1

MARKET FEASIBILITY STUDY

CHILD & ADOLESCENT ACUTE PSYCHIATRIC INTERVENTION SERVICE

BARTLETT REGIONAL HOSPITAL JUNEAU, ALASKA

PREPARED BY DIAMOND HEALTHCARE CORPORATION

JUNE, 2005

2

Introduction, Purpose and Methodology

Bartlett Regional Hospital (“BRH”) is a fifty-five bed acute care hospital located in Juneau, Alaska. BRH provides psychiatric inpatient and outpatient services for adults and operates Juneau Recovery Hospital, a sixteen bed chemical dependency treatment facility. BRH is the only hospital in the Southeast region of Alaska that provides acute psychiatric inpatient and substance abuse rehabilitation services.

Diamond Healthcare Corporation (“DHC”) is a national behavioral health management and

consulting firm headquartered in Richmond, Virginia. BRH participates in a community healthcare needs assessment every five years. The

Strategic Planning Research Summary was completed in October, 2003. “The survey was designed to gather information about the hospital’s strengths and weaknesses, and to ascertain participant’s thoughts about the future direction of the hospital.” Overall, between 70 and 90 percent of those participating in the survey agreed that four behavioral health initiatives services should be undertaken:

• Mental Health Community Integration • Regional Mental Health • Adolescent Services • Grief Support

As a result of the survey findings the Board of Directors of BRH engaged DHC to conduct a

market study to determine the need and feasibility of developing a child and adolescent acute psychiatric intervention service.

DHC’s proposal to conduct the feasibility study consisted of six components:

• Part A – An introduction to the project including background information on the hospital, its existing behavioral health services and description of the methodology used in the study.

• Part B – An overview of industry trends in the provision of behavioral health services for children and adolescents as well as the current operating environment in the primary and secondary service areas.

3

• Part C – An analysis of the potential demand in the market for children and adolescent acute psychiatric inpatient services. Market need and potential demand will be examined for the primary and secondary market segments. The demand estimate will be adjusted to reflect potential competitors for each market segment.

• Part D – The hospital’s operating environment will be evaluated to determine how a new psychiatric service might best fit into the current system. This analysis will include a review of availability of staff resources, support systems, physical plant considerations and regulatory considerations. External factors will be reviewed including licensure, Certificate of Public Need, reimbursement of services and community support.

• Part E – A review of alternative spaces for the program will occur with a preliminary single line drawing for the proposed space and estimate of the capital costs associated with the project.

• Part F – A financial analysis of the intended project will be provided. This analysis will provide a proforma profit and loss statement based upon a set of carefully delineated assumptions regarding the operation of the new service.

DHC’s approach to evaluate the feasibility of developing children and adolescent acute

psychiatric intervention services involve the following methodology:

• Defining the nature of the health care services being evaluated; • Determining the target population for the proposed services; • Determining the potential geographic market for the proposed services; • Determining the potential need and expected demand in the defined market for the proposed

services; • Determining the existing market resources to meet the expected demand for the proposed

services; • Defining the potential resource requirements at Bartlett Regional Hospital to develop the

proposed new services; and • Evaluating the potential opportunities and barriers to developing the proposed services.

4

DHC began the study process by requesting data from BRH to assist in the analysis. The documents requested and reviewed were:

• BRH, YTD Budget Comparison as of March 2005; • Strategic Planning Research Summary, October 2003; • BRH Master Plan, March, 2005; • A rank ordered list of Hospital admissions by zip code for the most recently completed fiscal

year; • A description of the range of existing behavioral health services at the Hospital; • The Hospital’s Employee Benefit Percentage; • The number of adolescent psychiatric patients seen at the Hospital’s Emergency Department

over the past two years with summary of disposition (i.e., admitted to hospital, referred to another facility, etc.);

• The hospital’s adolescent (under 20 years of age) payor mix based on discharges by payor for the recently completed fiscal year. Please note if there have been any significant changes to the payor mix during the current fiscal year; and

• A listing of any community mental health centers operating in the market area.

A site visit was conducted on April 27, 2005 by a DHC representative to Juneau to interview key hospital staff and community agencies with information pertinent to the study. During the site visit meetings were held with the following individuals:

• Robert Valliant, CEO • Verner Stillner, M.D., Medical Director, Behavioral Health Services • Mark Stauffer, M.D., Staff Psychiatrist • Robert Schults, M.D., Staff Psychiatrist • Pat Murphy, Clinical Director, Juneau Adult Mental Health Institute • Garth Hamblin, CFO • Sheryl Washburn, Patient Care Administrator • Jan Walker, Behavioral Health Nurse Manager • Colleen McKenzie, Juneau Youth Services • Jerry Welch, Juneau Youth Services • Jordan Nigro, Juneau Youth Services • Stacy Toner, Administrator for Treatment & Recovery, Division of Mental Health, by

telephone

5

Background Information

BRH operates a six to twelve bed adult inpatient psychiatric unit. The hospital admits crisis emergency children and adolescents on to the unit awaiting transfer to an inpatient psychiatric unit for children and adolescents in Anchorage. The average length-of-stay for the psychiatric unit is 6.5 days. BRH has three salaried psychiatrists and is recruiting for two more. The hospital provides contract medical services to Juneau Youth Services for 12 – 16 hours per week at a rate of $135 per hour. In addition to psychiatry, BRH operates Juneau Recovery Hospital a chemical dependency treatment facility located on the hospital campus. The Juneau Recovery Hospital has four detox beds, twelve rehab beds and six “sleep-off’ mats for care of inebriated people picked up throughout Juneau by a Courtesy Patrol. Dr. Stillner provides medical supervision of this facility. Rainforest Activity Center also houses the psychiatrist’s offices where patients are seen for brief therapy, psychiatric evaluations and medication management. Juneau Recovery Hospital also provides a twenty week intensive outpatient chemical dependency treatment program. BRH enjoys a positive working relationship with the public mental health agencies in the area. Good support is provided for psychiatric assessments and transfer of children and adolescents to an appropriate treatment setting. The Juneau Adult Mental Health Institute provides hospital credentialed employees who process involuntary admissions and work with psychiatrists to find appropriate placement. The existing adult psychiatric unit consists of twelve beds and planning is underway to relocate the program to a new area of the hospital within a year. Most admissions to this locked unit are involuntary. Children and adolescents are occasionally admitted to the psychiatric unit at BRH when they become unmanageable and require psychiatric stabilization and referral. These patients are held until a bed becomes available and transfer can be arranged primarily to facilities in Anchorage. Children under thirteen are referred to NorthStar in Anchorage for acute and residential treatment. Children over thirteen go to Providence or to Alaska Psychiatric Institute, also in Anchorage, a seventy-eight bed state hospital with an adolescent psychiatric unit. Transporting these patients is difficult due to weather, acuity of the patient and the cost. Security personnel travel from Anchorage to accompany the patient and many times a clinician must accompany the patient as well. The Medicaid program covers the cost of the escorts used in transportation. There is some degree of risk factor involved in admitting these patients to an adult unit with little to no clinical programming in place. The average length-of-stay for a child or adolescent being held at BRH is 2.5 days. Most patients are in the age range of 13 – 18. Very few young children are admitted to BRH. While these patients are housed on the adult psychiatric unit at BRH, one to one staff to patient supervision is provided and these patients are separated from adult patients. It was

6

estimated that approximately twenty-four children or adolescents are admitted to BRH per year who require transfer to Anchorage. Providing one to one staffing is expensive for BRH since BRH used “casual status” overtime for coverage. For fiscal year 2002, 165 child and adolescent patients were assessed at BRH for diversion. Many patients never go to BRH for assessment but are processed by Juneau Youth Services and disposition is arranged without diversion to BRH.

7

Industry Trends The Behavioral Health Operating Environment

The operating conditions in the behavioral health marketplace have changed over the past decade. The impact of the changes in the operating environment has been to create a new paradigm for successfully providing behavioral health services to the market. Providers must address issues including:

• Operating in a marketplace with reimbursement challenges; • Increasing use of non-physician mental health professionals; • Developing alternatives for the chronic use population; • Utilizing the group process treatment milieu; and • Changing influence of public providers.

Reimbursement Challenges for Services Provided. Third-party payors have presented reimbursement challenges to providers for services rendered to patients. Hospitals are pressured to maintain financial viability by reducing their cost of care and treating patients in the least-costly setting consistent with the patient’s needs. Hospitals have responded to the need to provide cost-efficient operations by implementing various initiatives including:

• Re-organizing services into product-lines; • Case managing patients using an integrated care continuum; • Re-engineering staffing levels, particularly in non-direct patient care areas (e.g.,

administrative services); and • Staffing by patient acuity levels.

Major changes have occurred in Medicare reimbursement over the past decade. The Balanced Budget Act of 1997 (BBA) as amended by the Balanced Budget Refinement Act of 1999 (BBRA) changed the landscape of health services delivered in an outpatient setting. The BBA established a prospective payment system for all hospital-based outpatient services for Medicare patients including behavioral health. The BBA and the BBRA reduced the reimbursement available for hospital-based outpatient services provided to Medicare recipients. A similar change in the inpatient behavioral health cost-based reimbursement paradigm for Medicare is being "phased-in" over a three-year period. Effective January 1, 2005, the reimbursement system is per diem based and adjusted for factors such as DRG weight, wage indexing, rural location, teaching institutions and length of stay variations. The base rate is a bundled amount including routine operating, ancillary and capital-related expenses. The new system of reimbursement applies only to Inpatient Psychiatric Facility (IPF) units. IPF units are psychiatric inpatient programs that are currently

8

operated as exempt units under the Prospective Payment System. These reimbursement changes will place increased pressure on hospital emergency departments and clinic programs in acute care hospitals to assess and make disposition of patients with behavioral health problems. Increased Utilization of Non-Physician Mental Health Professionals. Responding to the increased demand for cost-efficient services, behavioral health programs have increased their use of non-physician clinical professionals. Non-physician clinical professionals include licensed clinical social workers, licensed professional counselors, clinical psychologists and masters-prepared nurse clinicians. Currently, the most prevalent use of physician services is to provide initial evaluations, determine medical necessity and provide medication and care management services as opposed to traditional individual therapy or treatment sessions. Non-physician clinical professionals have become the primary providers of counseling and therapeutic treatment services under the direct supervision of the physician. Development of Alternative Treatment Settings for the Chronic Use Populations. Historically, treatment of the chronic and persistently mentally-ill patient populations was provided in inpatient settings. Over the past twenty years, this population was characterized as patients having long inpatient lengths of stay, high re-admission rates and accompanying high costs of care. Today, the chronic-use population is increasingly treated in cost-effective community-based inpatient and outpatient programs. Development of Group Process Treatment Milieus. In today’s cost-sensitive operating environment, the primary modality for patient treatment has shifted from individual therapy to group therapy. Structured outpatient programs have found the group therapy treatment model to be as efficacious as the individual therapy model and better suited to a facility-based environment. The group process model allows a program to effectively utilize treatment resources while addressing the treatment needs of a higher patient volume. Changing Influence of Public Providers. The public provider sector of the behavioral health market has undergone a great deal of change over the past decade. The desire by many State governments to reduce the costs of providing behavioral health services to indigent populations has resulted in a reduction of the inpatient capacity among State behavioral health facilities. Shift in Child/Adolescent treatment. We have observed a shift in the treatment setting for children and adolescents over the past ten to fifteen years. Residential treatment has become a primary treatment setting for these patients. Many patients only receive a brief stabilization stay or no admission at all in an acute level of care but are quickly transferred into a longer team residential facility. This trend was brought forth in response to rapidly rising costs of care associated with

9

longer lengths of stay in acute facilities. Managed care initiated the trend and it quickly was adopted by most payors. There still is a necessary role to be played by acute care hospitals for emergency crisis stabilization of children and adolescents but the vast majority of beds are now at residential levels of treatment.

10

Continuum of Child and Adolescent Behavioral Health Services

The continuum of psychiatric services for children and adolescents ranges from individual practitioner services provided on an outpatient basis (the least restrictive) to acute inpatient services provided in a secure (locked) environment.

Current estimates of prevalence indicate that approximately 13.0% of the child and adolescent population have behavioral health problems requiring intervention. The intervention can occur at one or more levels of intensity along the overall continuum of care. Outpatient services are appropriate for those individuals who can function in a community setting and do not represent a threat to themselves or other persons. Inpatient services (i.e., residential treatment and acute inpatient services) are generally for those persons representing a threat to themselves or others and requiring care provided in a secure (locked) environment. Individual Practitioner Services. Individual practitioner services represent the least restrictive level of intervention. Approximately 1.56% of the child and adolescent population require individual practitioner care. The services of the individual practitioner (i.e., child and adolescent psychiatrists, clinical psychologists, licensed clinical social workers and psychiatric nurse practitioners) provides individual and family therapy and medication management. The acuity level of services may be as high as two to three sessions per week over a period of time. Organized Outpatient Services. Organized outpatient services are usually provided through a hospital-based outpatient program (e.g., intensive outpatient program) or a public mental health center setting. Organized outpatient services provide individual, family and group therapy, usually provided by non-physician mental health professionals (i.e., licensed clinical social workers and licensed counselors) under the general direction of a psychiatrist. Medication management services are generally provided by a psychiatrist. Approximately 1.3% of the child and adolescent population utilize organized outpatient services, with services generally provided for two hours per day, and up to three days a week. Partial hospitalization program services represent a more intensive form of organized outpatient services. These services are provided up to 4 hours per day, five days a week. Residential Treatment Services. Residential treatment services are provided in secure settings on an inpatient basis. The length of stay in residential treatment varies from acute residential services (30 to 60 days) to long-term residential services (60 days and longer). The shorter length of stay patients are generally those individuals with a more acute psychiatric disturbance that will respond

11

to therapeutic intervention over an extended period of time. The longer term residential treatment is generally reserved for individuals whose behavioral health condition will require extended treatment and rehabilitation. In most instances, education services that are coordinated with the patient’s school system are provided during there stay using certified instructors. The prevalence rate of children and adolescents requiring residential treatment services is 4.16 persons per 1,000 persons or approximately 0.42% of the total child and adolescent population. Acute Hospital-Based Inpatient Services. Acute hospital-based inpatient behavioral health services are reserved for the most acute psychiatric episodes. Approximately 1.92% of children and adolescents will require acute inpatient psychiatric/substance abuse treatment services. These children and adolescents are most at-risk for harming themselves or others. Inpatient stays range in duration from one to four weeks in a secure (locked) environment with referral on discharge to a lower level of treatment intensity. Treatment intensity is up to six hours of therapeutic intervention daily using individual and group milieus augmented by medication management. In most instances, education services that are coordinated with the patient’s school system are provided during there stay using certified instructors.

12

External Factors A child and adolescent psychiatric service would be reviewable under Alaska’s Certificate of Public Need regulations. A proposed change in bed capacity and the development of a new clinical service will trigger a CON process. In addition, a project with a capital budget of at least one million dollars would also be reviewable. The new program would be licensed by the Alaska Department of Health and Social Services, Section of Certification and Licensing. Preliminary discussions with community agencies indicate that support exists for BRH to develop acute psychiatric services for children and adolescents to meet the growing unmet need in Alaska, especially the Southeast region. Physical Plant Considerations The National Association of Psychiatric Health Systems has developed an excellent set of Guidelines for the Built Environment of Behavioral Health Facilities. A copy of these guidelines is enclosed. The square footage requirements for a child and adolescent psychiatric unit in terms of day rooms and patient rooms, etc. would be the same for children as for a licensed adult unit. Keep in mind however, that children are active and consideration should be given to larger recreational space and secure onsite patios and courtyards.

13

Clinical Program Design The initial request from BRH for this project was to conduct a feasibility study for an acute intervention unit for children and adolescent patients with an average length-of-stay of four to six days. While it may be possible to assess and begin to stabilize a patient within a four to six day hospital stay, experience and the literature would agree that a more effective period of hospitalization would be ten to twelve days. That length of time would allow for a longer period to diagnose and stabilize the patient, allow for more family interactive and intervention and to develop a plan for the next phase of treatment, whether it be outpatient or residential. The American Academy of Child and Adolescent Psychiatry and the American Association of Community Psychiatrists have developed a child and adolescent Level of Care Utilization System CALOCUS. The CALOCUS system puts the focus on the level of resource intensity which is flexibly defined to meet the child or adolescents need. There are seven levels of care in this system. Level 6, Secure, 24-Hour, Services with Psychiatric Management is the type of program under consideration by BRH. Secure, 24-Hour, Services With Psychiatric Management. Most commonly, these services are provided in inpatient psychiatric settings or highly programmed residential facilities. If security needs could be met through the Wrap Around process, then this level of intensity of service could also be provided in a community setting. Case management remains essential to make sure that the time each child spends at this level of care is held to a minimum required for optimal care and that the transition to lower levels of care are smooth.

14

Level Six: Secure, 24-Hour Services With Psychiatric Management Level Six services are the most restrictive and often, but not necessarily, the most intensive in the level of care continuum. Traditionally, Level Six services have been provided in a secure facility such as a hospital or locked residential program. This level of care also may be provided through intensive application of mental health and medical services in a juvenile detention and/or educational facility, provided that there facilities are able to adhere to medical and psychiatric care standards needed at Level Six. Although high levels of restrictiveness are typically required for effective intervention at Level Six, every effort to reduce, as feasible, the duration and pervasiveness of restrictiveness is desirable to minimize its negative effects.

1. Clinical Services. Every child or adolescent requiring Level Six services can be presumed to be in a crisis or near crisis state, and therefore, clinical services should reflect the highest level of services intensity and restrictiveness for the protection of the child or adolescent, the family, and the community. Clinical services must be comprehensive and relevant to the emergent and safety issues at hand. Children and adolescents at Level Six require monitoring and observation on a 24 hour basis. Treatment modalities may include individual, group and intensive family therapy as well as medication management, and are aimed at managing the crisis, restoring previous levels of functioning, and decreasing risk of harm. Substance abuse treatment at Level Six may include social or medical detoxification. Occupational and recreational therapy may be helpful as indicated. The treatment plan must be family-centered and must address management of aggressive and/or suicidal or self-endangering behavior. Access to pediatric or family physician should be available in the community.

Treatment at Level Six may be organized by a child and adolescent psychiatrist supervising care provided by the multi-disciplinary treatment team. Child and adolescent psychiatric and nursing services should be available on a 24-hour basis. A member of the treatment team leadership (e.g., a child and adolescent psychiatrist, psychosocial nurse, or other senior clinician) should have daily contact with the child or adolescent. The child and adolescent psychiatrist should consult regularly with the family and the “child and family” team to assure integration of Level Six services with the care provided at previous levels of care. Review of the child or adolescent’s status by the treatment team should occur daily, with the goal of transition planning for a rapid return to lower levels of care. Uncomplicated or specialized transition plans may be necessary, depending on the child or adolescent’s or family’s needs during step-down. All children and adolescents leaving Level Six services must have a well-defined crisis plan that anticipates and accommodates complications during transition to lower levels of care. Medical care from either a pediatrician or family physician should be available in the community.

15

2. Support Services. All necessities of living and well being must be provided for

children and adolescents treated in Level Six. Children’s legal, educational, recreational, vocational, and spiritual needs should be assessed according to individual needs and culture. Social and cultural factors must be considered in discharge planning. A “child and family” team should be created, if not already in place, mobilizing the strengths of the child or adolescent and family to provide support during the crisis and in aftercare. When capable, children and adolescents should be encouraged to participate in treatment planning, and should maintain activities of daily living, such as hygiene, grooming, and maintenance of their immediate environment. Families are likely to need support for financial, housing, child-care, vocational, and/or educational services. Case management for coordination of services provided after transition to lower care levels should begin while the child or adolescent receives Level Six services. Discharge planning should include integration of the child or adolescent into the home and community, and linkage with social services, education, juvenile justice, and recreational resources as needed. All support services should be described in the Individualized Service Plan.

3. Crisis Stabilization and Prevention Services. At Level Six, crisis services involve

rapid response to fluctuations in psychiatric and/or medical status. Crisis stabilization may include seclusion and/or restraint interventions as well as crisis medications, under the supervision of a child and adolescent psychiatrist or other professional within their scope of practice. The treatment team should address with the family the conditions under which seclusion and restraint interventions are initiated and terminated, and these interventions should be in accordance with legal requirements and ethical professional practices. Emergency medical services should be available on-site or in close proximity and all staff should have training in emergency protocols.

4. Care Environment. In most cases, Level Six care is provided in a closed and locked

facility. Alternative settings must have an equivalent capacity for providing a secure environment. Facilities should have space that is quiet and free of potentially harmful items, with adequate staffing to monitor children or adolescent using such a space (e.g., seclusion, restraint and/or holding). Facilities and staff also should provide protection from potential abuse from others. Level Six facilities should be capable of providing involuntary care.

Level Six facilities, or their alternatives, should be located as near as possible to the children or adolescent’s home. In addition, these facilities should incorporate ease of access (e.g., proximity to public transportation, schools, social services agencies, etc.); adequate design (e.g., accommodation for families with disabled or special needs members, play areas for children); and specific service needs (e.g., supervised day care

16

so that parents can participate, resources for non-English speaking and/or hearing-impaired people, etc.). The facilities should be safe and comfortable for children and adolescents at all developmental levels, as well as for their families.

BRH may elect to develop an acute intervention unit for children and adolescents and a residential program for children. Conversations with Juneau Youth Services and others indicated that the under 13 population is the most difficult to place within a residential level of care. Alaska Psychiatric Institute will not accept children under the age of 13. Such a program would be viewed as complementary, not competitive to the proposed new fifteen bed level 4 adolescent residential facility in Juneau being developed by Juneau Youth Services. An advantage of operating both acute and residential level of care is the ease of transitioning a patient from one level to another, reducing the acute care length-of-stay and having an acute care treatment resource available for children who decompensate in a residential program and require hospitalization. Another important consideration regarding bed allocation and program design is the projected demand or utilization of beds. It is possible that BRH could allocate some of its existing adult beds to child and adolescent acute use. However, the unit design would be critical in order to physically separate the patient populations. During times of peak census with either patient population a shortage of beds could create a crisis situation. There are several critical issues worthy of consideration when determining physical plant and program design including, capital cost of construction, reimbursement of acute versus residential treatment, demand for services, competition, availability of staff resources, financial viability and regulatory requirements. This study will address these issues and provide an analysis of three options:

• The development of six new child and adolescent acute care psychiatric beds operated with a shared nursing station with the adult psychiatric unit, but separating the patient populations.

• The operation of a twelve bed adult psychiatric unit and a separate twelve-bed child and adolescent unit.

• The operation of a twelve bed adult psychiatric unit and a separate twelve-bed child and adolescent unit with an acute intervention service and a twelve-bed residential program for children under 14.

17

Market Analysis

The ability to successfully develop the appropriate range of behavioral health services depends on the needs of the local market. The demographic characteristics of the market served by the hospital influence the types and levels of behavioral health services that can be successfully provided by a hospital. The Market Area for Behavioral Health Services. The market for the proposed child and adolescent behavioral health services is Southeastern Alaska. This area extends from Yakutat to Ketchikan, and includes the populations surrounding Juneau, Sitka, Wrangell and Prince of Wales Island. Exhibit 1 presents a graphic representation of the defined market area. Exhibit 1. Defined Market for Child and Adolescent Behavioral Health Services

18

The child and adolescent (ages 0 to 19 years) population of the defined market area totaled 20,524 persons in 2000. Exhibit 2 summarizes the population of the defined market area by age group and general location. Exhibit 2. Child and Adolescent Population, Defined Market Area, by Age Group and General Location, 2000 Census Population

City/Borough

Under 5 Years

5 to 9 Years

10 to 14 Years

15 to 19 Years

Total Population

Juneau City/Borough 2,003 2,339 2,541 2,321 9,204Ketchikan Gateway 964 1,145 1,177 1,044 4,330Prince of Wales Island 453 506 567 525 2,051Sitka City/Borough 565 609 730 689 2,593Wrangell-Petersburg 445 512 666 479 2,102Yakutat City/Borough 39 79 66 60 244Totals 4,469 5,190 5,747 5,118 20,524

Need for Services. Conducting a "needs" assessment requires consideration of not only the needs of the market, but also the needs of the Hospital. The "need" in a market is affected by various factors including:

• The size and the age distribution of the population; • Geographic considerations impacting access; • Economic considerations such as insurance coverage and the size of the indigent

and medically-underserved population; and • Prevalence and utilization rates for various conditions in the population.

The need for beds and outpatient services is evaluated from a “need” and "demand"

perspective. Need estimates are based on the prevalence rate of individuals with a severe and persistent mental illness requiring intervention in order to allow the individual to perform normal activities of daily living. For children and adolescent, the prevalence of severe emotional disturbances (SED) among children and adolescents ages 9 to 17 was estimated in 1999 by the Surgeon General of the United States to range between 5% and 9%. Subsequent studies have caused the prevalence rates to be raised to as high as 29% of the population less than one year of age to 22 years of age. A prevalence rate of 13% of the population under 5 years to 19 years of age is an average of the various prevalence rate estimates. Applying the “average” prevalence rate to the defined market population yields the following estimate of an at-risk population.

19

Exhibit 3. Estimated Child and Adolescent Psychiatric At-Risk Population, Bartlett Regional Hospital Defined Market

Age Group

Market Area Population

Estimated At-Risk Population (13%)

Estimated Inpatients

Under 5 Years 4,469 580 85 5 to 9 Years 5,190 675 100 10 to 14 Years 5,747 750 110 15 to 19 Years 5,118 665 95 Totals 20,524 2,670 390

It is estimated that the child and adolescent population will generate 2,670 persons “at-risk

for severe emotional disorders. Nationally, in markets where there are sufficient inpatient and outpatient treatment (i.e., a complete treatment continuum) services available and accessible to the population, approximately 1.92% of the “at-risk” population uses inpatient services. Applying the national utilization rate to the Southeast Alaska estimated “at-risk” child and adolescent population yields an inpatient estimate of 390 patients.

The expected acute adolescent psychiatric unit length of stay for short-term intensive psychiatric crisis is between 12 and 15 days. Assuming that the population under 5 years of age would receive alternative treatment, the remaining 305 children and adolescents (ages 5 through 19 years) would require between 3,660 and 4,575 days of intensive inpatient psychiatric care. Adjusting for 85% bed availability on demand (to account for gender and age differences) the patient days estimate translates to a need for between 12 and 15 beds.

A residential treatment facility for adolescents aged 5 to 14 years of age is defined as a

psychiatric provider providing a secure, structured, live-in environment within a non-hospital setting on a 24-hours-a-day, 7-days-a-week basis. The services of a residential treatment facility include room and board, and treatment and rehabilitation within the primary residential facility. The average length-of-stay will vary from as short as 30 days to as long as twelve months. An average length-of-stay in a residential treatment facility is approximately 180 days. Residential treatment programs are designed for patients requiring long-term acute inpatient treatment for psychiatric conditions and emotional disturbances. The prevalence rate for children and adolescents in the target age range (5 to 14 years) in need of residential treatment is 4.16 clients per 1,000 populations. Exhibit 4 summarizes both the at-risk population and the number of beds required for treatment.

20

Exhibit 4 Child and Adolescent Population, Defined Market Area, by Age Group, General Location, 2000 Census Population with Related Residential Treatment Bed Need

City/Borough

5 to 9 Years

10 to 14 Years

Total Adolescent

At-Risk Population

Beds Needed

Juneau City/Borough 2,339 2,541 4,880 20 12Ketchikan Gateway 1,145 1,177 2,322 10 6Prince of Wales Island 506 567 1,073 4 2Sitka City/Borough 609 730 1,339 6 5Wrangell-Petersburg 512 666 1,178 5 4Yakatat City/Borough 79 66 145 1 1Totals 5,190 5,747 10,937 46 30

Note: Bed need based on 180 day length of stay per client. Need is based on 85% availability upon demand.

In summary, the Southeastern Alaska area can support a need for 30 child and adolescent residential treatment beds to treat psychiatric and emotional disturbances.

21

Financial Analysis

Diamond Healthcare prepared three (3) sets of financial analyses related to the development of a child and adolescent inpatient behavioral health services.

Option A. Option A involves the development of a six (6) bed acute child/adolescent psychiatric unit. This analysis assumes that there will be a 0.50 FTE Program Director and 0.50 FTE Case Manager. These staff would be “shared staff” with the existing adult inpatient substance abuse program. The following Table summarizes the projected financial performance of the 6-bed adolescent inpatient psychiatric unit.

Category Year One Year Two Beds 6 6 Patient Days 1,825 2,008

Gross Revenue $2,719,250 $3,111,625 Deductions from Revenue $806,394 $1,047,429 Total Net Revenue $1,906,256 $2,064,196

Total Expenses $1,456,518 $1,1,544,998 Add Back for Education Expense $124,170 $144,046 Contribution Margin $573,908 $646,770

In summary, at an average daily census of 5.00 and 5.50 patients in Years One and Two, a

6-bed acute inpatient child/adolescent psychiatric unit can be expected to produce an average contribution margin of $610,339.

Option B. Option B involves the development of a twelve (12) bed acute child/adolescent psychiatric unit. This analysis assumes that there will be a 0.50 FTE Program Director and 1.00 FTE Case Manager. The Program Director would be “shared staff” with the existing adult inpatient substance abuse program. The following Table summarizes the projected financial performance of the 12-bed child/adolescent inpatient psychiatric unit.

Category Year One Year Two Beds 12 12 Patient Days 3,285 3,650

Gross Revenue $4,894,650 $5,657,500 Deductions from Revenue $2,153,081 $2,580,414 Total Net Revenue $2,741,569 $3,077,086

Total Expenses $1,888,674 $2,141,427 Add Back for Education Expense $124,170 $144,047 Contribution Margin $977,065 $1,079,705

22

In summary, at an average daily census of 9.00 and 10.00 patients in Years One and Two, a

12-bed acute inpatient adolescent psychiatric unit can be expected to produce an average contribution margin of $1,028,385.

Option C. Option C involves the development of a twelve (12) bed acute adolescent psychiatric unit with an accompanying twelve (12) bed Level 5 Residential Psychiatric Treatment Center. This analysis assumes that there will be a 0.33 FTE Program Director and 0.50 FTE Case Manager. These staff would be “shared staff” with the existing adult inpatient substance abuse program and the 12-bed acute adolescent psychiatric unit. The following Table summarizes the projected financial performance of the 12-bed adolescent inpatient psychiatric unit and 12-bed RTF.

Year One Year Two Category Acute Unit RTF Totals Acute Unit RTF Totals

Beds 12 12 24 12 12 24 Patient Days 3,285 2,920 6,205 3,650 3,103 6,753

Gross Revenue $4,894,650 $5,168,583 $10,063,233 $5,657,500 $5,723,729 $11,381,229 Deductions from Revenue $2,252,812 $3,969,185 $6,221,998 $2,684,135 $4,449,370 $7,133,505 Total Net Revenue $2,641,838 $1,199,398 $3,841,235 $2,973,365 $1,274,359 $4,247,724

Total Expenses $1,763,096 $1,339,478 $3,102,574 $2,010,826 $1,412,217 $3,423,042 Add Back for Education Expense

$124,170 $124,710 $249,420 $144,047 $144,047 $288,094

Contribution Margin $1,002,912 ($15,910) $987,002 $1,106,586 $6,189 $1,112,775

In summary, for Years One and Two, the average aggregate contribution margin for the

combine 12-bed adolescent inpatient acute unit and a 12-bed Level 5 Residential Psychiatric Treatment Center is $1,049,889. It is noted that the 12-bed Residential Psychiatric Treatment Center is operated at slightly below or at break-even during the two year period.

23

Summary

There appears to be a need for an acute psychiatric service in the southeast region of Alaska. Juneau would seem to be the most logical location for services to be provided since Bartlett Regional Hospital already has an extensive array of behavioral health services and the facility is relatively accessible. BRH has an existing complement of psychiatrists and is currently recruiting for two additional physicians. The hospital has a willingness to consider developing a new psychiatric service if the program can be operated in a financially viable manner. This study finds that there is a need for additional acute psychiatric services for children and adolescents, particularly in the southeast region of the state. We have presented three options for addressing the development of a program, with all three options showing that the service can be operated profitability. The option of using six of the existing twelve adult psychiatric beds would be the most expedient choice in terms of timing and conserving capital. However, this option may result in too few adult and child/adolescent beds. The provision of residential services for children, which are also needed, would not generate a positive contribution for BRH due primarily to the low reimbursement rate for this level of care. A residential program would meet a state need, generate some economies of scale and would provide a less restrictive level of care for BRH to step its acute patients into, thereby, lowering acute care lengths-of-stay. There is little difference in the financial results from options B or C, capital costs not withstanding that is, operating a twelve bed acute service or a twelve bed acute and a twelve bed residential service for children and adolescents.