Developing a Community Health Center Capital Project Plan and Budget - Part One

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1 Developing a Community Health Center Capital Project Plan and Budget - Part One Jonathan Chapman Director, CHC Advisory Services May 30,

2 Capital Link Launched in 1995, nonprofit, HRSA national cooperative partner Offices in CA, CO, FL, MA, ME, MO, SC and WV Over $1.1 billion in financing for 229 capital projects - Direct assistance to health centers and complementary nonprofit organizations in planning for and financing operational growth and capital needs - Industry vision and leadership in the development of strategies for organizational, facilities, operational and financial improvements - Metrics and analytical services for measuring health center impact, evaluating financial and operating trends and promoting performance improvement 2

3 Capital Planning, Budgeting, and Financing Options Readiness and Planning Evaluating Your Market and Operating Model & Space Requirements Developing a Business Plan and Financial Forecast Evaluating your Financing Options 3

4 Assessing Risk at the Edges 4

5 What to Plan? How to Plan? Reference the Capital Link Strategic Planning Toolkit Know and define your market Complete a physical space assessment Know your financial and operational health Determine debt capacity Consider financial sustainability Identify sources and types of financing 5

6 When to Plan? 6

7 Key Strategic Planning Toolkit Components 7

8 Why a Market Assessment? 8

9 Why a Market Assessment? Service Area Definition and Examination Selected, Relevant Data Resources Back of the Envelope Planning 9

10 Things to Consider Before You Start What is your perceived Market? Market can = geography, specific population, service type, etc. The resulting data will likely inform & expand any gut instinct There is A LOT of data out there Reviewers may occasionally have a differing opinion 10

11 Capital Link s Typical Table of Contents Health Center Overview Service Area Identification Service Area Description Comparative Demographics and Economic Indicators Medical Needs of the Service Area Estimating Service Area Demand Special Considerations 11

12 Estimating Service Area Demand Evaluate service area market share - Total population, low income population, target market - Payer mix Population Projections - Anticipate changing demographics and their effect Estimating potential patients, visits, providers, capital needs 12

Back of the Envelope https://www.udsmapper.org/ https://www.census.gov/quickfacts https://factfinder.census.gov https://www.auntbertha.com/ http://www.

13 Back of the Envelope

14 Expansion Considerations Market Share Current and Projected Number of Patients from specific population divided by that total population Service Area FQHC Patients = 10,000 Service Area General Population = 75,000; Low Income Population = 50,000 13% market share General Population; 20% market share Low Income Population Estimating Encounters/Visits Historic/Realistic visits per patient times expected patients FQHC Visits = 35,000 35,000 / 10,000 = 3.5 visits per patient Projecting Workforce Needs Historic/Realistic Provider Productivity divided by expected visits/patients FQHC Provider FTE = 25 FQHC Visits = 35,000 35,000 / 25 = 1,400 visits per FTE 14

15 Expansion Considerations An organization wants to increase its low income population market share by 20%; how many more patients, visits, providers? 20% x 1.20 = 24% 24% x 50,000 = 12,000 patients (increase of 2,000 low income patients) 2,000 x 3.5 visits per patient = 7,000 additional visits 7,000 / 1,400 visits per Provider FTE = 5 additional Provider FTEs 15

16 Expansion Considerations Estimated Square Footage/Funding Needed to Treat New Patients HYPOTHETICAL Using estimated square feet per provider as basis 1,100 5 FTE x 1,100 sq. ft. per = 5,500 total sq ft Using estimated cost per square foot as basis $ ,500 sq. ft. x $300/sq. ft. = $1.65M estimated cost

17 Expansion Considerations Typical Breakdown of Project Costs for Health Centers: Hard Costs: 70% Equipment: 15% Soft Costs: 15% Total Project Cost 100% + Land/Building Acquisition 17

18 Expansion Considerations The 1,100 sq. ft. is typical for a traditional provider and their MA managing scheduled medical appointments so perhaps a small satellite or school based clinic But 1,100 sq. ft. generally doesn t allow for a portion of space to be allocated for other shared team members. For a back of the envelope in a team environment, use 1,500 sq. ft. per provider. So, three providers functioning within an interdisciplinary team would look more like 4,500 sqft. 18

19 Expansion Considerations Planning teams can envision (and list with sqft) the spaces/rooms they would want one interdisciplinary team to have at their disposal then add 50 sq. ft. of waiting for each exam/operatory/consult room for that team then multiply that total by 1.45 now you have the space estimate for one team. Multiply that by your planned number of teams. Use same estimate for dental and medical at this stage. Add any large other spaces you would like say a community room or food pantry. Add a set-aside of 2,500 sq. ft. for building support and mechanicals. That is your project estimate. 19

20 Expansion Considerations Note: This is building size If you plan to lease a suite/space within an existing building the multiplier is 1.3 rather than 1.45; and you can drop the building support and mechanicals to 800 sq. ft. There are several resources that can be recommended but a recent check online indicated many of their prices have increased significantly. So, if you have your own project manager and want to get serious about conducting your own space planning perhaps Cynthia Hayward s SpaceMed Guide is a reasonable consideration. $

21 Physical Space Considerations 1. Age and condition of current space? 2. Existing space adequate and/or attractive? 3. How is space configured? Healthcare, team-based, flexible? 4. Does it represent your community? 5. Collaboration/funding requirements? 21

22 Financial Health: Some Key Metrics Metric 1 Operating Margin 2 Bottom Line Margin 3 Personnel-Related Expense 4 Days Net Patient A/R 5 Days Cash on Hand Why This Is Important Measuring stick of your business model; margins typically small but need to be positive Is performance dependent upon large capital grants and/or other sources of non-operating revenue? Consumes 70-75% of budget; key driver of financial performance Financial management starts with collecting your money efficiently Is there enough liquidity to keep operations running smoothly? 6 Physician Productivity (visits) Productivity is the basis for revenue generation 7 Mid-Level Productivity (visits) Productivity is the basis for revenue generation 8 Dental Provider Productivity (visits) *Capital Link Performance Benchmarking Toolkit Productivity is the basis for revenue generation 22

23 15.0% Operating Margin - Medians 12.0% 9.0% 6.0% 3.0% 0.0% Hi-Perf National Benchmark 23

24 Personnel Related Expenses as Percentage of Operating Revenue - Medians 74% 72% 70% 68% 66% 64% 62% 60% Hi-Perf National Benchmark 24

25 Days in Net Patient Receivables - Medians Hi-Perf National Benchmark 25

26 Days Cash on Hand - Medians Hi-Perf National FQHCs Benchmark 26

27 Physician Visits per Physician FTE - Medians 4,000 3,800 3,600 3,400 3,200 3,000 2,800 2,600 2,400 2,200 2, Hi-Perf National FQHCs 27

28 Mid-Level Visits per Mid-Level FTE - Medians 4,000 3,800 3,600 3,400 3,200 3,000 2,800 2,600 2,400 2,200 2, Hi-Perf National FQHCs 28

29 Operational Health: Some Key Metrics Metric Why This Is Important 9 Medical Provider Productivity (patients) Becomes more important in transition to team-based care 10 Medical Team Productivity Who are your teams? How do they perform? 11 Cost (Revenue) Per Visit How are your visit costs changing over time? 12 Cost (Revenue) per Patient With the move to PCMH, how are patient costs changing? 13 Medical Support Staff Ratio How strategic is the staffing the medical teams? 14 Non-Clinical Staff Ratio Non-clinical employees are not revenue drivers 15 Visit/Patient Growth Rates Are visits growing faster than patients? Is demand growing? *Capital Link Performance Benchmarking Toolkit 29

30 Quartiles 25 th Percentile, Median, & 75 th Percentile 25 th percentile 50th percentile - Median 75 th percentile

31 Medical Productivity (Medical Visits/Medical FTE) National Percentiles 1,300 1,200 1,100 1, th Percentile 50th Percentile 75th Percentile

32 2.50 Non-Provider Medical Staff per Medical Provider - National Percentiles th Percentile 50th Percentile 75th Percentile

33 Mental Health Provider Productivity (MH Visits/MH Provider FTE) - National Percentiles 1,600 1,400 1,200 1, th Percentile 50th Percentile 75th Percentile

34 Total Visits per All FTE National Percentiles th Percentile 50th Percentile 75th Percentile

35 Operating Revenue & Expense per Patient National Medians Nat'l - Operating Revenue Per Patient Nat'l - Operating Expense Per Patient 35

36 Determine Debt Capacity 36

37 Determine Debt Capacity 37

38 Debt Capacity Sensitivity Analysis Interest Rate #Years Funds Available for Debt Service $951,047 $850,221 $1,022,554 $1,000,037 Rent rebate below $951,047 $850,221 $1,022,554 $1,000,037 $0.00 Funds Available for Debt Service after applying D.S.C. Require. of 1.25 $760,838 $680,177 $818,043 $800,030 Debt Supported by Adjusted Cash Flow 6.00% 20 $8,726,747 $7,801,574 $9,382,891 $9,176,276 Debt Supported by Adjusted Cash Flow 5.00% 20 $9,481,718 $8,476,506 $10,194,626 $9,970,137 Debt Supported by Adjusted Cash Flow 4.00% 20 $10,340,031 $9,243,825 $11,117,474 $10,872,663 38

39 Financial Feasibility and Sustainability Historical performance (3 years audited) 5-7 year forecast Project budget Sources and uses Financing structure 39

40 Financing Sources and Resources New Market Tax Credit (NMTC) Readiness Program Available to health centers through a competitive application process, the Readiness Program offers access to consulting expertise at a reduced cost so that projects will be well-planned, ready, and properly aligned with available tax credit resources when they are awarded USDA Technical Assistance Program - Identify ~4-5 individual health centers that ideally have capital needs in areas where the average population is between 2,501 and 5,000 and an average household income less than their state. Jchapman@caplink.org Deadlines rapidly approaching!! 40

41 DIY Resources Capital Link s Debt Capacity & Revenue Modeling Tools Capital Planning & Financing Guides Strategic Planning & Benchmarking Toolkits Business Plan and Work Plan Manuals Cost of Care Trends & Snapshot Reports (coming soon) 41

42 Questions? Contact Jonathan Chapman Director of CHC Advisory Services Visit us Online: Learn more about our products and services Download our free publications and resources Register for upcoming webinars Sign up for our e-newsletter, Capital Ink Subscribe to our blog at capitallinksblog.blogspot.com 42

Financial and Operational Benchmarking Trends & Techniques

Financial and Operational Benchmarking Trends & Techniques Susan Petrie Chief Operating Officer October 31, 2018 1 Capital Link - Overview Launched in 1995, nonprofit, HRSA national cooperative agreement