Feasibility Analysis for Hospital Development Using Cost-Benefit Approach: A Case Study in Legok District, Tangerang Regency

Budi Prayogi¹, Vebri Lubis²

¹Department of Economic Management, Bina Nusantara University
Jakarta, Indonesia
Email: ligar.mandiri@gmail.com
²Department of Economic Management, Ichsan Satya University
Tangerang Selatan, Indonesia
Email: vebri.lubis@gmail.com

ABSTRACT

This study evaluates the financial feasibility of hospital development in Legok District, Tangerang Regency, using a cost-benefit approach. The aim is to assess the economic viability of constructing healthcare infrastructure to address the region’s growing healthcare needs. Employing both quantitative and qualitative analyses, the results show that the hospital development project is financially viable, with a Net Present Value (NPV) of IDR 1.2 billion, an Internal Rate of Return (IRR) of 20.30%, a Payback Period (PP) of 6 years, and a Benefit-Cost Ratio (BCR) of 2.

The qualitative analysis, based on interviews with local stakeholders, indicates that the hospital will meet the increasing demand for healthcare services, particularly for diseases prevalent in the area such as respiratory infections, hypertension, and gastritis. The study highlights the importance of developing healthcare infrastructure in suburban areas with rapid population growth, where current healthcare facilities are insufficient. Despite some limitations in financial projections and interview scope, the study concludes that the hospital development project is both financially feasible and strategically necessary for improving healthcare access in Legok District. The study recommends continued government support, private sector engagement, and further research to ensure long-term sustainability.

Keywords: Cost-benefit analysis; financial feasibility; hospital; suburban development; healthcare needs; Net Present Value; Internal Rate of Return; Benefit-Cost Ratio; urbanization; epidemiology.

INTRODUCTION

Legok District, located within Tangerang Regency, is currently experiencing rapid population growth, largely due to urbanization and the conversion of land into residential areas. The 2023 data from the Central Statistics Agency (BPS) shows the population of Legok District has reached 124,324, consisting of 63,502 males and 60,822 females. With this growing population, the district faces an increasing demand for healthcare services, making it critical to evaluate the capacity of the existing healthcare infrastructure.

As shown in Table 1, Legok District consists of 11 villages, each with varying population densities and healthcare needs.

Table 1 Population, Population Distribution Percentage, Population Density, and Sex Ratio by Village/Subdistrict in Legok District in 2023

         Source: Legok District Statistics 2024

As shown in Table 3, The demand for healthcare is further exacerbated by a high Crude Morbidity Rate (CMR) of 25%, which translates to over 31,000 cases of illness annually. Larger villages like Serdang Wetan and Rancagong contribute significantly to the morbidity figures, with 3,828 and 3,693 cases per year, respectively. This increasing burden on healthcare facilities calls for a strategic approach to expand and enhance the healthcare infrastructure in the region.

Table 3: Projections of Morbidity in Legok District, Tangerang Regency

           Source: Legok District Statistics 2024

As shown in Table 4,The district’s healthcare challenges are compounded by a shortage of facilities. The current hospital-to-population ratio remains below the recommended threshold of 1:1,000 people. Furthermore, the limited availability of healthcare services at both primary and secondary levels, coupled with financial barriers to access, leaves many residents underserved.

Table 4 Healthcare Facility to Population Ratio in Tangerang Regency in 2023

Source: Processed by the Team, 2024

This study aims to assess the financial feasibility of developing a hospital in Legok District, employing a cost-benefit analysis approach. The objective is to evaluate the economic viability of establishing healthcare infrastructure capable of meeting the growing demand in the area. By identifying both the costs and potential benefits, this analysis will provide insights into the long-term sustainability of hospital development while addressing the healthcare gaps in Legok District.

Legok District faces several critical issues that impact the community’s ability to access adequate healthcare. The existing healthcare infrastructure, including hospitals and clinics, is insufficient to meet the demands of the rapidly growing population. With a hospital-to-population ratio of less than 1:1,000, the availability of healthcare services is inadequate to provide timely care for residents. Although public health insurance schemes like BPJS exist, they often do not fully cover the cost of medical care or may offer limited access to specialized services. This creates significant financial barriers for many low-income residents who cannot afford out-of-pocket medical expenses. In addition to limited access, the district also lacks specialized medical services. This gap in services further strains the existing facilities and forces many patients to seek care outside the district. The rapid population growth in Legok District has led to a healthcare demand that far exceeds the available infrastructure. As a result, healthcare facilities have become overcrowded, waiting times are long, and the quality of care has diminished.

To address these pressing issues, the proposed solution focuses on developing a financial feasibility analysis for establishing a hospital in Legok District. This approach aims to create a sustainable healthcare facility that can address the growing demand for services and bridge the gap between healthcare needs and available resources. This study will focus on stakeholders such as local government bodies, healthcare providers, non-governmental organizations (NGOs), and potential investors. The involvement of these stakeholders is essential to ensure that the hospital development is aligned with local healthcare needs and is financially viable in the long run.

The development of healthcare facilities, especially hospitals, relies heavily on financial feasibility, particularly in areas with rapid population growth. Studies like those by Lee et al. (2018) and Saragih et al. (2021) highlight the importance of cost-benefit analysis (CBA) in assessing the viability of hospital projects, with attention to return on investment and social impact. Global research, including WHO (2017) and Castillo et al. (2016), stresses the need for long-term impact assessments in suburban areas undergoing economic and social change. Suburban regions, like Legok District, often face healthcare access gaps, with limited secondary care services. Studies by the Ministry of Health (2022) and Prasetyo et al. (2019) show that rapid population growth and insufficient healthcare investment exacerbate these challenges.

IMPLEMENTATION AND METHODS

This study aims to analyze the financial feasibility of hospital development using a cost-benefit approach in Legok District, Tangerang Regency. The location was chosen based on its potential population growth, healthcare service needs, and existing infrastructure challenges. The study was conducted from July to December 2024, involving approximately 50 participants, including community representatives, healthcare workers, village officials, local government representatives, BPJS Health administrators, and potential investors.

The approach utilized a combination of Community Based Research (CBR) and Participatory Action Research (PAR). The initial stage involved surveys to gather epidemiological and demographic data, followed by in-depth interviews and focus group discussions (FGD) to identify the community’s healthcare needs. Participatory workshops were conducted to identify local assets and potentials that could support hospital development. Furthermore, the community participated in cost-benefit analysis simulations to evaluate the social, economic, and cultural impacts of hospital development.

The outcomes were measured descriptively and qualitatively. Descriptive measurements included epidemiological data, the volume of healthcare service demands, and the community’s access to healthcare facilities. Qualitative measurements involved assessing changes in community attitudes toward hospital development, perceived social and economic impacts, and identifying relevant local assets. This approach ensured active community involvement as key agents of change, as recommended in the PAR method (Mamur et al., 2014) and CBR (Dillard, 2020), with adaptations to the local context in Legok District.

This study is expected to produce recommendations that are not only financially feasible but also relevant, applicable, and sustainable in addressing the needs of the Legok District community.

RESULTS AND DISCUSSION

The financial feasibility analysis for the development of a hospital in Legok District, Tangerang Regency, was conducted to provide a strong foundation for investment decisions in the healthcare sector. This activity has positively impacted the community by assessing financial aspects, potential benefits, and the added economic value generated. As shown in Table 5,total investment Rp 180 billion.

Table 5 Investment Components for Hospital Development

Source: Processed by the Team, 2024

As shown in Table 6,The quantitative data analysis revealed that the Net Present Value (NPV) of the hospital development project in Legok District is Rp 1.2 billion, with an Internal Rate of Return (IRR) of 20.30%, exceeding the discount rate of 10%. Additionally, the Payback Period (PP) is 6 years, indicating that the investment can be recovered within a reasonable timeframe. Furthermore, the Benefit-Cost Ratio (BCR) of 2 signifies that the benefits gained are twice the costs incurred.

Table 6 Key Financial Indicators of the Hospital Development Project

              Source: Processed by the Team, 2024

The strength of this initiative lies in its comprehensive approach, combining financial analysis with community participation in determining healthcare service requirements. However, challenges included limited detailed demographic data and local economic growth projections, which required adjustments to the financial model assumptions. The results demonstrate that the proposed solution effectively addresses investment uncertainties. Key success factors include the commitment of local government and community support for the project. Obstacles encountered included limited initial funding and the complexity of designing a financing plan involving government and private sector funding schemes.

The short-term impact of this activity is an increased community understanding of the importance of investing in healthcare services. Meanwhile, the long-term impact includes improved community welfare through better access to healthcare services and the potential increase in regional revenue from the healthcare sector. With robust analysis, the development of a hospital in Legok District shows promising prospects for realization. Beyond economic benefits, this project also opens opportunities for strategic collaborations between the government and private sector to support the project’s sustainability and success in the future.

CONCLUSION

The financial feasibility analysis of the hospital development in Legok District confirms the project’s viability, with an NPV of IDR 1.2 billion, IRR of 20.30%, BCR of 2, and a Payback Period of 6 years. These indicators demonstrate that the benefits significantly outweigh the costs, ensuring a solid return on investment.

The cost-benefit analysis highlights the alignment of this project with the community’s need for improved healthcare services. In the short term, the project has raised awareness about the importance of healthcare investment, while long-term impacts include enhanced access to healthcare, improved quality of life, and regional economic growth. This initiative also fosters opportunities for public-private partnerships in hospital development and management. Greater community involvement is recommended for future projects to ensure sustainability and maximize long-term benefits for all stakeholders.

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