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
Two ADLs & Self-Care
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
($/gallon regular unleaded)
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?
