Financing Options for CHC Expansion and Transformation LPCA October 2014 Primary Care Development Corporation Slide 1
Agenda • About PCDC • Sources of Capital • Debt: Myths v. Realities • Planning a Project “Debt is too • “5 + 1”: What, when, complicated” why, where, who…and how much? “I’ll never qualify” • Executing a Project “We’ll go bankrupt” NMTC Slide 2
Capital Financing Options for CHC Expansion and Transformation ABOUT PCDC Slide 3
PCDC Profile Primary Care Development Corporation : A not-for-profit CDFI founded in 1993 with the mission … • …to e xpand and transform primary care in underserved communities in order to improve health outcomes, lower health costs and reduce disparities. • …executed through 3 programs : Key Accomplishments: Promotion of Expansion of • $495 million invested in 100+ primary care Primary Care Primary Care projects serving 900,000 individuals ( Policy and ( Capital • Advocacy ) Investment ) 850,000 square feet improved • 7,000 healthcare workers trained • 900 healthcare organizations strengthened Transformation of • 4,600 jobs created/retained in low-income Primary Care ( Performance communities Improvement ) Slide 4
PCDC’s Clients • Capital Advisory Services and Performance Improvement TA: 42 States (including DC and Puerto Rico) • National Administrator for HHS Loan Guarantee Program for CHCs (HRSA): program currently active in 11 states Slide 5
Who PCDC Invests In Community Health Care Exclusively Community-Based Health Centers Predominantly Slide 6
National Trends • Staffing • Consolidation • Expansion (including interstate) • Vertical integration • Renovation • Management • Uncertainty – Impact of ACA – 330 Cliff – Payment reform Slide 7
Capital Financing Options for CHC Expansion and Transformation PLANNING A CAPITAL PROJECT Slide 8
Planning a Project Scope: What do you need? • Expansion of… – services: dental, pediatrics, behavioral health, etc. – locations: new sites • Renovation of Property, plant and equipment • EHR implementation or replacement • Other (mobile vans, IT infrastructure (e.g. accounting software), etc.) Slide 9
Planning a Project Considerations… • Scope: What is the best solution for your clients – What services do your clients need (dental v. behavioral health) – How are services best delivered (e.g., clients coming to a fixed site, or mobile services going to them) – What are state’s compensation policies • Timetables: When do you want/need to service – Is your timing driven by external factors (e.g. expiry of a VAP grant) – How soon do you want/need to expand services – Any seasonal impacts on construction Slide 10
Planning a Project Considerations… • Resources: Who will help execute the project – Does the project’s scope exceed in -house capacity – For larger projects, experienced consultants essential for success – Early agreement by BoD – Sources of efficiencies become important • Budget: Project costs and projected sources of capital – Investment costs: typically more obvious, frequently upfront – Operating costs: less obvious, usually paid out of operations – Key: thorough planning Slide 11
Planning a Project: The Project Budget Project Costs Property Acquisition Appraisal & Environmental Assessment Real Estate Legal Fees Considerations Construction/Renovation Site Development & Environmental Facility Size Renovation &/or New Construction Design & Construction Contingencies Lease vs. Buy Moveable Equipment & Furniture New Construction vs. Renovation Professional Services & Fees Development/Project Manager Green vs. Traditional Architect/Engineer/Interior Designer Surveys, Permits & Inspection Fees 1 st Costs vs. Life Cycle Costs Liability& Builders Risk Insurance Financial Feasibility Consultant Regulatory Approval Costs Legal Fees & Title Insurance Soft Cost Contingency Construction Period Interest Financing Costs Slide 12
Capital Financing Options for CHC Expansion and Transformation EXECUTING A CAPITAL PROJECT BEFORE AFTER Slide 13
Executing a Project Key resources… • Management: – Who will be key point person to oversee project – Manage expectations, especially of clinicians and middle-management • Board: – BoD concurrence and buy-in are critical – Transparency: Regular updates, whether requested or not – “Success has many fathers, failure is an orphan” • Key External Resources – CHC “friends and family”: community leaders, politicians, other associates – Project-related persons: Architect, Owners Rep, Attorneys – HRSA!!! Slide 14
Executing a Project – Maximizing Your Capital – FACILITY OPENING CONSTRUCTION DESIGN PLANNING Schematic Design Construction Design Development Documents 3 - 12 Months 3 – 6 Months 6 - 18 Months 1 - 3 Months Slide 15
Maximizing Your Capital – Project Planning & Development Owner’s Decision -Making: When & What FACILITY OPENING CONSTRUCTION DESIGN PLANNING Schematic Construction Design Development Design Documents Internal Team Formation Staff Recruitment OK New Staff Hiring Business Plan Approval Construction Documents Field Conditions Space Program Approval Schematic Design OK Design Development OK OK Response Budget / Schedule Set Initial Project Budget Confirm Budget Update Set Initial Funding Plan – Financing OK Refined Funding Plan Fundraising Project & Start-up Capital & Fundraising Key Consultant Procurement – FFE & Key Consultant Selection Consultant Selection Contractor Selection Selection Supplies Initial Project Schedule Update Schedule Confirm Schedule Monitor Schedule Site Selection Site Control Site Acquisition Relocation Planning Regulatory Filings New Operating/Clinical Processes Slide 16
Maximizing Your Capital – Project Planning & Development Project Team Development: When & Who FACILITY OPENING CONSTRUCTION DESIGN PLANNING Schematic Construction Design Development Design Documents Project Equipment/Furniture Architect/Engineer Contractor Relocation Advisor Systems Trainers Manager Planner Real Estate Owner Systems Experts Marketing/Outreach Cost Estimator Staff Trainers Advisor in Telecom, IT, Security Advisor Real Estate Recruitment LEED Advisor Other Technical Experts Attorney Advisor Staff Regulatory Orientation/Training Advisor Advisor Funding Advisor/Lender Slide 17
Maximizing Your Capital – Project Planning & Development Getting to Success: Be Mindful of Cost Impact of Changes FACILITY OPENING CONSTRUCTION DESIGN PLANNING Schematic Design Construction Design Development Documents $ $ $ $ $ $ Slide 19
Capital Financing Options for CHC Expansion and Transformation SOURCES OF CAPITAL Slide 20
Sources of Capital • No/Low Cost Capital: – Grants: • Government: HRSA, VAP, NAP, local programs, etc. • Foundations • Commercial enterprises – Subvention Agreements Slide 21
Sources of Capital • Considerations: All that glitters… – Timing…. • Too soon: “Use it or lose it” • Too late: I got the grant, but it took so long I lost the property (or van, etc.) – Size Matters: this covers half of what I need…now what??!!! – Usage Restrictions – Grant structures (e.g. Reimbursement v. Upfront funding) – The cost of waiting… • To patients: another year without [YOU FILL IN] • Of property, project, etc. Slide 22
Funding Landscape Grant Opportunities • 100% grant funding is unlikely • Funders’ current focus – Outcomes improvement – Health care spending reductions – Funding leverage • Expect only limited federal dollars for capital • Read grant notices carefully to see if any capital uses are included Slide 23
Capital Financing Options for CHC Expansion and Transformation DEBT: MYTHS V. REALITIES Slide 24
Debt: Why bother? • Advances your project quickly • Attracts funds from other sources • Mitigates cash flow lags from other funders • Preserves cash on hand I’ve taken advantage of windows of opportunity by borrowing money & not waiting for grants. Pennsylvania FQHC CEO Slide 25
Debt might be ok in principle, but… • “Unlike other FQHCs, we don’t like debt” • “We wouldn’t qualify for a loan” • “We’ve never been profitable” • “There weren’t enough grant funds to finish the project” • “We didn’t do the project because we didn’t get the grant” • “We need to wait [x] years until the fundraising is finished” Slide 27
From the perspective of… • Traditional Lenders: FQHCs typically have… – Non-traditional business models – High A/R balances, low turnover rates – Unusual clientele – Unreliable secondary revenue sources …And so are questionable credit risks • FQHCs: Traditional lenders typically don’t understand… – The FQHC business model – Reimbursement sources, including Medicaid, wrap-arounds, etc. – The FQHC mission in the community – The role of the 330 Grant and other grants …And so assume they cannot (or should not) borrow cash Slide 28
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