1. Program of All-Inclusive Care for the Elderly PACE Financing Chris van Reenen, NPA MN PACE Summit July 2004

2. Capitated Financing Capitation payments from Medicare, Medicaid and private sources pooled at program level Capitated financing removes payment restrictions inherent in fee- for-service system In exchange, PACE organizations assume full financial risk for all covered services

3. Medicare Payment Medicare capitation rates based on Medicare Advantage CMS-HCC payment methodology Medicare capitation rates adjusted for the frailty of PACE enrollees Approximate Range (2004): $1,427- $2,162 pmpm Preliminary estimate of average risk adjuster factor in ‘04: 2.42 Awaiting Part D regulation re: payment of Rx drugs

4. Medicaid Payment Medicaid capitation rates must fall below Upper Payment Limit States typically establish PACE rate(s) as percentage of UPL(s) Mean (2003): $2,987 Range (2003): $1,944-$4,706 Currently, private long-term care premium set at Medicaid payment rate

5. Financial Planning for Prospective PACE Providers Detailed analysis of financial experience of two successful PACE organizations led to development of financial proforma for PACE

6. Key Revenue Assumptions Census/Attendance Starting enrollment Net monthly enrollment growth Payer Mix Dual eligibility ESRD or private pay enrollees Capitation Rates

7. Key Cost Assumptions Facility Square footage of PACE Center Vans Capital Requirements Building/Equipment Working Capital

8. New PACE Programs – Uses of Capital

9. Key Cost Assumptions, cont. Personnel Staffing ratios FTE’s Salaries Purchased service option Start-up period and operational

10. Key Cost Assumptions, cont. Non-Salary Assumptions Purchased service expense Support services Hospital and nursing home services Other expenses Supplies and drugs Consulting, food, legal and other Administrative expense Corporate overhead allocation Insurance, dues, IS

11. Revenues vs. Expenses Baseline Scenario

12. Via Christi- Wichita, KS Via Christi largest health system in KS Via Christi largest health system in KS First non-demonstration program to achieve provider status (9/02) First non-demonstration program to achieve provider status (9/02) Lengthy development time due to CMS structure of application process Lengthy development time due to CMS structure of application process Identified Sedgwick County, KS as catchment area/market (total population= 462,000; 52,000 are 65 and older) Identified Sedgwick County, KS as catchment area/market (total population= 462,000; 52,000 are 65 and older)

13. Via Christi- Wichita, KS- Projections Projected total capitalization $1.2 million: Projected total capitalization $1.2 million:  $500,000 renovations+$700,000 working capital; not including $900,000 solvency guarantee (risk reserve)  Projected enrollment of 3/month and reach market capacity of 147 by the end of 5 years Projected break-even in Month 22 at census 81 (net gain of 3 per month); payback at month 44 Projected break-even in Month 22 at census 81 (net gain of 3 per month); payback at month 44

14. Via Christi- Wichita, KS- Actual Enrollment 6/month; presently at 115 Enrollment 6/month; presently at 115 Achieved break-even (net income) in month 9 with 50 enrollees Achieved break-even (net income) in month 9 with 50 enrollees Positive cash flow since May ‘03 Positive cash flow since May ‘03 Total capital cost: $800,000 ($550,000 renovations+$250,000 working capital) Total capital cost: $800,000 ($550,000 renovations+$250,000 working capital) Solvency guarantee not touched Solvency guarantee not touched 70 days cash on hand 70 days cash on hand May 30, ’04- $920,000 risk reserve May 30, ’04- $920,000 risk reserve

15. Via Christi- Wichita, KS- Explanation Underestimated brand equity Underestimated brand equity Effective ADHC location and marketing plan Effective ADHC location and marketing plan At full-risk from the beginning At full-risk from the beginning  Managing the full service package from beginning  Soon after enrollment enrollees are theoretically at their healthiest point Combined staffing roles at beginning based on regulatory changes Combined staffing roles at beginning based on regulatory changes Flexibility from state Flexibility from state PACE operational modeling has become more sophisticated since model was first investigated by Via Christi PACE operational modeling has become more sophisticated since model was first investigated by Via Christi