financing pace development in rural areas - · pdf filezblended with market data to determine...
TRANSCRIPT
Financing PACE Development in Rural Areas
Peter FitzgeraldNational PACE AssociationAugust 19, 2004
Overview of Presentation
Key Concepts– Critical Financial Factors– Net Income vs. Break Even– PACE Baseline Scenario
Small Urban Case StudyRural PACE Strategies– Capital– Income– Cost
Critical Factors – Capital
Equity Based Capital– Buildings– Vans– Some Equipment
Working Capital– Start-up– Operating
Start Up Capital
Staffing– Director– Marketing– Clinical
ConsultantsBuilding/Lease expensesInterest on loans
Operating Capital
Insolvency Requirements– Regulatory– One month revenues, one month contractual expenses
Risk ReserveOperating Losses
Break Even vs. Net Income
The “Net Income” point is the first point at which revenues for a defined period of time, usually a month, exceed costs for the same defined period of time.
The “Break Even” point is the point at which total, accumulated revenues exceed total, accumulated costs, including start-up costs, since the inception of the project
Break-even/Net Income Example
ACME PACE incurs losses of $800k in the startup period and then has net losses in each of the first 17 months of operation totaling $3 million. Month 18 was the first month since the inception of the program in which net income was achieved.From month 18 to month 38 ACME had net income of $3.8 million.
Break-even/Net Income Example
In this example:– Net income month is month 18– Break-even month is month 38
Urban PACE Baseline Scenario
Reflects actual experience of two successful urban PACE programsDetailed review of financials from startup through current operationsCompared key cost and revenue drivers and statistics to identify key relationshipsBlended with market data to determine a “baseline” scenario.
Urban Baseline Scenario – Enrollment
Baseline scenario is based upon the experience of highly successful sites (see NPA case studies)Net enrollment is new enrollments minus death and disenrollmentsStarting census of 5 in month 1Net enrollment growth of
– 5 per month in year 1 – 6 per month in years 2 and 3– 7 per month in years 4 and 5
Urban Baseline Scenario –Uses of Capital
Buildings and Improvements12%
Computers2%
Equipment12%
Vans2%
Working Capital72%
Urban Baseline Scenario -Revenues and Expenses
Baseline Scenario
33
99
171
250
334
$-
$2,000,000
$4,000,000
$6,000,000
$8,000,000
$10,000,000
$12,000,000
$14,000,000
$16,000,000
$18,000,000
$20,000,000
1 2 3 4 5
Year
0
50
100
150
200
250
300
350
400
Enro
llmen
t
revenues expenses enrollment
What Determines Capital Needs?
Cost of building improvements vs. Lease Costs?Start-up Staff Expenses?
– In-kind staff vs. charged staff– Consider trade offs re: Consultant Expenses
Enrollment?
See Notes Page
Urban Scenarios: Net Income and Break Even Month
Scenario Net Income Month
Break Even Month
Baseline 17 37
Lease 17 37
Reduced Start-Up Staff
17 36
Slow Enrollment 25 56
See Notes Page
Urban Scenarios: Working Capital
$1,905,172$2,040,339
$2,123,214
$2,600,244
$-
$500,000
$1,000,000
$1,500,000
$2,000,000
$2,500,000
$3,000,000
Reduced Staff ing Baseline No Improvement Cost Slow Enrollment
Enrollment CensusStarting Census at 30
Starting census at 30 in month 1Net enrollment grows the same as in the baseline scenario
– 7 per month for years 1 and 2– 8 per month in years 3, 4 and 5
Revenues Vs ExpensesStarting Enrollment of 30
Starting Enrollment of 30
58
124
196
275
359
$-
$2,000,000
$4,000,000
$6,000,000
$8,000,000
$10,000,000
$12,000,000
$14,000,000
$16,000,000
$18,000,000
$20,000,000
1 2 3 4 5
Year
0
50
100
150
200
250
300
350
400
Enro
llmen
t
revenues expenses enrollment
Operating Losses: Sensitivity to Enrollment Assumptions
$956,946
$1,285,174
$2,229,994
$735,174
$441,615
$-
$500,000
$1,000,000
$1,500,000
$2,000,000
$2,500,000
Baseline Average Enrollment Low Enrollment Fast Enrollment Start w / 30
See Notes Page
Small Urban Case Study
Jan Werner Adult Day Care in Amarillo (pop. 200,000)Service area includes rural countyBegan PACE operations in March, with enrollment of 1558 enrollees by July, at which point they achieved net income (does not include retiring debt); approx. 11 are in rural countyCurrent net enrollment averages 15/month
Small Urban Case Study – cont’d
Average combined Medicare and Medicaid rate is $3,561 per member, per month
Medicaid rate is $2035 pmpmKeys to enrollment:- Existing day care center- Nearby 202 housing- Community presence (center, vans)- Targeted marketing (community center)
Small Urban Case Study
Keys to Reduced Capital Costs– Use of existing day center space– Grant funding to develop primary care clinic– Incremental staffing drawing on primary care
clinic and day center until support for full time PACE staff
Now adding RN, LVN, Social Worker and physical therapy assistant with enrollment growth
Small Urban Case Study – Income and Expenses
Average Revenue PMPM = $3,576 Average Expenses PMPM = $3,547
Small Urban Expenses Per Member Per Month (PMPM)
Nursing Home $108 pmpmInsurance $103 pmpmFacility $71 pmpmTransportation $16 pmpm
PACE Center $1,687 (incl. clinic)Pharmacy $381Home Care $354 Hospital $261Administration $143
The Next Step: A Rural Model
Hub (urban) – Spoke (rural)– Reduce administrative and overhead costs– Access services and providers– Spread risk
Rural Coalition– Link existing rural service organizations– Create multi-partner PACE sponsor– Build on existing resources in community– Enhance community acceptance and marketing position
Rural PACE Strategies
Capital needsIncomeCost
Rural PACE Strategies - Capital
Smaller PACE Center, leased vs. built, complemented by existing alternative delivery settingsMinimize start-up staffingMaximize initial enrollmentKeep fixed costs low, emphasize variable costs
– Use of existing services and resources– Partnerships with other organizations
Rural PACE Strategies - Income
Private PayVeteran’s AdministrationIndian Health Service
Rural PACE Strategies - Cost
Reinsurance for hospital staysLower center costs Maintain effective interdisciplinary team for health promotion, disease prevention, post-acute careUse health technologies, service partnerships, volunteer networks to overcome distance
Constructing a Rural PACE Scenario
Less reliance on the PACE CenterMore incremental approach to cost and operationsFaster and higher market penetrationMore in-home careMore staff travel, less participant travel
Rural PACE Scenario - Income
Private pay population is 15% of total populationInitial enrollment is 15 in month 1, grows by 7 per month, in the next 11 months, then settles at 92Medicaid rate is $2665 (average of Virginia rural and Amarillo rates), Medicare is $1526 PMPM
Rural PACE Scenario - Costs
PACE Center has space for 24% of the total enrollment at any given time; as opposed to between 40% and 60% in urban programsPACE Center is leased @ $12/sf vs. $17/sf in urban modelStart-up staffing low, existing staff used on a flexible, part-time basisUtilization of home care is 25% higher than urban baselineTransportation costs 2x urban scenario
Rural PACE Financial Scenario
0
54
92 92 92 92
$0
$500
$1,000
$1,500
$2,000
$2,500
$3,000
$3,500
$4,000
$4,500
$5,000
Start-Up Year 1 Year 2 Year 3 Year 4 Year 5
Year
$ in
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s
0
10
20
30
40
50
60
70
80
90
100
Enr
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Income (in thousands) Expenses (in thousands) Enrollment
