This chapter looks at how to develop a business case for a new healthcare service or capital development. It considers first the broader environment facing healthcare providers, taking into account expected patient demand, competition and available resources. It then moves on to examine a seven-step approach to developing a business plan for capital investment, including the use of sophisticated evaluation and financial modelling techniques to help make more objective choices. The various sources of funding for capital development are discussed, with an emphasis upon the use of private finance initiatives (PFIs) and other new schemes.
The increasing focus in some health systems on the creation of a market for customers in public healthcare fundamentally alters the way that planners assess the viability of a new service. In the past, funding would often have been in the form of guaranteed block payments whereas now the income in most cases has to be earned on an ongoing basis. As with any private business, revenues are not guaranteed, with customers (patients) having the choice to go elsewhere for their treatment. This introduces a much greater level of uncertainty and risk, with planners having to be more rigorous in drawing up a business case, taking into account the expected level of demand for the service, the alternatives available to patients, the options for delivering the service and the expected lifespan of the service. Ultimately, any new service would only be developed if projected income could cover its costs. Moving towards such a market-based approach requires a big change in mindset for planners, and not all will find it easy to adapt to this new commercial reality. Building up a comprehensive business case brings a new level of rigour to the planning process with the use of modelling techniques and sensitivity analysis, all designed to minimise the risk of launching a service. One important development is the need to engage stakeholders such as clinicians, service managers, commissioners and patients at an early stage to get buy-in.