Understanding the Business Side of PACE, Part 1

The National PACE Association develops new Financial Planning Tools for would-be developers

BY JADE GONG, MBA, BSN, AND ROBERT GREENWOOD

The association realized that an approach to translate the experiences of existing PACE programs into terms that would enable interested organizations to make financial projections was lacking. As a result, the association hired consultants with experience in strategic planning and financial analysis to develop financial-planning tools that decision makers could use with confidence to develop financial proforma models.

While the PACE model has been successful in every market it has occupied thus far, two PACE sites-Total Long-term Care (TLC) in Denver, Colorado, and Alexian Brothers Community Service (ABCS) in Chattanooga, Tennessee-were chosen because of their exceptional success in growing enrollment. ABCS provided operating assumptions for a recent PACE start-up, while TLC provided operating assumptions for a mature site experiencing rapid growth. (The complete case studies are available at www.NPAonline.org under the “Developing PACE” section. Click on “PACE Financial Planning Resources.”) Additional assumptions were also developed using information from DataPACE, a comprehensive data-collection program in which all PACE programs are required to participate as demonstration programs. Using the financial proforma model, a financial baseline scenario representing the start-up costs for the first five years of a new PACE program was developed.

Exploring PACE

Interested providers have access to these tools to increase their knowledge of PACE. Their efforts culminate, often with the help of a PACE Technical Assistance Center (TAC), in the development of a customized financial proforma. PACE TACs are NPA members that specialize in assisting organizations in developing new PACE programs. (More information about PACE technical assistance is available at www.NPAonline.org under “Developing PACE.”) Also, the NPA has created a new service program called Exploring PACE, which makes many resources available to interested providers, including many of the newly developed Financial Planning Tools.

The PACE Financial Proforma is a series of spreadsheets that represent a generic financial model for determining the preliminary financial viability of a PACE program. The accompanying user’s guide contains step-by-step instructions on how to use this model.

The model estimates the costs of operating a PACE program that is in compliance with current regulatory requirements by the Centers for Medicare and Medicaid Services. The financial model is designed to compute proforma financial statements based upon assumptions. (So-called default assumptions make up another PACE publication, PACE Financial Baseline Scenario.) Once information is entered into the assumption worksheets, a balance sheet, income statement, and statement of cash flows are calculated automatically. The model generates projections for an 18-month start-up period and five full years of operations.

• Business Planning Checklist
• Case Study: Total Longterm Care, Denver, Colorado
• Case Study: Alexian Brothers Community Service, Chattanooga, Tennessee
• PACE Financial Proforma Baseline Scenario
• PACE Financial Proforma and User’s Guide

• General assumptions include critical assumptions, such as net monthly enrollment growth, average daily attendance at the PACE center, capitation rates and inflation factors, and capital requirements for building the PACE center.
• Personnel assumptions include staff that will need to be hired during the start-up period.
• Nonsalary assumptions include purchased services, which may be contract personnel, such as social services and physician services, and items such as food or transportation.

Guidelines for Use

In using this information, it is recommended that:

1. An interested provider first read the case studies in order to understand the history, start-up, and operations of two current PACE sites.

2. Next, the provider can review the business-planning checklist, which will identify all of the information that should be analyzed to develop a complete business plan that could be presented to board-level decision makers and/or external sources of financing.

3. With this road map in mind, the provider can now review the baseline scenario, which presents a reasonable case for the start-up of a new PACE program.

4. Finally, the provider can use the PACE Financial Proforma and work with a PACE TAC to develop a customized financial proforma for its own PACE site.

Using the financial proforma model, sensitivity analysis can be undertaken on key assumptions that drive financial performance, such as the Medicare and Medicaid capitation rates, enrollment growth, and rate of nursing home admissions.

It is critical to understand that this financial model provides a “first cut” review on the feasibility of starting up a PACE program. Full financial and market-feasibility studies should be undertaken to determine the viability of a PACE model in a given market.

Conclusion

Even in these financially uncertain times, many provider organizations are looking at PACE as a key program to position themselves for the future. The new Financial Planning Tools developed by NPA take much of the mystery out of developing a new PACE program and will lead organizations through a process of carefully preparing the launch-an advantage previous PACE sponsors have not had. NH

The PACE model provides a great deal of flexibility for both the provider and the elder enrollee. PACE programs are paid a flat, capitated payment for their all-inclusive services. This model ensures that providers’ financial incentives and enrollees’ quality-of-life incentives are aligned. From a financial perspective, PACE providers’ success relies upon the use of lower-cost preventive care to avoid higher-cost inpatient hospital or nursing home care as much as possible. To coordinate care as effectively as possible, PACE employs an interdisciplinary team to deliver and coordinate care across all settings-from the home to the hospital. A basic tenet of the PACE philosophy is that it is better for both the senior with long-term care needs and the healthcare system to focus on keeping the individual living as independently as possible in the community for as long as possible.

One of the goals of the PACE model is to provide a seamless healthcare delivery system to serve older adults with chronic care needs. Much of the delivery of care and services to PACE enrollees is centered around the PACE adult day health center. A health clinic, doctors’ offices, physical therapy and occupational therapy facilities, and other services are all located at the adult day health center.

While a person is eligible to enroll in PACE when he/she is age 55 or older, is certified by the state to need nursing home care, is able to safely live in the community at the time of enrollment, and lives in an area served by a PACE program, actual PACE enrollees look very similar to persons entering nursing homes. For example, the typical PACE enrollee is 79 years old, and about half have a diagnosis of dementia.

For more information about PACE, visit www.NPAonline.org.