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3. PACE: A New Line of Business How PACE Works Session 211-P October 15, 2011 Dan Gray

4. Agenda Participant Net Growth Rate Rates and Participant Payer Mix Capital Costs Operating Practices Contracted Services Financial Performance

5. 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)

6. Participant Net Growth Competition—real or perceived Marketing—reaching potential participants Gatekeepers—Division of Aging, AAA Financial Eligibility—100% to 300% of poverty level

7. 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

8. The Numbers StatisticExperienceMinimumImpact Net Growth 1 to 14 per month 3Five-year impact of achieving 5 instead of 3 Doubling of cash and operating income Initial Census 1 to 20 participants 5First year impact of opening with 20 instead of 8 Breakeven occurs 4 months earlier and operating losses drops by $500,000

9. 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

10. Payor Mix Higher capitation for ESRD Lower rate for Medicaid only Documentation dramatically affects Medicare rate

11. 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

12. Medicaid

13. Medicare

14. Capital Costs *Range due to relationship between building condition and capital requirements ComponentExpense 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

15. Capital Costs Reserves based on 30 days capitation revenue and contractual costs (approximately 12% of net revenues) Adequate Reserves –Cash –Guarantee –LOC

16. Operating Factors/Practices Participants living alone—5 to 40% (dramatically affects costs) Prevalence of specific chronic diseases –ESRD –COPD –Behavioral

17. Primary care effectiveness Team Performance Day center attendance Day center expansion—mitosis or start from scratch Operating Factors/Practices

18. End of life care Caregiver support Participant noncompliance management Review all hospital discharges and readmits within 30 days Operating Factors/Practices

19. Contractual Services Hospital—rates and utilization significantly affect financial performance Nursing Home—utilization Assisted Living Home health/home care Specialists

20. Total Capital Investment$1M to $5M Operating Margin5% to 15% Break Even6 to 18 months ProgramRevenue intensive for minimal investment Financial Performance

21. Total Income

22. Total Expenses

23. Operating Margin

24. Questions 1501 Greer Lane Signal Mountain, TN 37377 423.517.0567 ▪ 423.517.0568 Fax dan.gray@consulting-cds.com www.consulting-cds.com