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PACE: A New Line of BusinessHow PACE Works
Session 211-POctober 15, 2011
Dan Gray
Agenda
• Participant Net Growth Rate• Rates and Participant Payer Mix• Capital Costs• Operating Practices• Contracted Services• Financial Performance
Participant Net Growth
• Most critical and difficult to predict
• Many factors interrelated (access, approval process, eligibility, community perceptions)
• Death rates (increase in years 3-5)
Participant Net Growth
• Competition—real or perceived
• Marketing—reaching potential participants
• Gatekeepers—Division of Aging, AAA
• Financial Eligibility—100% to 300% of poverty level
Participant Net Growth
• Greater initial enrollment (accelerate break even)
• Staffing for growth (assessment and timely additions of staff)
• Timely expansion of adult day health center capacity
The Numbers
Statistic Experience Minimum Impact
Net Growth
1 to 14 per month
3 Five-year impact of achieving 5 instead of 3
Doubling of cash and operating income
Initial Census
1 to 20 participants
5 First year impact of opening with 20 instead of 8
Breakeven occurs 4 months earlier and operating losses drops by $500,000
Rates • Medicaid rate—negotiated with the state
and usually has a rate for dually capitated participants and a separate rate for Medicaid only
• Medicare rate based on participant’s medical history and frailty
• Pharmacy (Part D) requires actuarial determined rate
Payor Mix
• Higher capitation for ESRD
• Lower rate for Medicaid only
• Documentation dramatically affects Medicare rate
Medicare Payment
Based on diagnosis plus frailty factor Medicare risk scores ranged from 1.672
to 3.424 based on January 2010 PDAC data
Average risk score=2.44 Improvement of .10 in risk score equals
approximately $100 PMPM
Medicaid
Medicare
Capital Costs
*Range due to relationship between building condition and capital requirements
Component Expense
Adult Day Center
Build
Purchase
Lease
Capital Improvements
$4M to $15M*
$1M to $3M*
$3 to $30 per SF/year*
$900K to $2.3M ($60-$150/SF)*
Vans $45 to $50K each
Start-up Costs $500K to $1M
Operating Losses $500K to $4M
Cash Reserves $500K
Capital Costs
• Reserves based on 30 days capitation revenue and contractual costs (approximately 12% of net revenues)
• Adequate Reserves– Cash– Guarantee– LOC
Operating Factors/Practices
• Participants living alone—5 to 40% (dramatically affects costs)
• Prevalence of specific chronic diseases– ESRD– COPD– Behavioral
• Primary care effectiveness
• Team Performance
• Day center attendance
• Day center expansion—mitosis or start from scratch
Operating Factors/Practices
• End of life care
• Caregiver support
• Participant noncompliance management
• Review all hospital discharges and readmits within 30 days
Operating Factors/Practices
Contractual Services
• Hospital—rates and utilization significantly affect financial performance
• Nursing Home—utilization
• Assisted Living
• Home health/home care
• Specialists
Total Capital Investment $1M to $5M
Operating Margin 5% to 15%
Break Even 6 to 18 months
Program Revenue intensive for minimal investment
Financial Performance
Total Income
Total Expenses
Operating Margin
