Strategic Planning for Capital Project Success. Jonathan Chapman Director, CHC Advisory Services January 8, 2019

Transcription

1 Strategic Planning for Capital Project Success Jonathan Chapman Director, CHC Advisory Services January 8, 2019

2 Capital Link Launched in 1995, nonprofit, HRSA national cooperative partner Offices in CA, CO, FL, MA, MO, and WV Over $1.1 billion in financing for at least 230 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 What to Plan? How to Plan? Review the Capital Link Strategic Planning Toolkit Know your financial and operational health Determine debt capacity Identify sources and types of financing Tools and Resources 3

4 Introduction to Strategic Planning 4

5 Introduction to Strategic Planning 5

6 Introduction to Strategic Planning 6

7 Introduction to Strategic Planning Mission and Values Who are we? What do we want to be? Are we ready? Self- Assessment Environmental Scan What conditions are affecting us now? What about the future? What are our possible futures? How might these futures impact us? Impact Evaluation Goal Setting What must we achieve for success? What are the steps to take? Measures of success? Action Plan Mission Reaffirmation and Sustainability Capital Link s Strategic Planning Toolkit 7

8 Self-Assessment 1. Readiness Checklist 2. Defining Roles 3. Vision, Mission, and Values Review 4. History and Accomplishments 5. SWOT Analysis 6. Leadership Assessment 7. Financial Capacity Review 8

9 Financial Capacity Review Compare to standards, peers, yourself Patient/Visit/Service Growth Financial Sustainability Operating Margin Days Cash on Hand Cost/Revenue per Patient/Visit Provider Productivity 9

10 Financial and Operational Health 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) Productivity is the basis for revenue generation 10

11 Financial and Operational Health 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 11

12 Financial Feasibility and Sustainability Historical Performance (3 years audited) 5-7 Year Forecast Project Budget Sources and Uses Financing Structure 12

13 Business Plan Outline Executive Summary History and Operations Market Description and Analysis Management and Governance The Capital Project Financial Operations and Pro Forma Appendix 13

14 Assessing Risk at the Edges 14

15 Determine Debt Capacity 15

16 Determine Debt Capacity 16

17 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 17

18 Financing Components Financing Components Considerations Grants/Gifts New Market Tax Credits (NMTC) State Funds US Department of Agriculture (USDA) Foundations Bank Loan Tax-Exempt Bonds Cash Reserves HRSA Loan Guarantee 18

19 New Markets Tax Credits Program Benefit from Private Investment that is NOT Repaid Provide ~20% of Total Project Cost Project Eligibility Community Development Entity (CDE) Application and Awards 19

20 HRSA Loan Guarantee Program was only available for 330 funded health centers Federal guarantee on 80% of the principal amount of loans made by non-federal lenders for the construction, renovation and modernization of medical facilities owned and operated by Section 330 health centers May be a limit on percentage of principal used for refinancing Credit enhancement like the HRSA LGP can help a non-federal lender to approve a loan application they may have otherwise not approved Has been combined with NMTC but can not combined with tax exempt bonds While there has been no limit on loan size, the HRSA LGP typically guaranteed loans for projects of $5 - $7 million or more. Congress recently put $20 million dollars into a subsidy for loan loss reserve for the HRSA LGP so now the HRSA LGP can guarantee up to about $890 million of new loans. HRSA is currently working to streamline its administrative and documentation processes and anticipates a spring 2019 roll-out. 20

21 Self-Assessment 1. Readiness Checklist 2. Defining Roles 3. Vision, Mission, and Values Review 4. History and Accomplishments 5. SWOT Analysis 6. Leadership Assessment 7. Financial Capacity Review 8. Operational Readiness & Quality Assessment 9. Physical Space Assessment 10.Technology Assessment 21

22 Environmental Scan 1. Issue Inventory 2. Issue Research 3. Web Search 4. Stakeholder Input 5. Market Assessment 22

23 Why a Market Assessment? Service Area Definition and Examination Selected, Relevant Data Resources Back of the Envelope Planning 23

24 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 24

25 Capital Link s Typical Assessment - 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 25

26 Environmental Scan 1. Issue Inventory 2. Issue Research 3. Web Search 4. Stakeholder Input 5. Market Assessment 6. Possibilities Inventory 26

27 Impact Evaluation 1. Impact Inventory 2. Impact Assessment 3. Impact Catalog 27

28 Goal Setting 1. Establishing Strategic Goals 2. Establishing Objectives Related to Strategic Goals 28

29 Action Plan 1. Back to the Future 2. Immediate Action Plan 3. Contingent Action Plan 4. Community Action Resource 5. Sustaining Action Summary 6. Reaffirm Your Vision, Mission, and Mission 29

30 Determining Priorities MISSION FUNDING CAPACITY 30

31 Determining Priorities 31

32 Establishing Objectives 32

33 When to Plan? 33

34 But Where is the Strategic Plan? 34

35 Sustaining Action Summary You ve Done the Work! The Strategic Planning Process will be Further Developed, Documented, and Disseminated Staff will Establish Objectives and Reporting Process The Strategic Plan is Now a Tool to Help You o Communicate, o Advocate, and o Realize Goals! This is your plan! 35

36 Crossing the Finish Line 36

37 Reaffirm Your Vision, Mission, and Values 37

38 Celebrating the Finish Line 38

39 Word of Guidance: Post-Race Know your process, Appreciate your effort, Celebrate your finish, And anticipate the next Race! 39

40 Scenario Modeling 40

41 Why Scenario Planning? Complexity (or Lack Thereof) Tests Assumptions Requires Much Less Time than Pilot Programs Lower Costs than Larger Scale Planning and Execution Hints at Consequences Enhances Our Thought & Decision Processes Reduces (Publicly) Reactionary Responses Does Not Have to be Precise to be Right 41

42 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 42

43 Expansion Considerations An organization wants to increase its 20% low income population market share by an additional 20%. How many more patients, visits, providers will this require? 20% x 1.20 = 24% 24% x 50,000 LI Pop = 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 43

44 Expansion Considerations Estimated Square Footage/Funding Needed to Treat New Patients HYPOTHETICAL Using estimated square feet per provider as basis 1,500 5 FTE x 1,500 sq. ft. per = 7,500 total sq ft Using estimated cost per square foot as basis $ ,500 sq. ft. x $150/sq. ft. = ~$1.12M estimated cost

45 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 $1,120,000 $ 240,000 $ 240,000 $1,600,000?? 45

46 DIY Resources Capital Link s Strategic Planning & Benchmarking Toolkits Debt Capacity & Revenue Modeling Tools Capital Planning & Financing Guides Business Plan and Work Plan Manuals Cost of Care Trends & Snapshot Reports Learning Collaboratives and Webinars 46

47 Strategic Planning Toolkit Download a free copy online: 47

48 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 48