1. Financing PACE Development in Rural Areas Peter Fitzgerald National PACE Association August 19, 2004

2. Overview of Presentation Key Concepts – Critical Financial Factors – Net Income vs. Break Even – PACE Baseline Scenario Small Urban Case Study Rural PACE Strategies – Capital – Income – Cost

3. Critical Factors – Capital Equity Based Capital – Buildings – Vans – Some Equipment Working Capital – Start-up – Operating

4. Start Up Capital Staffing – Director – Marketing – Clinical Consultants Building/Lease expenses Interest on loans

5. Operating Capital Insolvency Requirements – Regulatory – One month revenues, one month contractual expenses Risk Reserve Operating Losses

6. 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

7. 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.

8. Break-even/Net Income Example In this example: – Net income month is month 18 – Break-even month is month 38

9. Urban PACE Baseline Scenario Reflects actual experience of two successful urban PACE programs Detailed review of financials from startup through current operations Compared key cost and revenue drivers and statistics to identify key relationships Blended with market data to determine a “baseline” scenario.

10. 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 disenrollments Starting census of 5 in month 1 Net 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

11. Urban Baseline Scenario – Uses of Capital

12. Urban Baseline Scenario - Revenues and Expenses

13. 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

14. Urban Scenarios: Net Income and Break Even Month Scenario Net Income Month Break Even Month Baseline1737 Lease1737 Reduced Start- Up Staff 1736 Slow Enrollment2556 See Notes Page

15. Urban Scenarios: Working Capital

16. Enrollment Census Starting Census at 30 Starting census at 30 in month 1 Net 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

17. Revenues Vs Expenses Starting Enrollment of 30

18. Operating Losses: Sensitivity to Enrollment Assumptions See Notes Page

19. Small Urban Case Study Jan Werner Adult Day Care in Amarillo (pop. 200,000) Service area includes rural county Began PACE operations in March, with enrollment of 15 58 enrollees by July, at which point they achieved net income (does not include retiring debt); approx. 11 are in rural county Current net enrollment averages 15/month

20. Small Urban Case Study – cont’d Average combined Medicare and Medicaid rate is $3,561 per member, per month Medicaid rate is $2035 pmpm Keys to enrollment: - Existing day care center - Nearby 202 housing - Community presence (center, vans) - Targeted marketing (community center)

21. 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

22. Small Urban Case Study – Income and Expenses Average Revenue PMPM = $3,576 Average Expenses PMPM = $3,547

23. Small Urban Expenses Per Member Per Month (PMPM)  PACE Center $1,687 (incl. clinic)  Pharmacy $381  Home Care $354  Hospital $261  Administration $143  Nursing Home $108 pmpm  Insurance $103 pmpm  Facility $71 pmpm  Transportation $16 pmpm

24. 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

25. Rural PACE Strategies Capital needs Income Cost

26. Rural PACE Strategies - Capital Smaller PACE Center, leased vs. built, complemented by existing alternative delivery settings Minimize start-up staffing Maximize initial enrollment Keep fixed costs low, emphasize variable costs – Use of existing services and resources – Partnerships with other organizations

27. Rural PACE Strategies - Income Private Pay Veteran’s Administration Indian Health Service

28. Rural PACE Strategies - Cost Reinsurance for hospital stays Lower center costs Maintain effective interdisciplinary team for health promotion, disease prevention, post- acute care Use health technologies, service partnerships, volunteer networks to overcome distance

29. Constructing a Rural PACE Scenario Less reliance on the PACE Center More incremental approach to cost and operations Faster and higher market penetration More in-home care More staff travel, less participant travel

30. Rural PACE Scenario - Income Private pay population is 15% of total population Initial enrollment is 15 in month 1, grows by 7 per month, in the next 11 months, then settles at 92 Medicaid rate is $2665 (average of Virginia rural and Amarillo rates), Medicare is $1526 PMPM

31. 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 programs PACE Center is leased @ $12/sf vs. $17/sf in urban model Start-up staffing low, existing staff used on a flexible, part-time basis Utilization of home care is 25% higher than urban baseline Transportation costs 2x urban scenario

33. Questions and Assistance www.npaonline.org Peter Fitzgerald – peterf@npaonline.org or 703/535-1521peterf@npaonline.org