PACE can show us the way

Nursing Homes, Sept, 2006 by Paul R. Willging

Let's face it; we have a healthcare delivery and financing system for America's elderly that appears largely incompatible with their healthcare needs. It's a delivery system more oriented toward the acute care requirements of younger populations, and a financing system focused on facility-based care (which America's seniors would prefer to avoid). What's more, the funding programs reflect two very different philosophies of public support--one oriented toward a social insurance concept, in which all elderly are eligible, and one toward the concept of means testing and benefiting only the impoverished.

These multiple difficulties resulted not from conscious design, but from the unintended consequences of programs whose authors were not at all conversant with the particular healthcare needs of America's elderly. Their solution, therefore, will require that we focus precisely on those needs.

A number of programs have been developed and tested over the past 30 years to better structure the financing and delivery of care, particularly long-term care, for America's seniors. Most of these have focused on the need to better coordinate and integrate the services provided. They've done so through one of two basic, but very dissimilar, approaches: case management (the "brokerage" model) or direct provision of services (the "consolidated" model). Brokerage approaches have had only limited success, one reason being the difficulty of identifying high-risk patients for whom home- and community-based services would be most cost-effective, another being these programs' failure to integrate funding sources. Consolidated models, such as Evercare, Social Health Maintenance Organizations (S/HMOs), and Programs of All-inclusive Care for the Elderly (PACE), have done a better job of targeting recipients and integrating funding, and their results have been more promising. But they, too, have their limitations and challenges.

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Evercare, for example, is a nursing home-based approach to care integration that manages acute care financing and care delivery for residents. It is appropriately focused on case management and the use of geriatric specialists and has resulted in a significant decline in hospital admissions. But since its clientele already resides in nursing facilities and the program assumes no responsibility for custodial care, the program is limited in terms of its applicability and is not likely to be a significant solution to the overall problems of long-term care delivery and financing.

S/HMOs don't have that flaw. They were established in 1982 as part of a demonstration to bring both service providers and funding streams (Medicare and Medicaid) together. Unlike Evercare, their services are not oriented toward the institutionalized recipient of care. Indeed, their problem is the converse; in setting a limit on annual expenditures for its clientele, the S/HMO cannot cover the typical long-term stay in a nursing facility and, therefore, effectively denies the benefit. It is true that S/HMOs (as incorporated in the Medicare Choice program in the Balanced Budget Act of 1997) have shown dramatic reductions in admissions to nursing facilities (by as much as 29% compared with non-S/HMO programs). But their financial limitations make them, like Evercare, unlikely solutions to long-term care financing.

So, let's look at PACE. In PACE (as is also true of S/HMOs), the concept of integrating the services needed by the client into a comprehensive package of care is facilitated by capitating payments to the programs (i.e., a fixed amount per member per month). PACE is clearly more advanced than S/HMOs, in that by focusing on seniors eligible for both Medicare and Medicaid, it receives a single, combined capitated payment from both programs. The dysfunctional compartmentalization of the elderly occasioned by separate funding streams (and separate management of that funding) is not a problem for PACE-eligibles. This integration of financing gives PACE the flexibility to provide services that are needed, not just those eligible to be reimbursed.

The PACE program's focus on interdisciplinary assessment, care planning, and intervention (delivering services deemed necessary for the client, not just those enumerated by obscure regulations) has resulted in even more dramatic reductions in nursing facility admissions than even those experienced by S/HMOs. While PACE clients become so only when certified by the state as being already nursing home-eligible, there are PACE programs with actual admissions to facilities as low as 5 to 10% of their enrollees. Indeed, the program's successes led Congress in 1997 to establish PACE as a permanent provider type under Medicare, with authorization for establishing 60 such programs across the country.

Yet even PACE has its problems--problems that, despite its documented successes, have kept it from becoming the major player it might yet become in the long-term care arena. Enrollees in most of the 20-plus PACE programs number only in the hundreds each. One of the smallest PACE programs, associated with my university (Johns Hopkins), has fewer than 150 members. (And, frankly, I'm not sure I could sleep nights were I managing a capitated program in which the risks of potentially high-cost enrollees had to be spread over such a small number of "covered lives"; all it takes is a few long-stay admissions to a nursing facility, at an average annual cost of more than $60,000, to demolish your business plan and court financial disaster.)