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The Business Side of PACE, Part 2

May 1, 2003
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Ten key lessons learned from two successful PACE programs By Jade Gong, MBA, BSn, and Robert Greenwood
The Business Side of PACE, Part 2
How the actual experience of two PACE organizations is contributing to the development of new programs

BY JADE GONG, MBA, BSN, AND ROBERT GREENWOOD Part 1 (see Nursing Homes/Long-Term Care Management, April 2003, p. 36) of this pair of articles on Programs of All-inclusive Care for the Elderly (PACE) describes the financial planning tools available for creating a PACE organization, including the PACE Financial Proforma model and the Baseline Scenario developed by the National PACE Association (NPA). In order to develop the assumptions for this model, in-depth case studies of successful PACE programs in Denver, Colorado, and Chattanooga, Tennessee were undertaken. The operating experiences of these PACE programs offer a current perspective into (1) a well-established program that is expanding and (2) a relatively new site that is starting up. Both programs operate in different marketplaces with varying state policies, and thus use different marketing and business strategies to achieve success. These variations offer readers a broad view of the issues involved in creating a PACE program. "Over the years," says Shawn Bloom, NPA president and CEO, "there developed many 'rules of thumb' about PACE that we really wanted to test. With the PACE Financial Proforma and other tools, we developed both a way of highlighting all the assumptions that need to be thought about and historical data to base these assumptions on."

The case studies show that PACE programs can be both clinically and financially successful in providing comprehensive primary, acute, and long-term care to the frail elderly. As more organizations develop PACE programs, it is hoped that PACE will become a significant part of the community-based long-term care delivery system.

As of this year, 28 fully capitated PACE programs are serving frail elderly in their communities. While all PACE programs must comply with Medicare and Medicaid regulations, each develops marketing, financial, and business strategies that are unique to its marketplace. This article discusses 10 key lessons learned from two successful PACE programs, using findings from the Baseline Scenario in the PACE Financial Proforma model when appropriate.

1. A PACE inter-disciplinary team can serve more people than the typical 120-bed nursing home. It has been a longstanding rule of thumb that a PACE team can handle a total enrollment of 120 participants. Recent operating experience at Total Longterm Care (TLC) in Denver has demonstrated that a PACE team may be able to handle a total enrolled capacity of up to 200 participants, when congregate supportive housing or assisted living is used. This higher capacity spreads the fixed costs, such as those for certain administrative, management, and clinical staff, over a larger enrollment base. Other variable costs, such as direct care costs for staff aides, will increase in proportion to enrollment.

The PACE Baseline Scenario assumes that a PACE team can handle up to 180 participants. As shown in the Table, which summarizes financial performance data from the baseline scenario, enrollment growth in general and increasing team capacity from 160 to 180 lead to reduced administrative costs and stable profitability.

2. Enrollment growth is the key to success. The motto at TLC is "Census Is King." The key statistic used to monitor census growth is net enrollment (i.e., new enrollments minus disenrollments and deaths), which drives growth and success. Both TLC and Alexian Brothers Community Services (ABCS) in Chattanooga were able to achieve net-enrollment growth rates of six to eight participants per month. TLC achieved this success while expanding as a mature site. ABCS achieved this success in the start-up phase. There are operating PACE sites, however, that have not achieved this level of sustained enrollment growth. The base-line scenario uses a net-enrollment growth rate of five per month in year one and increases to seven per month in year five. When undertaking a feasibility study, careful consideration of the vast array of local market factors-such as demographics, the state policy environment, competition, and referral sources-is important.

3. PACE programs can include assisted living. Although PACE programs are not required to offer assisted living or other types of supportive housing as a covered benefit, an increasing number of PACE programs are finding this to be a cost-effective alternative to nursing home placement. Although some PACE programs do own their assisted living units (particularly for dementia patients), contracting with assisted living providers is also a successful strategy. TLC is in a market oversaturated with assisted living units. TLC contracts with assisted living providers directly at a rate comparable to the state's Medicaid rate for assisted living, but then supplements the on-site care provided to participants. TLC has found that assisted living residents use the adult day health center less frequently, on average, resulting in cost savings. Given this win-win situation, assisted living providers have become a major referral source for TLC. Although the baseline scenario uses assisted living as an alternative to nursing home placement, each potential PACE provider can estimate the trade-off involved in developing its own financial scenarios.