Paperless Charting: A staff substitution enabler.

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Paperless Charting A staff substitution enabler.

• HSCI 740
• Keith Fawcett
• June 7, 2004

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The Hospital Unit

• 34 beds, 16 rooms.
• 2 staff shifts night shift day shift. Each 12
  hours.
• RN must perform and chart a physical assessment
  every 12 hours for each patient.
• The required charting results in a significant
  amount of time spent on paperwork by the RN.
• Paper work that should be completed includes
  Identification sheet, MD orders, Progress notes,
  PT teaching form, falls risk form, physical
  assessment form, neurovascular assessment form
  and pain rating form.

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LPN The RN substitute.

• The Licensed Practical Nurse can perform a great
  number of tasks with regards to patient care.
  However, there are legal limits which prevent the
  LPN from being able to complete a great deal of
  the paperwork.
• LPNs can cut costs on a unit substantially.
  Unfortunately, the paperwork is a limiting factor
  in employing the use of LPNs.
• 3 RNs and 5 LPNs could handle the care of 32
  patients, but 3 RNs could not handle the
  paperwork of 32 patients.
• Before dealing with the paperwork problem.
  First, we should try to determine what the best
  mix of LPNs and RNs on the unit would be
  considering the cost of labor and the fact that
  there must be some RNs.

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Cost Minimization

• First, assume that the unit always has 32
  patients.
• Second, assume the wage for an RN is 25/hour and
  the wage for an LPN is 16/hour.
• Suppose q 8LPN.5RN.5
• Minimize w1RN w2LPN
• Subject to 328LPN.5RN.5
• Lagrangian for this problem ?w1RN w2LPN
  ?(32 8 LPN.5RN.5)
• ? (lamda) is a multiple which relates to the
  marginal utility from consumption.
• First order conditions (derivative)
• 1. ??/?RN w1 - ?(4 LPN.5RN-.5)
• 2. ??/?LPN w2 - ?(4 LPN-.5RN.5)
• 3. ??/?? 32 8(LPN.5RN.5)
• -continued-

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Cost Minimization

• Manipulate Equations 1 and 2
• w1 / w2 ?(4 LPN.5RN-.5)/ ?(4 LPN-.5RN.5) MPRN
  /MPLPN RTSRN, LPN LPN/RN
• Substitute Manipulated equation into First order
  3
• 32 8(w1 / w2 RN).5 RN .5
• 4 (w1 / w2 RN).5 RN.5
• 4 w1.5 w2-.5 RN
• w1 25 w2 16 So 4w1-.5 w2.5
  RN
• Likewise 4w1.5 w2-.5 LPN
• Minimization ratios RN 3.2 LPN 5
• Check 32 8LPN.5 RN.5
• TCTotal Cost
• TC 3.2(25) 5(16) vs. 8(25) 200
• TC 160

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Results

• 40 hourly savings
• Problem RNs overwhelmed with paperwork
• Therefore, these ratios cannot be maintained
  unless something is done with the paperwork.
• Paperless charting is a solution to this problem.
• We will need to construct a computer network on
  our 32 patient unit to create paperless charting.
  
• Will the cost savings of our new staffing ratios
  outweigh the costs of our computer network?

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Financial Analysis

• This question will be best answered through
  conducting a net present value and discounted
  cash flow analysis.
• First, imagine that the computer network is an
  investment that will produce revenues by enabling
  the use of the optimal ratios of RNs and LPNs.
  Annual revenues can be calculated by multiplying
  the hourly savings of 40 by the number of hours
  in one year.

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Revenues
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
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Technology Cost
Type USD Amount Sunk USD Variable per Annum Fixed 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
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Modified Accelerated Cost Recovery System
Year Beginning 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
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Pro-forma Income Statement
  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
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Operating 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
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Capital Spending
Initial Outlay -68,000.00
Aftertax Salvage 2,046.00
Capital Spending -68,000.00 2,046.00
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Projected Total Cash Flows
  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