Capitated Payment Approaches for Medicaid-Financed Long-Term Care Services

Health Care Financing Review, Fall, 1999 by Noemi V. Rudolph, James Lubitz

INTRODUCTION

Long-term care accounts for a sizable part of the Medicaid budget, almost $54 billion in 1995. Three-fourths of Medicaid expenditures for the elderly were for LTC (about $31 billion); 85 percent of these expenditures were for institutional care, and 10 percent were for home care services (Wiener and Stevenson, 1997).

The locus of LTC has been shifting from institutions to care based in the home and community. One reason is that beneficiaries often desire to remain in their homes and would prefer to receive LTC in non-institutional settings. Another reason is the potential cost-effectiveness of home and community-based care, although there are still conflicting results on this issue (Alecxih, Lutzky, and Corea, 1996; U.S. General Accounting Office, 1994; Wiener and Stevenson, 1998). Nonetheless, various programs, especially those targeted to individuals eligible for both Medicare and Medicaid, are testing integrated health delivery systems and payment methodologies that reflect the shift toward home and community-based care.

Because Medicaid is the primary payer for LTC, there has been a movement to control costs in Medicaid through demonstrations that expand home and community-based services (HCBS) or integrate acute services and long-term services through managed care and through the use of capitation payments. HCFA has authority under certain statutes to waive certain provisions of the Medicare and Medicaid programs to implement demonstration projects. These waivers permit HCFA to pay for services that would otherwise not be reimbursable and to use different methods of paying for services and costs. The MSHO is an example of a program operating under Medicare and Medicaid demonstration waivers. This program attempts to address the issue of fragmented care for beneficiaries entitled to both Medicaid and Medicare by integrating acute care and LTC through a capitated system.

Other States are also exploring the integration of acute care and LTC through Medicare and Medicaid capitation. Our analysis examines the capitated payment approaches for LTC services of five programs: PACE, ALTCS, Texas STAR PLUS, MSHO, and the Monroe County CCNs in New York. Under the Balanced Budget Act (BBA) of 1997, PACE became a regular part of the Medicare program with a limited number of site expansions available annually; the others are being implemented as demonstration programs, with the exception of Texas STAR PLUS, which is operating under a program waiver.

These five programs were chosen to represent a range of capitated LTC programs financed through Medicaid, not because they are the only approaches. In addition, the programs either entirely target or have a strong component for dually eligible individuals. There has been much interest, but little has been written about the mechanisms for capitation of LTC services through Medicaid for these programs. In this article, we provide an insight into each program's LTC benefit package, method of capitation, and amount of capitation. In addition, the analysis highlights commonalities and differences in the methodologies and their implications. The study methodology consisted of a review of documents from each program, including program proposals, protocol documents, standard contracts, actuarial and evaluation reports, and informal interviews with program staff and HCFA project officers for the respective programs.

Each of the five programs has addressed the following key features in developing a Medicaid capitation: (1) defining the eligible population, (2) determining which services will be included in the capitated payment and which will be paid for on a fee-for-service (FFS) basis, (3) for the portion that is capitated, deciding whether there will be multiple rate cells for population subgroups or a single rate for all eligible persons, (4) determining which data will be used to calculate the rate, and (5) determining whether any discounts will be applied.

PROGRAM DESCRIPTIONS

PACE

PACE targets persons 55 years of age or over (65 in some States) who meet the Medicaid nursing home eligibility criteria. PACE is a voluntary program that integrates all primary, acute, and LTC services, uses a multidisciplinary team approach, and utilizes a staff-model delivery system. A combination of adult day health care and home care are the basis of the approach. Medicare, Medicaid, and private insurance funds are pooled. Originally a demonstration program, legislation in the BBA established PACE as a permanent program. As of November 1998, 15 program sites in 10 States had been implemented. An additional 13 sites and 6 States have PACE under development through Medicaid-only capitation contracts. Enrollment at PACE sites as of June 1998 was approximately 4,226 beneficiaries.

ALTCS

ALTCS is a capitated LTC program for the elderly, people with physical disabilities, and people with mental retardation and other developmental disabilities, who have been determined by State assessors to be at risk of institutionalization. ALTCS began in December 1988 for the people with mental retardation and developmental disabilities and in January 1989 for the elderly and people with physical disabilities. Arizona never had a traditional Medicaid program and receives Federal Medicaid funding as a demonstration project under its 1115 waiver. ALTCS is part of the mandatory State managed care program granted by the waiver and is administered by the Arizona Health Care Cost Containment System. Program contractors are paid a capitation rate that covers both acute care and LTC services. Medicare services (for entitled enrollees) are paid on a FFS basis and are usually provided by the same contractors. As of October 1998, more than 25,000 were enrolled in the ALTCS program.