DDHA 8203 Week 9 Capital Decision Case Example

A Second Sterilizer Means a Monitoring System Waits a Year: Pricing One Capital Option for an Ambulatory Surgery Suite by What It Recovers, What It Displaces and What Undoing It Would Cost

Student Name

Walden University

DDHA 8203: Advanced Healthcare Operations Management

Instructor Name

Month Day, Year

A Second Sterilizer Means a Monitoring System Waits a Year: Pricing One Capital Option for an Ambulatory Surgery Suite by What It Recovers, What It Displaces and What Undoing It Would Cost

The Option and the Envelope

The ambulatory surgery suite at a composite health system I will call Northbrook Health has four operating rooms, one steam sterilizer in its own sterile processing area and a capital envelope of $340,000 for the coming fiscal year. The suite's director has proposed spending most of that envelope on a second steam sterilizer. This paper prices that option. It spends less space on arithmetic than on consequences, because the arithmetic is straightforward and the consequences are not: money in a capital envelope is already claimed by other requests, and approving one means deciding what stops or waits.

The Problem the Sterilizer Would Solve

With one sterilizer, the suite turns its high-demand instrument sets, especially the four hand and wrist trays used by two orthopedic surgeons, through a single machine with a cycle time of about 75 minutes including drying. When three hand cases are booked in one morning across two rooms, the third case often waits for a tray to finish reprocessing. When the sterilizer is down for its weekly test and maintenance, or for an unscheduled repair, the suite borrows sets from the main hospital across town. Over the past twelve months the suite's records show 96 cases that started more than 30 minutes late because a tray was not ready, and 41 cases moved to a later day because a sterilizer outage left too few trays. The second sterilizer is meant to remove most of both.

Costs, in Two Groups

Costs are assembled in two groups so that the purchase does not hide what the machine brings with it.

The one-time cost consumes $250,000 of the $340,000 envelope. The recurring costs fall on the suite's operating budget, not on the capital envelope, and over a ten-year service life they add about $247,000, almost as much as the purchase.

Table 1

Cost of a Second Steam Sterilizer

Figures marked as estimates have not been checked against invoices and should be treated as approximate.

Benefit, in the Unit the Suite Schedules In

The suite schedules in case slots of 90 minutes. The benefit of the second sterilizer is therefore stated as case slots recovered, so that it can be checked against the booking sheet. The 41 cases moved to later days represent 41 slots that were booked and then lost. If the second sterilizer prevents 80% of those, as the sterile processing supervisor expects, it recovers about 33 case slots a year. The 96 late starts did not lose slots, but they consumed room time; at a median delay of 42 minutes, they cost about 67 hours of staffed room time, or roughly 45 slots of equivalent time, much of it at the end of the day as overtime.

Converting room time into money requires care. Childers and Maggard-Gibbons (2018), analyzing financial reports from California hospitals, put the average cost of a minute in the operating room at about $36 to $37, but Macario (2010) shows that per-minute figures vary widely with which costs are included, so the suite's own figures are used here. The suite's contribution margin on a typical orthopedic or general surgery case is about $2,300, and the overtime cost of a late-running room is about $11 a minute. On those figures, recovered case slots are worth about $76,000 a year and reduced overtime about $44,000, a total of about $120,000 against recurring costs of $24,700. The purchase pays back in about three years. That is a reasonable result, and it is not the end of the analysis.

What the Purchase Displaces

The center of this decision is what else the $250,000 would have bought. The capital committee already has one request queued against the same envelope: replacement of the suite's patient monitoring system in the pre-operative and recovery areas, priced at $210,000. The monitors are eleven years old. The maker has said that parts will no longer be available after eighteen months. Both requests cannot be funded this year, because together they exceed the envelope by $120,000.

Approving the sterilizer therefore means deferring the monitors by at least one year, and the deferral is not free. Three costs follow. First, the suite would need a third-party service agreement to keep the old monitors running after the manufacturer's support ends, quoted at $26,000 a year. Second, the monitoring replacement would include central station monitoring for the recovery area, which the nursing director has requested since a delayed response to a desaturation event last year; deferral postpones that safety improvement by a year. Third, monitor prices have risen about 5% a year, so the deferred purchase will likely cost about $10,000 more. The visible cost of deferral is therefore roughly $36,000, and the safety cost cannot be priced on the same scale.

A further point belongs in this section. Dobson et al. (2015) show that configuring instrument trays differently can reduce reprocessing costs. A cheaper response to the sterilizer problem, buying three additional hand and wrist trays for about $45,000, might recover much of the lost capacity without displacing the monitors at all. The suite has not tested that option, and the committee should ask why before choosing.

The Cost of Reversal

Once installed, a sterilizer is hard to undo. If case volume fell, or if the additional trays proved sufficient, the second machine would have a resale value of perhaps 25% of its purchase price in its first years, about $46,000. The $64,000 of installation work would be sunk, and the space would have been converted from storage. Undoing the decision in year two would therefore cost about $204,000 of the original outlay, plus the recurring costs already paid. The monitoring replacement, by contrast, is a replacement of existing equipment and carries little reversal risk. The difference in reversibility is a reason to prefer the decision that keeps options open when the evidence is uncertain.

Recommendation

The sterilizer is a sound investment on its own terms. It is not the best use of this year's envelope. The paper recommends funding the monitoring replacement this year, buying three additional hand and wrist trays from operating funds, and tracking delayed and moved cases for six months. If moved cases remain above twenty a year after the trays arrive, the sterilizer should be first in line for next year's envelope, at which point its case will be stronger and the displacement smaller.

Limits

The benefit estimate depends on the supervisor's 80% figure, which is a judgment. The contribution margin is an average across case types. The deferral costs for the monitors are quotations and estimates, and the safety cost of deferral is described rather than measured.

Conclusion

A second sterilizer would recover about 33 case slots a year and pay for itself in about three years. Funding it now would defer a monitoring replacement whose parts support ends in eighteen months, at a visible cost of about $36,000 and an unpriced cost in recovery-room safety, and the sterilizer would be expensive to undo. A cheaper fix should be tested first, and the sterilizer reconsidered with better evidence next year.

References

Childers, C. P., & Maggard-Gibbons, M. (2018). Understanding costs of care in the operating room. JAMA Surgery, 153(4), Article e176233. https://doi.org/10.1001/jamasurg.2017.6233

Dobson, G., Seidmann, A., Tilson, V., & Froix, A. (2015). Configuring surgical instrument trays to reduce costs. IIE Transactions on Healthcare Systems Engineering, 5(4), 225-237. https://doi.org/10.1080/19488300.2015.1094759

Macario, A. (2010). What does one minute of operating room time cost? Journal of Clinical Anesthesia, 22(4), 233-236. https://doi.org/10.1016/j.jclinane.2010.02.003