Financing Options for CHC Expansion and Transformation LPCA - - PowerPoint PPT Presentation
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
Slide 1
LPCA
October 2014 Primary Care Development Corporation
Slide 2
Agenda
why, where, who…and how much?
complicated”
Slide 3
Capital Financing Options for CHC Expansion and Transformation
Slide 4
PCDC Profile
Primary Care Development Corporation: A not-for-profit CDFI founded in 1993 with the mission…
communities in order to improve health outcomes, lower health costs and reduce disparities.
Promotion of Primary Care (Policy and Advocacy) Transformation of Primary Care (Performance Improvement) Expansion of Primary Care (Capital Investment)
Key Accomplishments:
projects serving 900,000 individuals
communities
Slide 5
PCDC’s Clients
and Puerto Rico)
currently active in 11 states
Slide 6
Who PCDC Invests In
Community Health Care Exclusively Community-Based Health Centers Predominantly
Slide 7
National Trends
– Impact of ACA – 330 Cliff – Payment reform
Slide 8
Capital Financing Options for CHC Expansion and Transformation
Slide 9
Planning a Project
Scope: What do you need?
– services: dental, pediatrics, behavioral health, etc. – locations: new sites
etc.)
Slide 10
Planning a Project
Considerations…
– 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
– 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 11
Planning a Project
Considerations…
– 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
– Investment costs: typically more obvious, frequently upfront – Operating costs: less obvious, usually paid out of operations – Key: thorough planning
Slide 12
Planning a Project: The Project Budget
Considerations
Project Costs
Property Acquisition Appraisal & Environmental Assessment Real Estate Legal Fees Construction/Renovation Site Development & Environmental Renovation &/or New Construction Design & Construction Contingencies Moveable Equipment & Furniture Professional Services & Fees Development/Project Manager Architect/Engineer/Interior Designer Surveys, Permits & Inspection Fees Liability& Builders Risk Insurance Financial Feasibility Consultant Regulatory Approval Costs Legal Fees & Title Insurance Soft Cost Contingency Construction Period Interest Financing Costs
Slide 13
Capital Financing Options for CHC Expansion and Transformation
BEFORE AFTER
Slide 14
Executing a Project
Key resources…
– Who will be key point person to oversee project – Manage expectations, especially of clinicians and middle-management
– BoD concurrence and buy-in are critical – Transparency: Regular updates, whether requested or not – “Success has many fathers, failure is an orphan”
– CHC “friends and family”: community leaders, politicians, other associates – Project-related persons: Architect, Owners Rep, Attorneys – HRSA!!!
Slide 15
Executing a Project – Maximizing Your Capital –
FACILITY OPENING CONSTRUCTION DESIGN PLANNING Schematic Design Design Development Construction Documents 3 - 12 Months 3 – 6 Months 6 - 18 Months 1 - 3 Months
Slide 16
Maximizing Your Capital – Project Planning & Development Owner’s Decision-Making: When & What
FACILITY OPENING CONSTRUCTION DESIGN PLANNING
Schematic Design Design Development Construction Documents Internal Team Formation Staff Recruitment OK New Staff Hiring Business Plan Approval Space Program Approval Schematic Design OK Design Development OK Construction Documents OK Field Conditions Response Set Initial Project Budget Budget / Schedule Update Confirm Budget Set Initial Funding Plan – Project & Start-up Capital Refined Funding Plan Fundraising Financing OK & Fundraising Key Consultant Selection Key Consultant Selection Consultant Selection Contractor Selection Procurement – FFE & 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 17
Maximizing Your Capital – Project Planning & Development Project Team Development: When & Who
FACILITY OPENING CONSTRUCTION DESIGN PLANNING Schematic Design Design Development Construction Documents
Project Manager Architect/Engineer Equipment/Furniture Planner Contractor Relocation Advisor Systems Trainers Real Estate Advisor Cost Estimator Owner Systems Experts in Telecom, IT, Security Marketing/Outreach Advisor Staff Trainers Real Estate Attorney LEED Advisor Other Technical Experts Recruitment Advisor Regulatory Advisor Staff Orientation/Training Advisor Funding Advisor/Lender
Slide 19
Maximizing Your Capital – Project Planning & Development Getting to Success: Be Mindful of Cost Impact of Changes
FACILITY OPENING CONSTRUCTION DESIGN PLANNING Schematic Design Design Development Construction Documents
$
$
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Capital Financing Options for CHC Expansion and Transformation
Slide 21
Sources of Capital
– Grants:
– Subvention Agreements
Slide 22
Sources of Capital
– Timing….
(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…
Slide 23
Funding Landscape Grant Opportunities
– Outcomes improvement – Health care spending reductions – Funding leverage
capital uses are included
Slide 24
Capital Financing Options for CHC Expansion and Transformation
Slide 25
Debt: Why bother?
I’ve taken advantage
by borrowing money & not waiting for grants.
Pennsylvania FQHC CEO
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Debt might be ok in principle, but…
grant”
finished”
Slide 28
From the perspective of…
– Non-traditional business models – High A/R balances, low turnover rates – Unusual clientele – Unreliable secondary revenue sources …And so are questionable credit risks
– 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 29
Suppose I was interested… What FQHCs need for loans
– Budget, Marketing, Operations
– Fundamental mission requirement – Fundamental business model
– Net income ≠ Cash Flow
Slide 30
FQHC Requirements for Borrowing
– 3-5 years history – Reasonable explanations for downturns (e.g. EHR)
experience
– Experience within management team – Experienced representatives / consultants retained
support
Slide 31
The Language of Borrowing
assets / current liabs)
Interest, Depreciation and Amortization)
Ratio (DSCR; measure of ability to pay P&I)
– Debt / Net Assets – Debt / Total Assets – Debt / EBIDA
Slide 32
Maximizing Your Capital – Debt Capacity
Loan Assumptions: $2.7MM 10-year loan, 5.25% interest, fully amortizing
BUSINESS CASE 2012 YEAR 1 YEAR 2 YEAR 3 Total Visits 167,318 193,235 199,032 205,003 Total Revenues 23,725,506 32,194,657 33,193,350 34,223,673 Total Expenses 22,578,783 28,479,733 29,507,640 30,461,466 Operating Cash Flow 1,146,723 3,714,925 3,685,710 3,762,207 Operating Margin 4.8% 11.5% 11.1% 11.0% Total Debt Service 181,912 1,661,024 1,623,309 1,585,925 Net Operating Income 964,811 2,053,901 2,062,401 2,176,282 Debt Service Coverage Ratio 6.30 2.24 2.27 2.37
FOR ILLUSTRATIVE PURPOSES ONLY
Slide 33
Debt Capacity: Projection Considerations
– Recent trends? – Waiting lists?
– What % of total costs… 50%... 60%... 70%... More?
– What is average rate of visits / provider? – What is provider makeup…physicians, mid-levels, etc? – What are billing / collection procedures?
Slide 34
Maximizing Your Capital Credit Enhancement
Sources
Costs/Benefits
Information on Availability
Facilities Development Guarantee
Slide 36
How PCDC Has Helped FQHCs Access Capital
Project: Development of Replacement Facility for Boriken Neighborhood Health Center Location: Harlem, Manhattan, NY PCDC Loans:
conjunction with $26,000,000 New Markets Tax Credit Facility
Slide 37
How PCDC Can Help You Access Capital
We offer short-term loans for:
committed sources
equipment, and mobile van acquisition
Slide 38
How PCDC Can Help You Access Capital
We offer long-term loans for:
constructed facilities
existing centers funds
Slide 39
New Markets Tax Credits
⁺ Equity investment can contribute 25%+ of project budget ⁺ Interest only with a favorable blended interest rate ⁺ Allows more flexible standards for LTV and DSCR ⁺ Can leverage grants and cash reserves to maximize equity from tax credits ⁺ Debt forgiveness potential ₋ Project must be in qualified area or benefit targeted population ₋ Competitive because scarce ₋ High upfront costs due to complexity ₋ Best suited to $5+ million projects ₋ 7 year term not pre-payable ₋ May require sinking fund and reserves
Slide 40
New Markets Tax Credits
Slide 41
What Are Your Capital Needs? Questions & Discussion
Slide 42
William J. O’Brien
Chief Lending Officer 212-437-3950 wobrien@pcdc.org
45 Broadway, 5th Floor New York, NY 10006 www.pcdc.org