www.thescanfoundation.org developing pricing for integrated care and community-based services...

www.TheSCANFoundation.org

Developing Pricing for Integrated Care and Community-Based Services

Featuring:

Erin Westphal, Program OfficerKaren Scheboth, Director of Grants Administration

Eric Thai, Director of Finance


Webinar Agenda

• About The SCAN Foundation

• New Opportunities for CBOs

• Pricing Methodology

• Pricing Guide Overview

• Types of Costs

• Example Walkthrough

• Q&A


Mission: To advance the development of a sustainable continuum of quality care for seniors.

Our Mission and Vision

Vision: A society where seniors receive medical treatment and human services that are integrated in the setting most appropriate to their needs and with the greatest likelihood of a healthy, independent life.


New Opportunities for CBOsWhy Pricing Matters Now

Changes in the organization, financing, and delivery of health care provide new opportunities (& challenges)

Duals Integration Pilots & Managed Long-term Services and Supports Health Plans responsible for organizing community-based LTSS Limited experience Buy it or build it option

Hospital Readmissions Reduction Programs Care Transition Programs

Integrated Care Models Accountable Care Organizations, Health Homes


Pricing is an Art and a Science

1. Determine your Pricing Structure

2. Estimate your Value

3. Calculate your Cost

4. Analyze your Competitors

5. Set a Price


Pricing Guide Contents

• Section 1: Pricing Structures

• Section 2: Setting a Price

• Section 3: Other Pricing Strategies

• Appendix of Additional Resources

Includes examples based on CBOsIncludes examples based on CBOs


Section 1: Pricing Structures


Section 1: Payment Models


Fixed vs. Variable Costs

• Fixed costs are not affected by the volume of services or goods produced.

– Examples include:

• Supervisor salaries

• Additional office space

• Additional equipment

• Variable costs will increase or decrease with changes in volume.

– Examples include:

• Hourly wages of nurses or case managers

• Supplies used in performing services

• Fuel for transportation vans

• Supplies needed to prepare home-delivered meals


Fee For Service Model

$

Volume of Services

Total Revenues

$

Volume of Services

Total Costs

Break-even Q

$

Volume of Services

Total Costs

Break-even Q

Revenues Higher Fixed Costs Lower Fixed Costs

Total revenues increase as volume

increases.

With higher fixed costs, a higher quantity is needed

to become profitable

Lower fixed costs will yield profits with lower

quantities

Profit

Loss

Total Revenues Total Revenues

Profit

Loss


Capitation Model

$

Volume of Services

Total Revenues

$

Volume of Services

Total Revenues

Total Costs

Break-even Q

$

Volume of Services

Total Revenues

Total Costs

Break-even Q

Revenues Higher Fixed Costs Lower Fixed Costs

Total revenues are constant as volume

increases.

With higher fixed costs and lower variable costs, profits are sustained for

larger quantities

Higher variable costs and lower fixed costs will

result in losses with lower utilization

Profit

Loss

Profit

Loss


Section 2: Setting a Price


Determining Value

Reference Values can be:-Competitor prices-Customer’s cost of doing it themselves

Sources of Differentiation Value include:-Cost savings-Convenience and time savings-Brand recognition-Reliability-Customer service-Performance-Quality


Determining Costs

Categories of Costs:

1.Fixed or Variable

2.Direct or Indirect

3.Relevant or Sunk

Direct Indirect

Fixed Relevant Relevant

Sunk Sunk

Variable Relevant Relevant


Direct vs. Indirect Expenses

Indirect Expenses apply to multiple projects so it is harder to quantify and trace them to individual projects.

Examples:- Rent- Utilities- Finance staff- IT

Key Difference is Ease of Allocation

Indirect Cost Rate is an inaccurate shortcut

Direct Expenses apply to a specific project and can be easily traced to the project.


Relevant vs. Sunk CostsRelevant vs. Sunk CostsAnother categorization of expenses

Sunk Costs are “existing” expenses that will be incurred regardless of whether or not the service is offered.

Examples:- Existing rent- CEO salary- Finance staff- Human resources

DO NOT INCLUDE SUNK COSTS IN FINANCIAL PLANNING

Relevant Costs are “future” expenses that will be incurred only if the service line is offered.


Section 2: Setting a PriceSunk Costs Fallacy & Full Cost Recovery


Calculating Cost

Pricing Guide includes a Cost per Unit calculation tool

Pricing Guide includes a Cost per Unit calculation tool

1) Determine Relevant vs. Sunk Costs

2) Exclude Sunk Costs

3) Determine Fixed vs. Variable Costs

4) Allocate Direct and Indirect expenses

5) Estimate quantity

6) Calculate cost per unit


Putting it All Together to Set a Price


• Bilateral negotiation

• In-person visits

• Requires 10 additional care managers

• Individuals receiving care management are healthier and require less hospitalizations

Example – Care Managers

A CBO is offering care management services to a health plan


EXPENSE

Office space

Care managers

Supplies

Mileage

Supervisors

Training

Human Resources

Finance

Tracking System (IT)

Example – Determine Relevant vs. Sunk Costs

SUNK?

Relevant

Relevant

Relevant

Relevant

Relevant

Relevant

Sunk

Sunk

Sunk


Example – Determine Fixed vs. Variable Costs

EXPENSE

Office space

Care managers

Supplies

Mileage

Supervisors

Training

TYPE

Fixed

Variable

Variable

Variable

Fixed

Variable


Example – Allocate Project Costs

EXPENSE TYPE

Office space Fixed

Care managers Variable

Supplies Variable

Mileage Variable

Supervisors Fixed

Training Variable

ALLOCATION

$20,000 per year

$30 per hour

$500 per care manager per year

$10 per visit

1.5 supervisors = $90,000 per year

$500 per care manager per year


Example – Estimate Quantity and Calculate Cost per Unit

• FFS payment model• 1.5 hours per visit (including travel and reporting)• 1,000 members with monthly visits• 12,000 visits per year• 10 care managers

EXPENSE TOTAL COSTS Calculation COST PER VISIT

$65.00

Office space $20,000 per year / 12,000 visits $1.66

Care managers $30 per hour X 1.5 hours $45.00

Supplies $500 per mgr/yr X 10 / 12,000 visits $0.42

Mileage $10 per visit X 1 visit $10.00

Supervisors $90,000 per year / 12,000 visits $7.50

Training $500 per mgr/yr X 10 / 12,000 visits $0.42


• Reference Value

– Telephonic care management = $60 per call

• Differentiation Value

– In-person care management reduces hospital admissions by 5% over telephonic

• Average hospital admission costs $10,000

• Total cost savings per year = $500,000 (1,000 members X 5% X $10,000)

• Differentiation Value per visit = $41.67 ($500,000 / 12,000 visits)

• Value = $101.67

Example – Estimate Your Value


Example – Set a Price

$101.67

$65.00


Questions


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