and RN’s on the unit would be considering the cost of labor RN’s on the unit would be considering the cost of labor and the fact that there must be some RN’s. and the fact that there must be some RN’s.

Cost MinimizationCost Minimization First, assume that the unit always has 32 patients.First, assume that the unit always has 32 patients. Second, assume the wage for an RN is $25/hour and the Second, assume the wage for an RN is $25/hour and the

wage for an LPN is $16/hour. wage for an LPN is $16/hour.

Suppose: q = 8*LPNSuppose: q = 8*LPN.5.5RNRN.5.5 Minimize: wMinimize: w11RN + wRN + w22LPNLPN Subject to: 32=8*LPNSubject to: 32=8*LPN.5.5RNRN.5.5

Lagrangian for this problem: Lagrangian for this problem: =w=w11RN + wRN + w22LPN + LPN + (32 – 8 (32 – 8 LPNLPN.5.5RNRN.5.5))

(lamda) is a multiple which relates to the marginal utility from (lamda) is a multiple which relates to the marginal utility from consumption.consumption.

First order conditions (derivative):First order conditions (derivative):#1. #1. //RN= wRN= w11 - - (4 LPN(4 LPN.5.5RNRN-.5-.5))#2. #2. //LPN= wLPN= w22 - - (4 LPN(4 LPN-.5-.5RNRN.5.5) ) #3. #3. //= 32 – 8(LPN= 32 – 8(LPN.5.5RNRN.5.5) )

-continued--continued-

Cost MinimizationCost MinimizationManipulate Equations #1 and #2:Manipulate Equations #1 and #2:ww11 / w / w22 = = (4 LPN(4 LPN.5.5RNRN-.5-.5)/ )/ (4 LPN(4 LPN-.5-.5RNRN.5.5) = MPRN /MPLPN = ) = MPRN /MPLPN =

RTSRN, LPN =LPN/RNRTSRN, LPN =LPN/RNSubstitute Manipulated equation into First order #3:Substitute Manipulated equation into First order #3:32 = 8(w32 = 8(w11 / w / w22 *RN) *RN).5.5 * RN * RN .5.5 4 = (w1 / w2 *RN)4 = (w1 / w2 *RN).5.5 * RN * RN.5.5 4 = w4 = w11

.5.5 * w * w22-.5-.5 * RN * RN

ww11 = $25 & w = $25 & w22 = $16 So: 4*w = $16 So: 4*w11-.5-.5 * w * w22

.5.5 = RN = RN Likewise: 4*wLikewise: 4*w11

.5.5 * w * w22-.5-.5 = LPN = LPN

Minimization ratios:Minimization ratios: RN = 3.2 & LPN = 5RN = 3.2 & LPN = 5Check: 32 = 8LPNCheck: 32 = 8LPN.5.5 RN RN.5.5 TC=Total CostTC=Total CostTC = 3.2(25) + 5(16) vs. 8(25) = 200TC = 3.2(25) + 5(16) vs. 8(25) = 200TC = 160TC = 160

ResultsResults $40 hourly savings$40 hourly savings Problem: RN’s overwhelmed with paperworkProblem: RN’s overwhelmed with paperwork Therefore, these ratios cannot be maintained Therefore, these ratios cannot be maintained

unless something is done with the paperwork.unless something is done with the paperwork. Paperless charting is a solution to this problem.Paperless charting is a solution to this problem. We will need to construct a computer network on We will need to construct a computer network on

our 32 patient unit to create paperless charting. our 32 patient unit to create paperless charting. Will the cost savings of our new staffing ratios Will the cost savings of our new staffing ratios

outweigh the costs of our computer network?outweigh the costs of our computer network?

Financial AnalysisFinancial Analysis

This question will be best answered This question will be best answered through conducting a net present value through conducting a net present value and discounted cash flow analysis. and discounted cash flow analysis.

First, imagine that the computer First, imagine that the computer network is an investment that will network is an investment that will produce revenues by enabling the use produce revenues by enabling the use of the optimal ratios of RN’s and LPN’s. of the optimal ratios of RN’s and LPN’s. Annual revenues can be calculated by Annual revenues can be calculated by multiplying the hourly savings of $40 multiplying the hourly savings of $40 by the number of hours in one year. by the number of hours in one year.

RevenuesRevenues

Year Unit Price Unit Sales Revenue

1 $40.00 8760 $350,400.00

2 $40.00 8760 $350,400.00

3 $40.00 8760 $350,400.00

4 $40.00 8760 $350,400.00

5 $40.00 8760 $350,400.00

6 $40.00 8760 $350,400.00

Technology CostTechnology Cost

TypeUSD Amount

Sunk USD Variable per AnnumFixed Cost per

Annum

8 note pad computers $16,000.00 $10,000.00 $5,000.00

1 Server $5,000.00    

Wire Infrastructure $2,000.00    

3 desktops $3,000.00    

Additional Hardware $2,000.00    

Set-up Cost $25,000.00    

Software Cost $15,000.00    

       

Total $68,000.00 $10,000.00 $5,000.00

Modified Accelerated Cost Modified Accelerated Cost Recovery SystemRecovery System

YearBeginning Book

Value Depreciation Ending Book Value MACRS Percentage

1 $68,000.00 $13,600.00 $54,400.00 20

2 $54,400.00 $21,760.00 $32,640.00 32

3 $32,640.00 $13,056.00 $19,584.00 19.2

4 $19,584.00 $7,833.60 $11,750.40 11.52

5 $11,750.40 $7,833.60 $3,916.80 11.52

6 $3,916.80 $3,916.80 $0.00 5.76

Pro-forma Income Pro-forma Income StatementStatement

  1 2 3 4 5 6

Unit Price $40.00 $40.00 $40.00 $40.00 $40.00 $40.00

Unit Sales 8760 8760 8760 8760 8760 8760

Revenues $350,400.00 $350,400.00 $350,400.00 $350,400.00 $350,400.00 $350,400.00

Variable Costs $10,000.00 $10,000.00 $10,000.00 $10,000.00 $10,000.00 $10,000.00

Fixed Costs $5,000.00 $5,000.00 $5,000.00 $5,000.00 $5,000.00 $5,000.00

Depreciation $13,600.00 $21,760.00 $13,056.00 $7,833.60 $7,833.60 $3,916.80

EBIT $321,800.00 $313,640.00 $322,344.00 $327,566.40 $327,566.40 $331,483.20

Taxes (34%) $109,412.00 $106,637.60 $109,596.96 $111,372.58 $111,372.58 $112,704.29

Net Income $212,388.00 $207,002.40 $212,747.04 $216,193.82 $216,193.82 $218,778.91

Operating Cash FlowOperating Cash Flow

  0 1 2 3 4 5 6  

EBIT $321,800.00 $313,640.00 $322,344.00 $327,566.40 $327,566.40 $331,483.20

Depreciation $13,600.00 $21,760.00 $13,056.00 $7,833.60 $7,833.60 $3,916.80

Taxes $109,412.00 $106,637.60 $109,596.96 $111,372.58 $111,372.58 $112,704.29

Operating Cash Flow $225,988.00 $228,762.40 $225,803.04 $224,027.42 $224,027.42 $222,695.71

Capital SpendingCapital Spending

Initial Outlay -$68,000.00

Aftertax Salvage $2,046.00

Capital Spending -$68,000.00 $2,046.00

Projected Total Cash Projected Total Cash FlowsFlows

  0 1 2 3 4 5 6

Operating Cash Flow 0 $225,988.00 $228,762.40 $225,803.04 $224,027.42 $224,027.42 $222,695.71

Change in NWC $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00

Capital Spending -$31,000.00 $2,046.00

Total Project Cash Flow -$31,000.00 $225,988.00 $228,762.40 $225,803.04 $224,027.42 $224,027.42 $224,741.71

Cumulative cash Flow -$31,000.00 $194,988.00 $423,750.40 $649,553.44 $873,580.86 $1,097,608.29 $1,322,350.00

Discounted Cash Flow at 15% $196,511.30 $172,977.24 $148,469.16 $128,088.41 $111,381.22 $97,162.04

Discount Factor 0.869565217 0.756143667 0.657516232 0.571753246 0.497176735 0.432327596

 

  $854,589.38 $823,589.38

NPV= $823,589.38

IRR 730%

payback 109.83 days