With the population aging, states are struggling to balance the relentless need for nursing home care, increased demands for home and community-based services and a way to fund it all. Further compounding the problem is another Medicaid population in need of expensive long- term care services: younger disabled adults unable to live independently without assistance.
The cost for long-term care for the elderly and disabled who qualify for Medicaid is enormous. Traditionally, the bulk of those services is provided by nursing homes, and increasingly, the greater proportion of people in those nursing homes are Medicaid patients. In the past few years, the federal-state Medicaid partnership has been the primary payment source for over 60 percent of all nursing home patients. The state share of that tab was $21 billion in 2002.
As the demand for non-institutional care grows, many state Medicaid programs have expanded home and community-based care. All totaled, the Medicaid program spent $16.4 billion in 2002 for home and community- based care; states paid about $8 billion of that bill.
That translates into a heavy load for each state. On average, long- term care eats up 35 percent of state Medicaid budgets. Among those above the average is North Dakota, where long-term care accounts for 60 percent of the state's Medicaid budget. Four other states that are also well above the average are Connecticut, Kansas, South Dakota and Wisconsin, where long-term care is more than 50 percent of Medicaid costs.
As fiscally challenging as long-term care expenditures are now, the pressure on states will intensify. The aging of the population is inexorable. One hundred years ago, only one in four Americans lived past 65. Today, three in four do, thanks in part to advances in medical science. Medical advances have also helped many younger people injured in accidents or afflicted with devastating illnesses recover, even though many of them remain physically disabled and unable to live independently or without assistance in basic personal care.
Given the fiscal and demographic pressures, it's not surprising that Mike Lewis, chief financial officer of the Alabama Medicaid Agency, wonders "how the system will sustain itself."
CASE HISTORY
Before the 1970s, the elderly or disabled generally had one alternative to living with family, and that was to take up residence in a nursing home. A societal shift began about 30 years ago with a move to de-institutionalize the developmentally disabled. This was accompanied by an active independent-living movement on the part of people with physical disabilities and a similar push from advocates for the elderly to seek alternatives to nursing homes. "All three groups struggled against the cultural beliefs of the time, which were that if you had a disability, you were broken and somebody needed to fix you and that needed to be a health care worker," says Lee Bezanson, of Boston College.The movement toward de-institutionalization got a big boost from a 1999 Supreme Court decision, Olmstead v. L.C. The court ruled that, based on the Americans with Disabilities Act, unjustified institutionalization is a form of discrimination. As long as an individual wanted transfer to the community and was judged to be qualified for community living, the state should work to move him to a less restrictive setting.
The court acknowledged that this might not be immediately possible if the move required "a fundamental alteration" of a state's programs--a sizable limitation that is being tested in courts around the country. Nonetheless, the ruling has been "a catalyst decision," says Sara Rosenbaum, chair of the Department of Health Policy at George Washington University Medical Center. "The law didn't simply prohibit certain conduct," she says. "It imposed an affirmative requirement among states to start redirecting their public expenditures to get community integration to happen at a reasonable pace."
The federal government is pushing this prescription. Its Centers for Medicare and Medicaid Services, known as CMS, set up a resource network for states to share their experiences with alternative forms of services and by 2000 began awarding "real systems change grants." These provide seed money for states to experiment with fundamental alterations in the delivery of services. In 2001, President George W. Bush issued an executive order requiring federal agencies to "promote community living for persons with disabilities," and two years later the administration launched a five-year program called "Money Follows the Person." It enables an individual in an institution to take the money provided for his or her care in that setting and use it to live in the community instead.
As the demand for alternative-care options emerged, Medicaid began issuing waivers that permit the states to use federal matching funds to finance home or community-based care for patients who would otherwise qualify for nursing-home care. While the cost of that care cannot exceed that of care in a nursing home, Medicaid waivers provide substantial freedom for states to design their own systems.
In addition to those eligible for nursing home care, however, there are elderly and disabled people who qualify for Medicaid and require ongoing assistance , but require a lower level of assistance than a nursing home provides. All states offer home health services, largely medical in nature, but they are often very limited. About 30 states provide some level of personal care, which is not medical but includes help with basic personal activities: dressing, bathing, eating, using the bathroom, shopping or managing medicines. There also are state- financed services that can help prevent the need for more expensive institutional care.
COMPLICATIONS
Logic suggests that keeping Medicaid patients out of institutions and in their communities would drive down program costs. In Arkansas, for example, the cost of caring for a person through home and community- based services available through the state's Elder Choices waiver program--homemaker services, a personal emergency response system, adult day care and a respite program for family caregivers--is a third as much as placing that person in a nursing home. In Vermont, it costs $25,000 a year to provide care to someone at home and $50,000 in a nursing home.But the long-term care fiscal ledger is more complicated than that. Individuals who use non-institutional care are often a different patient base than those who enter nursing homes. An analysis by the University of Michigan found that 45 percent of state Medicaid patients receiving waiver-funded home-care services were at the lower end of the spectrum in terms of the acuity of their personal and health needs, whereas only 8 percent of nursing home residents were at that same level.
When Michigan expanded its Medicaid waiver for home care, the state went from paying for 2,000 days a year of home care to 3 million days a year. "But we didn't see a 3 million-day decline in nursing home use. It was flat," says Paul Reinhart, Michigan's Medicaid director. When the state put a lid on home-care enrollment, demand for nursing home placement did not, as one would expect, increase. "It's decoupled," Reinhart says. "Nursing home utilization doesn't decline unless there is some forceful front-end mechanism that really constrains enrollment in nursing homes."
Funny Figures
To control long-term care spending, states need to tamp down their nursing home bill, but lowering those costs isn't as simple as, say, capping nursing home enrollment for Medicaid patients. To start with, nursing home finances are similar to those of an airline. It costs a lot to fly a Boeing 747 from New York to Los Angeles, but the costs are about the same whether the plane is full of bi-coastal fliers or has only three people on board. The airline still needs fuel, pilots, flight attendants and, of course, the 747. The same applies to nursing homes. Cutting down on the population of any individual home doesn't save much money. The facility still has to spend a set amount of money--on utilities, on the mortgage, on the medical infrastructure-- to keep operating, whether the home is full of patients or nearly empty.
As a result, simple reductions in nursing home populations don't substantially lower a nursing home's costs--or the price states have to pay for Medicaid patients living in the facility. For instance, when the number of patients in Kansas nursing homes dropped by 13 percent between 1996 and 2001, the per-person bill for Medicaid patients doubled. And in Idaho, when the nursing facility population declined by 7 percent during the same time period, the bill for the state's patients increased by 39 percent.
It's only when many beds in a nursing home are closed--or the facility is shut down altogether--that Medicaid can realize savings on its nursing home bills. But almost any state action to control nursing home costs--whether it's by limiting the number of beds that can be built or operated or other means--runs smack into powerful state-level nursing home lobbyists. They have proven themselves adept at pressuring legislatures to increase rates and keep up the count of nursing home beds. They've also been effective in fighting attempts to siphon off long-term care resources for other service options. One convincing argument for legislators, many of whom have a nursing home in their district: Nursing homes are good for local economies and provide jobs.
"The business interests in the nursing home sector are very powerful," says Barbara Edwards, Medicaid director in Ohio, where 83.5 percent of the state's Medicaid budget goes to institutional care. Nursing home reimbursement is set by statute, and the facilities are guaranteed rate adjustments. "Change is inevitable," she says, "but it will be a slow change becasue so much revenue is tied up in bricks and mortar."
In Louisiana last winter, the state's executive branch proposed diverting some nursing home residents into home and community programs--a potential blow to an industry in which 7,000 beds in the state are currently empty. The reason behind the proposal was simple. "The demand for nursing home care is declining. And yet we have this vast institutional network that we continue to support," says David Hood, secretary of the Louisiana Department of Health and Hospitals. Nonetheless, the proposal went nowhere, and the lobbyists' role in fighting it off was clear.
REMEDIES
Limiting SupplyGaining control over the supply of nursing home beds is clearly one key to taming the cost of long-term care. States can use certificate- of-need programs to restrict the building or purchase of new medical facilities or equipment, nursing homes included. But many states have abandoned the certificate-of-need approach, and that limits their ability to cap nursing home supply. A case in point is Utah. After it eliminated certificates of need in the 1980s, a number of new nursing homes opened and occupancy rates slipped to 84 percent by the mid- 1980s. In 1989, when the state placed a moratorium on accepting new nursing home providers for Medicaid, the old providers kept adding beds. Occupancy is now at 75 percent. "We are hugely over-bedded," says John Williams, the state's long-term care director.
Oregon and Vermont, on the other hand, have both been quite effective at controlling the growth of nursing homes through certificates of need. Oregon has used more than the blunt hammer of regulation. The state initially sweetened the pot with incentives for nursing home operators to develop alternative services, such as assisted-living facilities. These are apartment-like complexes that provide living quarters in individual apartments but also make available basic non- nursing services--personal care, meals, transportation and the like. This less expensive form of long-term care did get overbuilt, however, and there is now a moratorium on new construction. The state's success in shifting people away from nursing home care has resulted in low occupancy levels as well.
A critical element in developing Oregon's approach was the work legislators did on the state's Nurse Practice Act. In many states, such laws restrict the performance of a variety of patient-care tasks to nurses. Oregon embraced the concept of teaching and transferring skills to other individuals who could then perform them at lower cost. The newly trained personnel also helped address another issue, the shortage of nurses, particularly in the field of long-term care.
The changes dovetailed well with Oregon's overall attitude toward long-term care, which is to build a home and community services infrastructure for people who can afford to pay their own way as well as for those dependent on Medicaid.
Thanks to its tough line on limiting nursing home beds, Oregon was able to divert spending on nursing facilities to home and community care. Today, the state devotes a significantly higher proportion of its long-term care budget to home and community programs than any other state. In so doing, its overall long-term care costs are well below the national average: $604 per capita compared with the U.S. average of $996 per capita.
Vermont is on a similar course. As the state began to realize savings from limiting nursing home beds, it put the unspent money in a trust fund. That fund was then used to provide seed money to develop community programs. "We made smart investments," says Patrick Flood, commissioner of aging. "The more you build the system, the more people can go to it, and the fewer people go to nursing homes." According to a 2002 AARP report, the percentage of long-term care dollars that Vermont spent in nursing homes dropped from 55.4 percent in 1996 to 44.1 percent in 2001. But it's still using nursing homes efficiently. The occupancy rate is 90.6 percent, compared to the U.S. average of 82.5 percent.
Leveling Care
Several states have been able to hold down long-term care costs by making sure that the nursing home option is reserved only for those whose needs cannot be met safely in less restrictive--and less expensive--ways. This is only possible, of course, if a wide range of alternatives is available. But the approach starts with, in effect, a system of triage.
Maine, for instance, created a uniform assessment system in 1995 that is carried out by an independent agency. The agency oversees admissions for both private- and public-pay nursing home stays.
Arizona has a particularly unusual system, one that has helped that state achieve an enviable record: Its nursing-home population is 1.1 percent of residents who are 65 or older--well below the U.S. average of 3.7 percent.
To accomplish this, the state starts with individual screening to see if an applicant for care qualifies for long-term services. Those who do are then assigned to a managed care organization that receives a pre-set payment for every individual under its care--a blended rate corresponding to nursing home costs and home-based costs that is generally similar for every individual for whom it provides care. The MCO--five of the seven that cater to the elderly and disabled long- term community are county run--helps its patients select the setting that's right for them, but there is a clear incentive to keep people in their homes as long as those services can be offered at less cost than a nursing home.
What's to stop managed care officials from overutilizing low-cost options? "If the program contractors don't ensure that they have the right amount and type of services for those people living in home and community-based settings, they will experience more acute care and more emergency room utilization later on," says Alan Schafer, program manager for Arizona's long-term care system. In Arizona's model, those cost increases will be born by the managed care organization, not shifted to some other group.
Arizona isn't just trusting to fiscal pain to assure that care is appropriate. The state has established a number of quality-assurance mechanisms to make sure that people are getting good services and that they are being placed in a program that provides the proper level of care.
Another creative but simple approach to determining who gets what kind of care is the way Vermont handles its waiting list for home and community-based services. Instead of admitting people on a first-come, first-served basis, the state sets priorities: Those in the greatest need--the ones most likely to end up in a nursing home if they have to wait for services--are pushed to the front of the list.
In an effort to expand on that idea, Vermont is currently asking CMS to approve a waiver that will allow the state to divide the people who qualify for long-term care into two groups: a higher need group and a lower need group. Those with the most acute needs would have a choice: They would be entitled to either home and community-based care or nursing home care, depending on what would be the most appropriate level of care for them. After that population is taken care of, the money that remains would be spent on those in the lower-need group.
Cash and Counseling
The approach that may have the greatest promise for national overhaul of long-term care is called "Cash and Counseling." Since 1996, it has been jointly funded by the Robert Wood Johnson Foundation and the federal government.
The idea is to give people who need long-term care--the frail elderly, the disabled--the choice of using cash to purchase the personal care, equipment, remodeling or other services that they need to keep them living at home safely. Instead of using an agency, the recipients (or a responsible family member on their behalf) are put in charge of hiring and firing employees and arranging for care by the individuals they choose.
To help people make their plans and choices, a counselor or consultant helps them establish a budget that will meet their needs. The adviser also stays in contact with each client to make sure that all is going well. A bookkeeping service is offered for people who want help in administrative and financial tasks, such as paying employment taxes.
The program has been implemented in Arkansas, Florida and New Jersey, with a total of 6,700 individuals. Results are being closely watched.
The first set of evaluations centered on Arkansas, since it was the first to get the program up and running. Arkansas won an A for its efforts. There were no instances of fraud or abuse--one of the big fears officials have when control shifts from a bureaucracy to an individual. Since 1998, when the program started, only four people out of the 3,000 who have enrolled were shifted out of the program because of problems in the way they were handling their own services.
The differences Cash and Counseling makes are clear. When outcomes for those in a control group in the old system were compared to those in the new program, the disparities were "gigantic," according to Kevin J. Mahoney, national program director for Cash and Counseling Demonstration and Evaluation. In Arkansas, there was a 20-point difference in the levels of customer satisfaction. What's more, people who had control over their own employees had equal or fewer health problems, and there was a major reduction in unmet needs.
The program also appeared to provide a solution to the longstanding problem of worker shortages and to providing help in difficult-to- reach rural areas. Since participants were able to hire neighbors or even family members to help them, they had a much easier time finding people to work at difficult hours, such as early morning or weekends. "Access improved markedly," says Mahoney.
This approach was such a notable success in Florida that the legislature unanimously passed a bill making consumer-directed care a permanent option in state programs. In May 2002, CMS came out with model "independence-plus waivers," which provide a template for states to set up programs that are similar to Cash and Counseling. Meanwhile, the Robert Wood Johnson Foundation and its federal government partner are expanding their specific Cash and Counseling program to an additional 10 states.
PROGNOSIS
Regardless of the remedies states try, long-term care is going to grow more expensive. Simple demographics, coupled with advances in medical care, dictate that. The number of elderly people residing alone without living children or siblings is expected to reach 1.2 million in 2020--up from about 600,000 just a decade ago. Some of them will qualify for public programs, and the number of younger people available to pay that bill is declining as a percentage of the population.The quality of services in nursing homes and in the community is improving--even as those improvements boost costs. And that is likely to continue, as will the pressure for states to deliver more and better services. The power of older Americans as a voting and lobbying group is well known to politicians, and their concerns are not easily ignored.
So, are the states stuck with an inexorably growing budget item for long-term care? Possibly, although state associations are working on the issue. The National Governors Association has argued for a shift in funding responsibilities to the feds for years, but the emphasis is now greater than before. The new chair of the NGA, Idaho Governor Dirk Kempthorne, has announced that making changes in the long-term care system in this country is his number one initiative.
A greater reason for guarded optimism lies in state efforts to encourage citizens to take individual responsibility--expressed, for example, by bolstering families' capacity to take care of one another and by encouraging more affluent citizens to buy insurance to cover long-term care costs.
What appears to be missing from the equation is appropriate education of the American people about the horrific financial burdens that await them. Just as many self-interested Americans finally realized that they could not have a comfortable retirement based exclusively on Social Security income, states would be well advised to encourage a similar awakening regarding long-term care. Only 15 percent of Americans polled by AARP were able to make a remotely accurate guess as to the cost of long-term care; most were totally confused about whether Medicare would pay for their long-term needs. As an AARP report concludes, Americans "know less about long-term care than they think--and than they should."
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