PACE: An In-Depth Look at Market & Financial Feasibility and Business Planning

Transcription

1 PACE: An In-Depth Look at Market & NPA Annual Meeting, Miami, Florida October 21, 2013 Jade Gong, Senior Vice President, Strategic Initiatives Colin Higgins, Director, Analytics and Research Tom Stitt, Vice President, Financial Analysis and Reimbursement The PACE Value Proposition 1 PACE is the gold standard of care for frail dual eligibles PACE is fully accountable for the costs and quality of care PACE supports consumers in their desire to remain at home PACE allows a provider to meet individual needs without fee-forservice (FFS) restrictions 1

2 January 2013 Enrollees by State 2 < ,000-1,999 2,000-2,999 3,000-3,999 4,000+ More than 28,000 PACE enrollees nationally Access to PACE by State 3 <12.0% 12.0%-17.9% 18.0%-25.9% 26.0%-33.9% 34.0%-49.9% 50.0%+ 29.7% of duals live within a PACE service area in the 31 PACE states 2

3 Dual Eligibles Projected to Increase 4 Number of dual eligibles living in the 94 service areas projected to increase by average of 10% from 2013 to 2018, but varies widely 20%+ 3 15%-19.9% 7 10%-14.9% 35 5%-9.9% 43 <5% 6 Informed Decision Making 5 Start with market and financial feasibility study Organizational assessment Market analysis Demand analysis Financial pro forma analysis Complete business plan Build upon information in feasibility study Refine financial pro forma Develop marketing and operational plan Review complete business plan for final go/no-go decision 3

4 Why Formalize a Business Plan? 6 Seek approval to move forward with new program development new program development Seek approval for PACE expansion Seek support and/or funding for your program Act as a blueprint to guide development Provide a means for evaluating progress against goals 7 Moving Forward with PACE Business Planning 4

5 Today s Topics 8 Key Components of PACE Market and Financial Feasibility Study Focus on the Financial Pro Forma Analysis Complete Business Plan Development 9 Feasibility Study Organizational Assessment Market and Demand Analysis Community Needs and Relationships 5

6 First Step: Feasibility Study 10 Feasibility study gives you the information needed to confidently proceed with PACE development Feasibility Study Components 11 Organizational Assessment Market and Demand Analysis Feasibility Study Community Needs and Relationships Financial Pro Forma Analysis 6

7 Organizational Assessment 12 Consider your organization s strengths as a PACE sponsor, including the following: How is PACE aligned with your mission? Do you have existing infrastructure that can be utilized for PACE success? Do you have capital a to develop PACE? Do you have sustained leadership support? Do you have experience or comfort with risk? What are the competing priorities? Sponsorship of PACE Programs 13 Other 9% FQHC 6% Hospice 3% Health Plan 1% Hospital-Only 29% Partnership Incl. Hospital 13% Community Organization 18% LTC 21% 7

8 Market and Demand Analysis 14 Competitors Referral sources, partners Demographic assessment Determine service area Your Census Total enrollment projections Factors Used to Calculate PACE Demand 15 Participant i age Disability status Financial status 8

9 Medicaid Clinical Eligibility 16 Medicaid clinical eligibility varies by each state and cannot be captured specifically with available census data Proxies for clinical eligibility from census data: Self-care disability most conservative proxy, results in fewer persons eligible for PACE 2+ Any disability least conservative, results in the most persons eligible for PACE For most analyses, self-care disability used to reflect most conservative assumptions of PACE eligibility Clinical Eligibility in Polk County, Iowa 17 Self-Care = 3,699 Seniors = 51,689 Mid-Point = 5, Any = 7,625 Self-care disability results in fewest seniors meeting clinical eligibility, but applying 2+ any proxy to same senior population results in far more eligibles 9

10 Medicaid Financial Eligibility 18 Medicaid financial eligibility varies by state In applicable states, consider spend-down to Medicaid for additional capture of Medicaid eligible population Consider growth from other payor sources Medicare/private pay, veterans, etc. Total Potential PACE Demand Overall PACE Eligibles 1,250 1, % Penetration % Penetration % Penetration % Penetration

11 Definition of Penetration Rate 20 Penetration rate: Percent of eligible persons that a program enrolls; also referred to as capture rate 100 (Census) 1,000 (Eligibles) = 10% (Penetration) 21 Median PACE Program Penetration Nearing 10% Using Conservative Factors Mean Median 8.42% 9.84% 5.17% 5.82% 3.73% 4.09% Self-Care Mid-Point 2+ Any 11

12 22 Market and Demand Analysis: Factors Influencing Penetration Rates Penetration Rate Reputation of sponsor Number of centers or alternative care sites Support of referral sources Distance sa and drive time Competition Age of program Determining Service Area 23 Considerations include: Is the service area you desire available? How strong is your community presence? Are there ee sufficient ce numbers bes of egbes? eligibles? What is the right size of the service area based on demand? What geographical or logistical obstacles exist? 12

13 PACE Demand by ZIP Code 24 ZIP Code - City Financially and Clinically Eligible with Self-Care Disability Financially and Clinically Eligible Financially and Clinically Eligible With 2+ Any Disability Conservative Mid-Point Aggressive Argusville Ayr Davenport Harwood Fargo ZIP code level analysis will help identify areas with the most opportunity 25 Determining Service Area and Center Location Density of population can help identify target areas for centers and growth potential

14 Know Your Competitors 26 Understand competitors Traditional competitors such as SNFs and ADHCs Emerging competitors such as dual eligible demonstration plans and managed long term care plans Understand collaborators Low-income senior housing Senior housing Area Agencies on Aging Turn competitors into collaborators SNFs Managed care plans of all varieties Community Needs and Relationships 27 Community needs and relationships are vital to starting and sustaining a successful program Keys to success include: Creating a pipeline of referrals Educating a wide variety of referral sources Seeking strategic relationships Track referrals and enrollment Percentage of eligibles referred Referral conversion rate 14

15 28 Feasibility Study Financial Pro Forma Analysis Importance of the PACE Pro Forma 29 Key factor in executive management go/no-go decision Determines capital need and projected financial performance Key part of business plan Can be used as budget tool and for performance measurement 15

16 Financial Performance Critical Factors Access to capital Start-up period duration and cost Enrollment Quality outcomes Clinical management and cost structure Capitation rates 30 Access to Capital: Overview 31 Capital needs are measured during feasibility study Pro forma estimates the following capital needs: PACE center building PACE center equipment Vans IT hardware/software Start-up expenses Initial operating losses Risk reserve 16

17 Access to Capital: Risk Reserve 32 Insolvency protection for PACE program Required to have enough cash to cover one month of capitation revenue PLUS one month of purchased service expenses Will increase as enrollment grows Can be met by: Cash on hand Line of credit Sponsoring organization assets Access to Capital: Benchmarks 33 Component Expense Adult Day Center Build = $3 million to $15 million Purchase = $1 million to $3 million Lease = $15 to $30/square foot/year Leasehold Improvements $500,000 to $2.5 million Equipment $400,000 to $800,000 Vans $40,000 to $60,000 each Start-up Costs $500,000 to $1 million Operating Loss/Reserves $1 million to $3 million 17

18 Access to Capital: Summary 34 Capital investment extremely variable Typically ranges from $3 million $6 million Payback usually occurs in months Financed through: Long-term debt Line of credit Sponsoring organization loan/equity transfer Grants Start-up Period 35 Costs typically range from $500K to $1 million 12 to 18 months prior to opening PACE center Staffing costs include: Program director Intake/referral coordinator Administrative assistant Physician or nurse Director of marketing practitioner Medical director Human resources Center manager Core interdisciplinary team 35 18

19 Start-up Period: Other Expenses 36 Employee benefits Information systems Consulting (TAC provider application/pace development) Travel Property insurance Marketing/advertising Corporate overhead/ management fees Building rent/utilities Interest Miscellaneous other Enrollment Growth 37 One of the most important factors in PACE financial feasibility: Drives the number of PACE centers needed Drives PACE center square footage needed Faster growth = quicker break-even Slower growth = greater working capital need New Enrollees Deaths and Disenrolls Net Monthly Enrollment Growth 19

20 PACE Reimbursement 38 Payment features are unique compared to other health care payment models health care payment models Capitated payment system (per member per month) Combines funding from multiple sources to meet all participant needs: Medicare Part A & B Medicare Part D Medicaid Private Pay (not common) Funding Sources: Medicare 39 Based on PACE-specific risk-adjusted county rates Part A/B average PMPM = $2,000 (dual eligible) Represents about 30% 40% of payment per enrollee Part D average PMPM = $728 Represents about 10% of payment per enrollee Part D, 10% Part A/B, 30 40% 20

21 Funding Sources: Medicaid 40 Determined by each state based upon the costs of caring for a comparable population for a comparable population Dual eligible rate: Range from $1,265 to $4,810 Mean = $3,343 Medicaid-only rate: Range from $2,336 to $7,132 Mean = $4,597 Medicaid 50 60% Represents about 50% 60% of payment per enrollee Capitation Rate Estimates 41 Financial analysis requires reasonable estimates for: Medicare risk adjustment Medicare Part D payment rate Medicare PACE-specific county rate annual inflation factors Medicaid rates and annual inflation factors It is better to err on the conservative side rather than establish unreasonable revenue expectations 21

22 Capitation Rate Example 42 Medicare Part A and B Rate $3,348 Medicare Part D (estimated) $ 728 Medicaid $2,349 Total Dual Eligible Cap Rate $6,266 Estimated dual eligible rate for Miami in 2014 Medicare capitation estimated based on an average HCC risk adjuster including estimate for reduced frailty factor of Medicaid rate based on current actual rate in Miami Projecting Costs 43 Estimate expenses using combination of data: industry, organization-specific, and local market Expenses include: Staffing (salaries and benefits) Purchased services (including contract labor) Insurance Depreciation and interest Rent/utilities Management fee/corporate overhead Other non-salary expenses 22

23 PACE Median PMPM Costs 44 Expense Category PMPM Cost % of Cost Administrative & General $915 18% PACE Center $808 16% Hospital Services $582 11% Nursing Home/Housing $565 11% Pharmacy $558 11% Home Care $405 8% Transportation $317 6% Specialist/Diagnostics $315 6% Therapy $184 4% Facility $169 3% Meals $116 2% DME/Supplies $106 2% Social Services $96 2% Clinical Management Utilization Risks 45 Controlling service utilization is key: Hospital services Nursing home Assisted living Home health/home care Specialists High utilization of costly services can result in poor financial performance Sensitivity analysis during feasibility is very important 23

24 All-Inclusive Care = All-Inclusive Payment Participant and Family PACE Interdisciplinary Team Prescriptions OTC Meds PCPs Transportation Home Care Services Outpatient Services Inpatient Hospitalization Specialty Physician ADHC Respite Care Rehab and Equipment Assisted Living Nursing Home 46 Financial Analysis Sample P&L 47 NATIONAL PACE ASSOCIATION PROGRAM OF ALL INCLUSIVE CARE FOR THE ELDERLY (PACE) HIGH LEVEL FINANCIAL PRO FORMA EXAMPLE SUMMARY PROFIT & LOSS STATEMENT STARTUP YEAR 1 YEAR 2 YEAR 3 YEAR 4 YEAR 5 CY CY 2014 CY 2015 CY 2016 CY 2017 CY 2018 TOTAL ENROLLMENT Year End Enrollment Average Daily Enrollment Member Months 330 1,128 1,602 1,680 1,680 6,420 ATTENDANCE Year End Daily Attendance Average Daily Attendance Attendance Days 4,290 14,664 20,826 21,840 21,840 83,460 REVENUES Medicare 828,022 3,012,067 4,385,808 4,680,637 4,768,062 17,674,596 $ $ $ $ $ $ $ 18,934,250 Medicaid 949,134 3,277,587 4,701,554 4,978,097 5,027,878 Total Revenues 1,777,157 6,289,654 9,087,362 9,658,734 9,795,940 36,608,846 EXPENSES Salaries and Wages 215,053 1,254,719 1,694,841 2,052,937 2,126,968 2,169,508 9,514,027 Employee Benefits 43, , , , , ,254 2,115,982 Purchased Services 79,922 1,118,568 3,551,936 5,075,407 5,456,122 5,474,019 20,755,973 Insurance 4,899 51,404 99, , , , ,569 Other 246, , , , , ,103 3,078, Depreciation 55,000 55,000 55,000 55,000 55, ,000 Interest Total Expenses 589,918 3,077,081 6,281,507 8,414,392 8,924,484 9,006,892 36,294,275 Net Income (589,918) (1,299,925) 8, , , , ,571 EBIDA (589,918) (1,244,925) 63, , , , ,571 Margin Percent 0.00% 73.15% 0.13% 7.41% 7.60% 8.05% 0.86% EBIDA Margin Percent 0.00% 70.05% 1.00% 8.01% 8.17% 8.62% 1.61% CAPITAL REQUIREMENTS Building 400,000 Net Present Value ($1,446,270) Equipment/Vans 350,000 Internal Rate of Return 5 yr 13% Solvency Reserves 885,321 Internal Rate of Return 10 yr 9% Working Capital 1,895,018 Break even cash flow month 25 Total 3,530,339 Cash flow payback month 80 24

25 Sensitivity Analysis 48 Measures impact of unexpected changes in key assumptions Provides best and worst case scenarios Following assumptions are highly sensitive and have a material impact on financial results: Census growth Medicaid rate Hospital utilization Nursing home utilization Analysis of Pro Forma Results 49 Analyze key statistics to determine feasibility: Break-even month Internal rate of return Operating margins EBITDA margins Capital requirement Be aware of the financial risks (sensitivity analyses) Decide whether PACE works financially for your organization 25

26 PACE Financial Performance Benchmarks 50 Total Capital Investment t Operating Margin Break-even Cash Flow Investment Payback $3 million to $6 million 3% 12% months months PACE Financial Planning Resources 51 NPA High-Level PACE Financial Pro Forma NPA Case Studies and Business Planning Tools Technical Assistance Centers 26

27 NPA High-Level Financial Pro Forma Tool 52 Developed by HDG for NPA Interactive tool for creating financial projections Assists organizations in determining preliminary financial viability of a PACE program in a specific market Estimates revenues and expenses based on the county selected by the user Allows for input of certain key assumptions User-friendly tool designed to educate user on PACE financial modeling Not a substitute for financial feasibility study NPA High-Level Financial Pro Forma 53 27

28 Executive Management Decision: Go! 54 You have determined that developing a PACE program appears viable 55 Putting It All Together: Business Plan Development 28

29 Business Plan Development Components 56 Business Description Operations Plan Start-up Plan Market Assessment and Marketing Plan Financial Plan Program and Management Plan Risk Assessment and Exit Strategy Business Description 57 Organization s commitment to programs for seniors, duals, and population-based health Vision for PACE development and expansion Understand PACE business model in your system/ continuum What are the strengths and limitations of the model? How does PACE fit into your system/continuum? How will your system help you to access referrals? Identify and capitalize on how your organization can become a successful PACE sponsor 29

30 Marketing Plan 58 Understand demand for PACE Consider various growth scenarios Market PACE Traditional competitors New managed care plans How to access referrals Internal referral sources External referral sources Develop strategic partnerships Create aggressive marketing plan with metrics for monitoring success and making corrections as needed Program and Management Plan 59 Describe the sponsor organization Describe PACE management within the organizational i structure Identify key members of the management team: Program director Medical director Other key members of the management team (if known) Support for PACE by the leadership of the organization is critical to successful PACE start-up and expansion 30

31 Operating Plan 60 Describe service area and development plan if development occurs in phases Describe actual or potential site(s) for PACE center(s) Describe plans for use of alternative care settings (ASC) Identify internal services and resources you can draw upon, e.g., skilled nursing facility care, home care Identify services directly provided d versus contracted Describe how health plan management functions will be performed Consider how to operate PACE with maximum operational efficiency, flexibility, and growth potential Start-Up Plan 61 Develop detailed timeline of start-up tasks, identification of key milestones, and assignments: Site selection and construction/renovation schedule PACE provider application & Part D application development Start-up staffing plan description (included in financial pro forma) Provider network development Phase Activity 1 Activity 2 Activity 3 Activity 4 Activity 5 Activity 6 Activity 7 Activity Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec 31

32 Start-Up Plan (continued) 62 Identify state licensing requirements (e.g., HMO licensure, ADHC licensure, outpatient clinic licensure) Consider how to meet health plan functions for new start-up Electronic medical records Health plan management functions Create detailed description of PACE start-up activities and associated timelines Risk Assessment 63 Describe critical areas of risk and strategies for managing risk: Census risk Utilization risk Medicaid revenue risk Medicare revenue risk Risk associated with changing state policies Risk associated with changing federal policies 32

33 Exit Strategy 64 Describe the circumstances under which the PACE program will be terminated: Break-even not achieved within specified time frame Census goals not achieved within specified time frame Other reasons Identify program goals and exit strategy if program expectations are not achieved Risk and Opportunity Assessment (Example) 65 Potential Risk Factors and Actions to Mitigate Risk Risk Ability to execute strategy Ability to achieve sufficient enrollment Ability to adjust to future Medicare and Medicaid payment cuts Ability to generate sufficient enrollment from the community Ability to develop multiple sites simultaneously Timely access to capital PO has experience in managing PACE and has enhanced leadership team PO has awareness of PACE program to participants and system Initial operational efficiencies reflected in this pro forma; additional operational efficiencies possible Create partnerships to achieve strong initial enrollment growth; rebranding to increase community awareness Proactively identify optimal partners, select site locations, and develop streamlined, replicable site development approach Development of new PACE centers must occur immediately in order to capture mandatory MLTC population now Low Low Medium Medium High High 33

34 Financial Plan Components 66 Will be reviewed carefully by internal decision makers, state, and external funders to determine program viability Will be utilized to measure performance over time Financial plan includes: Refined financial pro forma reflecting decisions made during planning period Thorough description of assumptions Sensitivity analysis on critical assumptions Reflect the risk and opportunities of developing and expanding PACE in today s marketplace PACE Provider Application 67 Completed business plan not only assists the organization to secure approval and/funding necessary to proceed with development, it also aids in writing the PACE provider application Most major decisions will have been vetted in the business plan development e process Major components of the PACE provider application are also components of the PACE business plan 34

35 Decision-Making Process 68 Phase 1: Market and Financial Feasibility Phase 2: In-depth Business Planning, Decision Making Phase 3: Provider Application; Build PACE Center 3 6 Months 3 6 Months 12 Months Initial Board Approval Final Board Approval State and CMS Approval Phase 4: PACE Provider Status Ongoing Good plans shape good decisions. That's why good planning helps to make elusive dreams come true. 69 Lester Robert Bittel, Author 35

36 Discussion 70 Contact Information 71 Jade Gong, MBA, RN SVP, Strategic Initiatives Health Dimensions Group Colin Higgins Director, Analytics and Research Health Dimensions Group com Tom Stitt, CPA, CHFP VP, Financial Analysis and Reimbursement Health Dimensions Group