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Zip Codes under Consideration

Factor 23231 23005 23803 23225 23227 Relative

Scoring

Elderly Population Density 2,817 1,858 5,307 5,366 4,328 6

Elderly Population under

Poverty

285 128 806 593 330 10

Elderly Population with

Eligible

45 10 117 70 48 12

Proximity to Current PACE

Center (miles)

12.8 22.1 31.5 8.9 11 5

Mean Gasoline Prices

1.93 1.95 1.87 1.91 1.91 1

Proximity to Closest

Hospital (miles)

9.9 11.2 24.1 1.7 2.6 2

Proximity to Closest

Interstate Highway (miles)

1.9 1.8 4 3.2 1.1 4

a. Calculate the weight of each factor, and then determine the new

location for a PACE Center based on the composite factor scores.

Assume that the most desirable outcome is the largest value for the

elderly population demographic factors, and the smallest value for

proximity factors and gasoline prices.

Assume that for the location selected in part (a), management must

determine if a new PACE Center is financially feasible. Initial fixed

costs for this location include \$500,000 for investment in new

equipment, \$500,000 for transportation, and \$75,000 for an annual

building lease. Annual salary expense for full-time staff is estimated at

\$700,930. The cost for part-time staff members, including physical

therapists, chaplains, and dietitians, is semivariable. This expense is

\$80,724 until enrollment in the PACE Center exceeds sixty members,

at which time the cost will increase to \$141,924. Variable costs are

estimated at \$3,500 per member per month and include costs for

medical services, home care aides, medications, van drivers, gas,

and food. Combined Medicaid/Medicare revenue is estimated at

\$5,000 per member per month. The PACE Center is considered to be

at full capacity with one hundred forty members.

b. Construct a table that calculates the total costs, revenues, and profits

for a new PACE Center for enrollment levels of twenty to one hundred

forty members, in increments of twenty.

c. What is the break-even enrollment level for the first year of operation?

Assume that in year 2 of the PACE Center’s operations, fixed costs

will be \$75,000 for a building lease, \$80,000 in miscellaneous

equipment maintenance, and \$714,950 in full-time salaries (adjusted

for inflation). The semivariable costs for part-time staff should also be

adjusted for a 2 percent inflation rate. As coordination of care

improves, the cost per member per month is expected to decrease by

\$200, and the combined Medicaid/Medicare per member per month

rate is expected to fall to \$4,500.

d. Construct a new table that calculates the total costs, revenues, and

profits for the PACE Center in year 2 for enrollment levels of twenty to

one hundred forty members, in increments of twenty.

e. What is the break-even enrollment level for the second year of

operation?

f. Based on this analysis, would you support opening a PACE Center in

the selected location? Why? What other data may be helpful in

making this decision?