The Five Steps to PACE Operation.

This is the second of two articles on PACE development by institutional providers for 21st-century long-term care 

If your organization has been intrigued by the PACE model and is considering whether it should take advantage of the opportunity to become a PACE provider, this article will give you some key indicators of readiness and describe all the phases of PACE development, from the feasibility process through provider status.

Editor's Note: For a summary of the basic principles of the PACE (Program for All-Inclusive Care of the Elderly) model, please see the May 2000 issue of Nursing Homes/Long Term Care Management.

With increasing numbers of nursing homes experiencing excess capacity in their facilities, it makes sense to consider developing a PACE center in existing underutilized space, with some of the PACE services provided through existing resources (e.g., occupational and physical therapy and dietary services).

In the PACE model, three major components are integrated through the interdisciplinary team process: adult day healthcare, primary medical care and in-home services. PACE also covers, and the interdisciplinary team must manage the utilization of, hospital and nursing home care.

A typical PACE site revolves around an adult day health center (ADHC), which contains a day room, congregate meal setting, clinic space, an OT/PT area and office space. A PACE center colocated within an existing nursing home would combine adult day care, social work, therapies and center-based nutritional and personal-care resources with PACE primary care, in-home services and transportation. Therefore, the integrity of the PACE model would be maintained for PACE participants residing in the community, while making the most of the services available in the nursing home setting.

To serve the needs of organizations interested in participating in the demonstration, a five-stage process is used for PACE development:

Phase 1: Orientation

Phase 2: Feasibility Assessment 

Phase 3: Planning and Development

Phase 4: Three-Year Trial Period

Phase 5: Permanent Provider Status

Phase 1: Orientation

Before an organization commits to undertaking an independently conducted feasibility study, the following criteria and conditions should exist:

* The organization must be a nonprofit 501(c)(3) organization or public agency. (Note: The legislation also allows for a four-year demonstration for up to 10 for-profit entities.)

* The organization should have a history of providing services to the elderly.

* An adequate market must exist, and the organization should have a dominant presence in services to the elderly in the area.

* The leadership of the organization should be committed to the PACE model.

* The state Medicaid agency must have an interest in exploring PACE development.

If the potential location for a PACE site does not have sufficient elderly population eligible for nursing home placement, it is unlikely that a feasibility study will show that a PACE site can be financially viable. Alternatively, even if the demographics are positive, an organization that has no history of serving the elderly is not likely to successfully market itself as a PACE provider. However, if an organization can meet all of these initial criteria, then undertaking an in-depth feasibility study makes sense.

Phase 2: Feasibility Assessment

The feasibility study involves site visits, interviews with senior management and key staff of the visited organization, the submission of its budget information and the development of a proposed capitation rate by the state Medicaid agency. During the feasibility assessment, the following criteria guide the determination of whether an organization should move forward in developing a PACE program:

* Adequate demand for PACE services is shown by demographic analyses and a survey of potential referral sources. Experience has shown that a viable PACE site should achieve a break-even census of approximately 100 participants within two years of program startup and a total census high enough to generate a risk reserve fund within the next several years.

* The organization has sufficient funding for program development and facility construction/renovation, as well as to assure program solvency. Demonstration sites have experienced capital costs in the $250,000 to $500,000 range, depending upon the extent of renovations required and the amount of center equipment that must be purchased. If the site elects to provide transportation, vans will also have to be purchased. Typically, PACE projects have incurred startup costs of $2 to $3 million.

* The state's Medicaid agency must support PACE development, be prepared to include PACE as an option in the state Medicaid plan and be willing to propose an adequate preliminary capitation rate.

* A plan for developing PACE services has been produced. This will include planning for ADHC services, as well as for transportation, home care, home chore assistance and institutional services, such as hospital and nursing home care.

As discussed in Part I of this series, HCFA's current Medicare risk adjustment methodology would underpay PACE providers because inpatient hospitalization is used as the measure of acuity when PACE reduces hospitalization. Therefore, the financial pro formas of the feasibility study will take into account the uncertainty about the type of risk adjustment that will be applied to the Medicare capitation in the future.

The completed feasibility study will include demographic and financial analyses and recommendations concerning whether and how the organization should proceed with PACE development. The decision-making process should include state Medicaid officials.

Organizations pursuing PACE feasibility should consider joining the National PACE Association (NPA) as Associate Members.

Phase 3: Planning and Development

The process of applying to HCFA for permanent provider status is an entirely new one. HCFA published regulations in November 1999. They are available at HCFA's Web site, www.hcfa.gov, along with a Pace Provider application. During the planning and development phase, the organization prepares and submits a PACE Provider Application, first to the state for its approval, and then to HCFA.

In addition to the application, tasks that must be completed prior to final approval and beginning operations include locating and renovating adult day health center space; developing a marketing plan with a strategy for enrolling participants; recruiting and orienting staff; developing key service components of the PACE model (adult day healthcare, primary care and home care); and securing contracts for inpatient and specialty services. Essentially, the PACE provider must be fully staffed and ready to care for participants in order to receive approval.

Prior to HCFA approval, representatives of the state's Medicaid agency will make a site-readiness visit. The developing PACE organization must also work with HCFA and the state Medic-aid agency to respond to any questions raised by HCFA during the application process, and to establish a three-way program agreement for the Medicare and Medicaid capitation arrangement.

Experience has shown that developing the range of PACE services takes about one year, and that it takes about the same length of time to transition an existing day center to the program as it does to start one if none exists.

Phase 4: Three-Year Trial Period of Full-Risk Medicare and Medicaid Capitation

When the provider application is approved, the organization begins operations at full financial risk. This means that all Medicare and Medicaid benefits are immediately covered by the program, including, but not limited to adult day healthcare, primary care, in-home supportive services, drugs, specialists, nursing home care, hospital services, skilled home care, laboratory assessments and other diagnostic tests.

During this period, an effective functioning PACE team is assessing participants on a regular basis, developing treatment plans and directly delivering most services, ensuring that participants requiring hospitalization are admitted to the hospital by their PACE physician and discharged through the team.

The key to success during this trial period is strong, dedicated leadership to create and motivate a team willing to take risks and change practice patterns. Given these challenges, developing PACE sites routinely seek technical assistance from the Technical Assistance Centers through the trial period.

Phase 5: Permanent Provider Status

After a successful trial period, the project will operate as a permanent PACE provider. The project continues to grow and operate at full risk for all services. HCFA reviews take place at least every two years. PACE organizations will need to continue to increase census and manage costs to remain viable. Importantly, the positive outcomes of the PACE demonstration do, in fact, offer assurance that this is a long-term community-based model that works.

Becoming a PACE provider is a major undertaking, requiring significant organizational resources and time. Nevertheless, the PACE model can have a major impact on long-term care delivery in this country. Long-term care facilities interested in learning more can visit the NPA Web site at www.natlpaceassn.org.

Jade Gong is a senior advisor to the Health Dimensions Consulting Group in St. Paul, Minn. Susan McCarthy is the director of the Technical Assistance Center at Community Care Organization's PACE program in Milwaukee, Wis.