www.thescanfoundation.org developing pricing for integrated care and community-based services...
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www.TheSCANFoundation.org
Developing Pricing for Integrated Care and Community-Based Services
Featuring:
Erin Westphal, Program OfficerKaren Scheboth, Director of Grants Administration
Eric Thai, Director of Finance
www.TheSCANFoundation.org
Webinar Agenda
• About The SCAN Foundation
• New Opportunities for CBOs
• Pricing Methodology
• Pricing Guide Overview
• Types of Costs
• Example Walkthrough
• Q&A
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Mission: To advance the development of a sustainable continuum of quality care for seniors.
Our Mission and Vision
Vision: A society where seniors receive medical treatment and human services that are integrated in the setting most appropriate to their needs and with the greatest likelihood of a healthy, independent life.
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New Opportunities for CBOsWhy Pricing Matters Now
Changes in the organization, financing, and delivery of health care provide new opportunities (& challenges)
Duals Integration Pilots & Managed Long-term Services and Supports Health Plans responsible for organizing community-based LTSS Limited experience Buy it or build it option
Hospital Readmissions Reduction Programs Care Transition Programs
Integrated Care Models Accountable Care Organizations, Health Homes
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Pricing is an Art and a Science
1. Determine your Pricing Structure
2. Estimate your Value
3. Calculate your Cost
4. Analyze your Competitors
5. Set a Price
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Pricing Guide Contents
• Section 1: Pricing Structures
• Section 2: Setting a Price
• Section 3: Other Pricing Strategies
• Appendix of Additional Resources
Includes examples based on CBOsIncludes examples based on CBOs
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Section 1: Pricing Structures
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Section 1: Payment Models
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Fixed vs. Variable Costs
• Fixed costs are not affected by the volume of services or goods produced.
– Examples include:
• Supervisor salaries
• Additional office space
• Additional equipment
• Variable costs will increase or decrease with changes in volume.
– Examples include:
• Hourly wages of nurses or case managers
• Supplies used in performing services
• Fuel for transportation vans
• Supplies needed to prepare home-delivered meals
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Fee For Service Model
$
Volume of Services
Total Revenues
$
Volume of Services
Total Costs
Break-even Q
$
Volume of Services
Total Costs
Break-even Q
Revenues Higher Fixed Costs Lower Fixed Costs
Total revenues increase as volume
increases.
With higher fixed costs, a higher quantity is needed
to become profitable
Lower fixed costs will yield profits with lower
quantities
Profit
Loss
Total Revenues Total Revenues
Profit
Loss
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Capitation Model
$
Volume of Services
Total Revenues
$
Volume of Services
Total Revenues
Total Costs
Break-even Q
$
Volume of Services
Total Revenues
Total Costs
Break-even Q
Revenues Higher Fixed Costs Lower Fixed Costs
Total revenues are constant as volume
increases.
With higher fixed costs and lower variable costs, profits are sustained for
larger quantities
Higher variable costs and lower fixed costs will
result in losses with lower utilization
Profit
Loss
Profit
Loss
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Section 2: Setting a Price
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Determining Value
Reference Values can be:-Competitor prices-Customer’s cost of doing it themselves
Sources of Differentiation Value include:-Cost savings-Convenience and time savings-Brand recognition-Reliability-Customer service-Performance-Quality
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Determining Costs
Categories of Costs:
1.Fixed or Variable
2.Direct or Indirect
3.Relevant or Sunk
Direct Indirect
Fixed Relevant Relevant
Sunk Sunk
Variable Relevant Relevant
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Direct vs. Indirect Expenses
Indirect Expenses apply to multiple projects so it is harder to quantify and trace them to individual projects.
Examples:- Rent- Utilities- Finance staff- IT
Key Difference is Ease of Allocation
Indirect Cost Rate is an inaccurate shortcut
Direct Expenses apply to a specific project and can be easily traced to the project.
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Relevant vs. Sunk CostsRelevant vs. Sunk CostsAnother categorization of expenses
Sunk Costs are “existing” expenses that will be incurred regardless of whether or not the service is offered.
Examples:- Existing rent- CEO salary- Finance staff- Human resources
DO NOT INCLUDE SUNK COSTS IN FINANCIAL PLANNING
Relevant Costs are “future” expenses that will be incurred only if the service line is offered.
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Section 2: Setting a PriceSunk Costs Fallacy & Full Cost Recovery
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Section 2: Setting a PriceSunk Costs Fallacy & Full Cost Recovery
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Calculating Cost
Pricing Guide includes a Cost per Unit calculation tool
Pricing Guide includes a Cost per Unit calculation tool
1) Determine Relevant vs. Sunk Costs
2) Exclude Sunk Costs
3) Determine Fixed vs. Variable Costs
4) Allocate Direct and Indirect expenses
5) Estimate quantity
6) Calculate cost per unit
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Putting it All Together to Set a Price
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• Bilateral negotiation
• In-person visits
• Requires 10 additional care managers
• Individuals receiving care management are healthier and require less hospitalizations
Example – Care Managers
A CBO is offering care management services to a health plan
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EXPENSE
Office space
Care managers
Supplies
Mileage
Supervisors
Training
Human Resources
Finance
Tracking System (IT)
Example – Determine Relevant vs. Sunk Costs
SUNK?
Relevant
Relevant
Relevant
Relevant
Relevant
Relevant
Sunk
Sunk
Sunk
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Example – Determine Fixed vs. Variable Costs
EXPENSE
Office space
Care managers
Supplies
Mileage
Supervisors
Training
TYPE
Fixed
Variable
Variable
Variable
Fixed
Variable
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Example – Allocate Project Costs
EXPENSE TYPE
Office space Fixed
Care managers Variable
Supplies Variable
Mileage Variable
Supervisors Fixed
Training Variable
ALLOCATION
$20,000 per year
$30 per hour
$500 per care manager per year
$10 per visit
1.5 supervisors = $90,000 per year
$500 per care manager per year
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Example – Estimate Quantity and Calculate Cost per Unit
• FFS payment model• 1.5 hours per visit (including travel and reporting)• 1,000 members with monthly visits• 12,000 visits per year• 10 care managers
EXPENSE TOTAL COSTS Calculation COST PER VISIT
$65.00
Office space $20,000 per year / 12,000 visits $1.66
Care managers $30 per hour X 1.5 hours $45.00
Supplies $500 per mgr/yr X 10 / 12,000 visits $0.42
Mileage $10 per visit X 1 visit $10.00
Supervisors $90,000 per year / 12,000 visits $7.50
Training $500 per mgr/yr X 10 / 12,000 visits $0.42
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• Reference Value
– Telephonic care management = $60 per call
• Differentiation Value
– In-person care management reduces hospital admissions by 5% over telephonic
• Average hospital admission costs $10,000
• Total cost savings per year = $500,000 (1,000 members X 5% X $10,000)
• Differentiation Value per visit = $41.67 ($500,000 / 12,000 visits)
• Value = $101.67
Example – Estimate Your Value
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Example – Set a Price
$101.67
$65.00
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Questions
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