GMHC Finance Committee Executive Summary Camp Creek Lease July 11, 2016

Transcription

1 GMHC Finance Committee Executive Summary Camp Creek Lease July 11, ) Project Definition: Grady Health System leadership has identified a new site for development of an ambulatory care center just outside of I-285 at Camp Creek. The Camp Creek area was identified for new site development in the 2012 Ambulatory Strategy document and confirmed in 2015 through the system s strategic planning process. The market characteristics support a need for improved access within the primary service area, expanded population health services, reducing and managing chronic conditions, and increased access for elective, procedural volume. The project includes development of a new building through a partnership with Ackerman & Co, a commercial and health care real estate development company. Ackerman & Co. will lead in the construction of the building based on Grady s planning with the architecture firm of our choice. Grady and Ackerman & Co. will share in the cost of the tenant improvement (interior build out of the facility). Grady will then lease the building from Ackerman for a term of fourteen years. Grady s general counsel has reviewed the lease and is finalizing the terms of the negotiations. 2) Project Rationale: This project is the first of its kind in over twenty years of Grady history. The Camp Creek location is a de novo operation with the strategic intent of filling a void in this market and aligning new patients to Grady for a larger scope of services offered close to home. Key characteristics of the market driving the selection of this location include the following: Population is growing and projected to increase by 9% over 5 years. Population insurance status is shifting to insured through aging and the market place exchange. By 2019, 23% of the population will shift from uninsured to insured. Population is aging with the population over 65 increasing from 11% of the population to 14% of the population by Women of child-bearing age is increasing from 20% to 25% by As described in the March Board meeting, the attractive characteristics of this geography have not gone unnoticed by competitors from across the market though none have developed a large physical presence. In the immediate area, Piedmont, WellStar and Northside each has a small practice or ancillary offering. Piedmont has had the greatest success from their physician network development, with an increased share of over 20% of zip code AMC had several attempts of attracting a greater share with the development of an imaging center. While the imaging center is somewhat 1

2 profitable, the resultant growth in inpatient share has not materialized. With WellStar s acquisition of AMC, WellStar now controls the AMC imaging center in addition to two internal medicine physicians already employed by WellStar. The market around this property has continued to develop and includes 5,000 new home sites, a daytime population of 60,000 people and an average income of $60,000 annually. The nearby Publix is one of the busiest in Atlanta, and a number of restaurants and shops drive significant activity throughout the day and evening hours in this direction. To ensure we understand the needs of the community from the outset of planning, Grady engaged The Planning Practice to conduct 6 consumer focus groups (48 participants) and phone survey (100 participants), talking with people who live in and zip codes. The information we received from these surveys supports our direction and provides critical insights for a successful health care offering in this area. Below is a summary of the feedback received from the focus groups and survey: Respondents reported they travel all over Atlanta to receive specialty care. They do not have adequate access to specialists. Even though respondents had used urgent care, they were not familiar with the brands or names that were not affiliated with existing hospitals or health systems [Note: the Camp Creek area has 3 three urgent care centers that are not affiliated or branded with an existing hospital system]. Respondents were impressed by a written unbranded description of the new facility we have planned. They liked the: o Comprehensiveness of the list of specialties o Convenience of the Camp Creek and Red Wine location o Opportunity to get to know the providers who are providing care o Security of having one s medical records immediately accessible to all providers o Feeling of pride in their neighborhood that a facility would choose to locate there Respondents seek staff that explain things well, ease of getting an appointment, evening and weekend hours. Additionally, lab tests and x-ray on premise were most important in choosing a center. The Camp Creek facility will become the cornerstone for a delivery system across the southern arc of Fulton and DeKalb counties, building on the strength of our position in the market and new development/re-gentrification initiatives in these communities, including the Beltline, Fort McPherson and the Westside Health Collaborative. These new locations provide a strong intersection for strategy, community benefit and population health activities. Camp Creek will be the first location to demonstrate Grady s strategic value with regard to these initiatives. 2

3 3) Project Scope: The scope of services included in the Camp Creek facility are primary care, women s health, pediatrics, geriatrics and specialty services. Primary care will have extended weekday and weekend hours. The facility will provide urgent care as well as traditional primary care. In addition to ambulatory visit access, the Camp Creek site will provide endoscopy, cardiac testing, including nuclear stress testing, minor procedures, lab and imaging services, including a mobile MRI. The mix of traditional ambulatory visits capacity with procedural care is intended to meet the needs of the community and provide services conveniently close to home. Below is a projection of volumes for these services. These volumes target a market share range of 10% to 20% of the projected market with the exception of primary care/internal medicine, which targets approximately 3% of the market based on the market size. Market share targets are achieved by The first year of operation is assumed to be a half year. Grady s Camp Creek Development Volume Estimates by Service Primary Care Visits 2017* Primary Care 9,270 13,790 19,700 20,314 21,130 Women's 1,270 1,890 2,700 2,788 2,900 Pediatrics 3,000 4,550 7,000 7,500 7,500 Urgent Care 2,808 4,586 7,488 8,424 9,360 Specialty Visits Ortho 1,480 2,200 3,140 3,235 3,330 GI Visits 565 1,960 3,380 3,750 4,500 Cardiovascular 1,640 1,708 3,480 3,590 3,700 Ophthalmology 2,235 3,325 4,750 4,900 5,050 Procedural Services Ortho Procedures ,455 1,500 1,545 Endoscopy Procedures 1,500 2,800 4,500 5,000 6,000 ECHO 615 1,200 2,610 2,690 2,780 Nuclear Stress 500 1,050 1,500 1,500 1,500 Imaging Diagnostic Radiology 4,565 6,790 9,700 10,000 10,300 Mammography 1,825 2,720 3,880 4,000 4,120 Ultrasound 2,740 4,074 5,820 6,000 6,180 MRI ,500 1,500 1,500 3

4 Cost of Project: The capital cost of the project is related to the tenant improvement dollars for the build out of the building based on the total cost and Grady developed floor plan layout. Given the long-term lease, our current agreement includes a split of the tenant improvement dollars with Ackerman & Co responsible for $1.6 million and Grady responsible for $2.5 million. Grady has agreed to the larger portion of the tenant improvement for a reduced rental rate and to avoid the need for a letter of credit. The project is currently at the master plan level and has significant contingencies in the estimate. The next step will be to conduct detailed planning for a more precise capital estimate. At this point, $2.5 million is a not to exceed figure. 4) Financial Analysis The financial analysis for the Camp Creek project is based on current performance, new service development and downstream activity/revenue to the health system. Below is a description of each of these components. 1. Current neighborhood health system financial performance. The neighborhood health centers (NHC) have a negative contribution margin driven by higher self-pay population, low performing commercial contracts and a high cost structure. The payor mix of the NHC s is weighted heavily toward the self-pay population, which will be addressed in Camp Creek through the expanded scope of services, service model, focus on convenience and facility location. Grady has achieved payor mix shifts within the inpatient setting and plans for similar results to this new outpatient setting. Current NHC Payor Mix and Estimated Camp Creek Payor Mix Payor Class Current NHC Estimated Camp Payor Mix Creek Payor Mix Commercial 7% 25% Medicare 21% 40% Medicaid 25% 20% Self-Pay 48% 15% The existing sites also carry significant overhead as hospital-based entities. With a new site, the cost structure will be redeveloped to reduce the overhead expense, as well as improve efficiencies. Examples of restructuring include higher use of nurse practitioners as described in the changing models of healthcare during Grady s strategic plan review and utilization of clinical medical assistants (recently introduced in the Grady clinics but not yet fully realized in the financial statements). Managed care contracts previously focused on the inpatient setting primarily. The Blue Cross Blue Shield contract began to address outpatient services and the result is seen in the NHCs that have Blue Cross volume. Current negotiations with other payors are addressing outpatient reimbursement and are expected to have a similar result. In addition, Grady is working with several Medicare Advantage programs to include care management and quality outcomes incentives. 4

5 2. New Service Development New services being offered at the Camp Creek site will also provide new revenue to the operation, further driving financial performance. Ancillary services offered at the current NHCs include radiology, lab testing and sonograms. The Camp Creek site will expand the scope of services to include endoscopy, nuclear medicine, MRI and ultrasound. In addition to the procedural diagnostic and treatment services, Camp Creek will offer minor procedures, including injections for ortho spine treatments as well as minor procedures for other specialty areas. The afterhours urgent care volumes will also provide an opportunity for a new billing structure not yet included in Grady s NHC scope of services. 3. Down Stream Revenue Outpatient centers in many health systems play the role of loss leader and have a difficult time producing a positive net margin without the procedural services described above in New Service Development. Health systems invest in outpatient centers to increase engagement and alignment for higher acuity services. The Camp Creek site provides Grady with the opportunity to build an elective practice and reduce reliance on the Emergency Department as the primary source of procedural volume that comes to the system. Increasing our footprint in southwest Atlanta will increase our ability to expand strategic services lines, demonstrate our value to payors and change perception of our service in this important market. Currently, approximately 9% of patients in the NHCs also have an inpatient stay. Applying a more conservative assumption of 5% of patients who seek care at the Camp Creek site have an inpatient stay annually, this site could result in additional inpatient discharges of 240 in 2017, growing to 830 by At approximately $4,000 net margin per inpatient discharge, this would result in a total incremental revenue of $12 million over the first 5 years of operation. The following chart outlines the estimated impact based only on inpatient volume and revenue: Estimated Inpatient Volume as a Result of Volume to Camp Creek Estimated Inpatients Estimated Net Margin $960,000 $1,960,000 $2,960,000 $3,120,000 $3,320,000 Assuming a breakeven on the operation of Camp Creek, the payback period for the tenant improvement investment is about 2 years. We do not have yet a similar proxy for outpatient surgery; however, we know the opportunity for outpatient volume just from these zip codes is strong. This center provides the opportunity to diagnosis and managed patients close to home and then align surgical care to the Ambulatory Surgery Center under planning evaluation. 5

6 5) Areas under development The master plan for the facility and the negotiation of a lease agreement to bring to the Board has been the focus of leadership s efforts to date. With approval, we will move forward with next steps in the project. Finalize the facility plan to move to construction of the facility. Develop a detailed furnishings and equipment list. Plan for clinical staffing, including expansion of employed group, alignment with the Schools of Medicine and/or engagement of an external group to provide a select service (i.e., urgent care). Development of the organization structure based on the Balanced Budget Act of 2015 and cost structure analysis. Grady NHC s are in a hospital-based structure, requiring some additional cost to the overall operation but allowing for a higher reimbursement model. The BBA of 2015 has direction for new entities but the final implications for these new developments have not been released. Once the direction is known the final Time Line: GMHC Board approval request - Monday, July 11, 2016 Finalize lease agreement by the end of July Schematic planning and construction documents October 2016 Target facility opening middle of 2017 REQUEST OF GMHC FINANCE COMMITTEE and GMHC BOARD OF TRUSTEES: Approve $2.5 million in capital funding to enter the lease agreement with Ackerman & Co. Grady leadership will bring forward future detailed analyses and equipment listings that exceed $1 million as information becomes available over the course of the project. 6