Understanding the PACE Operating Experience and Critical Success Factors

PACE programs thrive in markets with high demand for their services. PACE enrollment is largely a function of the size of the population that is nursing facility eligible within a designated service area, and the availability of alternative programs and services. PACE programs have also been successful in serving veterans in selected geographic areas (through a partnership with the Veterans Administration), as well as serving rural communities. With sufficient demand, PACE programs that are well-integrated in the community are in the best position to achieve high levels of enrollment.

Since about 90 percent of PACE enrollees are dually eligible for Medicare and Medicaid, determining the demand for PACE services is focused on calculating the size of the dual eligible population. PACE demand is typically calculated utilizing census data, from which zip code or county-level data can be obtained to reflect income levels and disability levels. Important factors to consider include:

When determining financial eligibility, it is important to determine the Medicaid income level specific to your state for PACE and home- and community-based services (HCBS) eligibility. Many states set eligibility levels for PACE at 300 percent of Supplemental Security Income (SSI) payment, but some states have other income thresholds, which can be much lower.

When determining level of disability, it important to match the clinical eligibility criteria to the census variables, which are two or more disabilities, including self care, or two or more disabilities with any limitation. The more restrictive and conservative level of disability is two or more disabilities, including self care.

It is also worth noting that many operating rural PACE programs received start-up grants. Experience has shown that while there may be fewer PACE eligibles in the service area for rural programs, there can be a higher enrollment (market share) into PACE as there are fewer alternatives in the community that can effectively support a nursing facility-eligible individual in the community.

A number of PACE programs are now participating in a pilot project to serve veterans. These programs receive a capitation directly from the Veterans Administration. This opens up enrollment to veterans not eligible for Medicaid, who would not otherwise be able to obtain PACE services. As part of a feasibility study, the prospective PACE sponsor could also consider the enrollment potential of serving veterans if the pilot program can expand to new PACE programs.

Many PACE programs operate more than one PACE center. The actual number of PACE enrollees needed to achieve profitability will vary by market and site-specific factors and should be assessed thoroughly. 

 

Considerations include:

What is the trend in the aging of the population, especially the age 75-and-older populations, over the next 5–10 years? What is the estimated size of the dualeligible PACE population from which a PACE program can draw enrollment?

Are there any unique factors affecting the potential enrollment in a service area, including rural market considerations, location, or other factors?

After calculating the potential demand for PACE services, a prospective PACE sponsor must understand the competitors to PACE in their community for the broader dual-eligible population and nursing facility-eligible population. States are seeking to improve care for dual eligibles and to reduce the costs of that care. PACE-eligible populations are only one segment of the dual-eligible population.

PACE competitive reviews have typically focused on traditional competitors to PACE, including the following:

• Nursing facilities
• Home- and community-based waiver programs
• Assisted living programs, particularly those serving Medicaid beneficiaries
• Adult day health care programs
• Home care services

Once a PACE-eligible population has been identified, consideration must be given to the referral sources. In some states, the local Area Agency on Aging (AAA) may affect the volume of referrals or the speed in which clinical eligibility determinations are made, particularly if the AAA is a direct provider of home- and community-based waiver services to the same nursing facility-eligible population as PACE.

The actual location of the PACE center, including distance and drive times, will also affect enrollment in the PACE program.

 

Considerations include:

• Who are the competitors to PACE in your community?
• Will a PACE program compete with the local Area Agency on Aging or other referral entities?
• What is the availability of alternatives, especially in rural communities?
• How attractive is the location of your proposed PACE center (if known)?
• Will you have exclusive rights to your service area, or will the state allow another PACE program to compete for enrollees?
• What is the historical penetration rate of PACE in your state and in comparable communities?
• Given the availability of alternatives, what is the likely PACE penetration for your program?
• Can partnerships be explored to increase the success and viability of the PACE program?

 

Considerations include:

• Who are the competitors to PACE in your community?
• Will a PACE program compete with the local Area Agency on Aging or other referral entities?
• What is the availability of alternatives, especially in rural communities?
• How attractive is the location of your proposed PACE center (if known)?
• Will you have exclusive rights to your service area, or will the state allow another PACE program to compete for enrollees?
• What is the historical penetration rate of PACE in your state and in comparable communities?
• Given the availability of alternatives, what is the likely PACE penetration for your program?
• Can partnerships be explored to increase the success and viability of the PACE program?

A state’s support for PACE is another critical success factor. Overall, it is important to understand how PACE fits into the state’s strategy for providing long-term care services. Given the flexibility that is being granted to state Medicaid agencies in serving dual eligibles with innovative models of care, a number of states are moving aggressively towards managed care approaches to meet the needs of dual eligibles with improved quality and reduced costs.

Several states that have supported PACE in the past are looking for programs and models of care that can serve larger numbers of dual eligibles and achieve good outcomes while reducing costs. At the same time, other states such as New York and California are including PACE as one strategy for achieving the desired outcomes for the dual-eligible and nursing facility-eligible population.

In conclusion, it may be easier to grow PACE in states with existing PACE programs. Without existing PACE programs, states may face challenges due to budget and staffing shortfalls.

 

Considerations include:

• If PACE currently operates in your state, what is your state’s history of commitment to PACE? Does legislation need to be enacted specifically to allow new PACE programs to develop, and does funding have to be allocated specifically for PACE program growth?
• What is your state’s strategy for serving dual eligibles and/or achieving a greater proportion of HCBS versus institutional long-term care?
• Has your state applied for either of the CMS models to serve dual eligibles under a capitated or fee-for-service (FFS) approach?

PACE programs receive payment from Medicare and Medicaid for all dual eligibles, which represent about 90 percent of enrollment.

Medicaid PACE rates are negotiated between each PACE program and the State Administering Agency (SAA). Federal regulations specify that each state must set a prospectively monthly capitation that meets the following requirements:

• Must be less than the amount that would have been paid by the state plan if the participant was not enrolled in the PACE program;
• Must take into account the comparative frailty of the PACE participant;  Must be a fixed amount regardless of the changes in the participant’s health status during the contract period; and,
• Can be renegotiated on an annual basis.

Given the variability in the underlying utilization of Medicaid-funded services and Medicaid rate-setting approaches, PACE rates vary widely across states.

Medicare capitation rates and Medicare Part D payment for prescription drugs are set by federal statute and regulations.

 

Considerations include:

• If PACE currently operates in your state, what is your state’s history of commitment to PACE? Does legislation need to be enacted specifically to allow new PACE programs to develop, and does funding have to be allocated specifically for PACE program growth?
• What is your state’s strategy for serving dual eligibles and/or achieving a greater proportion of HCBS versus institutional long-term care?
• Has your state applied for either of the CMS models to serve dual eligibles under a capitated or fee-for-service (FFS) approach?

There are a wide variety of PACE sponsors who have been successful in developing and growing PACE programs in their community. No one type of sponsor is universally successful. The most important factors for success are the organization’s long-term commitment to PACE as a model of care for the nursing facility-eligible population, access to the capital required to start up and sustain a PACE program, and the availability of an internal champion to secure sufficient resources for the program to be successful. PACE programs that start up today are likely to face greater competition and pressures to achieve cost efficiency with the continued Medicare and Medicaid budget challenges.

Organizations should also be willing to invest in operating multiple PACE centers if the market supports the need, and to invest in PACE as a viable alternative to nursing facility placement.

 

Considerations include:

• What is your organization’s history with serving Medicaid beneficiaries and vulnerable populations?
• Does your organization have a long-term commitment to serving nursing facility-eligibles through a PACE model of care?
• Does your organization have strong internal referral sources, and can a PACE program be developed as one component of the care continuum?
• Does your organization have strong relationships with potential external referral sources, such as the Area Agency on Aging, Aging and Disability Resource Center, community physicians, or other entities?

Overall, the capital investments for PACE programs vary widely and typically range from $1.5 million to $5 million. Experience to date has shown that payback occurs in 48 to 72 months.

The following are the major components of the capital needs:

• PACE center building
• PACE center equipment
• Vans
• IT hardware and software
• Start-up expenses
• Funding of initial operating losses
• Funding of required federal or state risk reserves

Undertaking a complete assessment of capital needs is a critical aspect of a market and financial feasibility study.

 

Considerations include:

• Does your organization have sufficient capital to start up the PACE program?
• Have you considered less-than-optimal financial performance, such as lower-than-expected enrollment, higher-than-expected expenses, and future Medicaid or Medicare rate reductions?
• What strategies can be utilized to reduce capital needs, such as using existing staff or using existing buildings?
• Can the PACE center be leased to reduce the start-up capital required?