State Medicaid plans across the country are laying the groundwork for introducing managed care into their long term care programs, spurred by federal initiatives to integrate care and funding for the segment of enrollees known as “dual eligibles.”
These beneficiaries, who qualify for both Medicaid and Medicare benefits, have become a focal point for savings and other policy reforms due to their high costs and complex medical needs.

A Prime Target For Savings

In 2008, the nation’s 9. 2 million dual-eligible beneficiaries were “among the most chronically ill and costly individuals enrolled in both the Medicare and Medicaid programs,” says an August 2011 fact sheet from the Centers for Medicare & Medicaid Services (CMS).
Dual-eligible individuals comprised 15 percent of total Medicaid enrollees, but accounted for 39 percent of combined state and federal spending, or $120 billion, in 2007, according to CMS. On the Medicare side, in 2006, the dual-eligible population made up 16 percent of the program’s beneficiaries and accounted for 27 percent of all Medicare spending, CMS reports.
More than half of dual-eligible beneficiaries have incomes below the poverty line, while 43 percent have at least one mental or cognitive impairment, and 60 percent have multiple chronic conditions, according to CMS.
As federal and state governments grapple with the fallout of the nation’s economic crisis and search for ways to plug gaping budget deficits, policy initiatives aimed at reducing the cost of care for the dual-eligible population have won broad appeal. “Dual eligibles are getting a lot of attention because they are exceedingly costly on both the Medicare and Medicaid sides,” says James Verdier, senior fellow at Mathematica Policy Research and lead author of a series of reports on dual eligibles. “Looked at from just a cost point of view, it’s an issue that’s hard to ignore.”

CMS Solicits State Plans

To achieve savings and improve the coordination of care for this small but costly population, CMS has launched two major initiatives aimed at integrating primary, acute, and long term care services for dual eligibles.
In July, the agency solicited states to develop and test one of two “financial alignment models” for dual eligibles. One model is a capitation, in which states, health plans, and CMS will enter into a three-way contract, with plans receiving a “blended capitated rate for the full continuum of benefits provided to Medicare-Medicaid enrollees across both programs,” said a July 8, 2011, letter in which CMS described the initiative.
Alternatively, states could choose a managed fee-for-service model, in which states would receive a “retrospective performance payment” if they met savings and quality targets. States would still have to offer integrated care management for the full continuum of Medicaid and Medicare services.
Thirty-nine states responded to the Oct. 1 deadline with letters of intent to begin the planning process. Implementation of the models is targeted for late 2012.
CMS is also working with 15 states that received $1 million each to design new approaches for coordinating care for dual eligibles. The states have submitted initial proposals and will submit final designs next April. CMS will then choose which plans to implement.

Creating A Single Entity

Integration for the dual-eligible population envisions a system in which a single entity “is accountable for the full continuum of [beneficiary] needs, ensuring a person-centered and seamless care experience,” CMS says in a document that responds to frequently asked questions about the initiative.
The agency’s integration efforts, which promote and encourage managed care models for service delivery and payment, are being launched on such a large scale that it is expected to open the floodgates to Medicaid managed long term care, a movement that until now has never gotten far off the ground.
As of fiscal year 2012, only nine states included long term care in their Medicaid managed care programs, up from four states the previous year, according to a survey conducted by Health Management Associates for the Kaiser Commission on Medicaid and the Uninsured. That number is expected to ramp up dramatically, however, as states adopt integrated managed care models for dual eligibles.
“This is a new horizon for us,” says Steven Gregory, director of Medicaid reimbursement and research at the American Health Care Association. Describing the magnitude of managed care’s impending advance into Medicaid long term care programs, Gregory says, “a tsunami” is coming.
The public policy push to address the integration of Medicaid and Medicare service delivery, care coordination, and funding for dual eligibles can be traced to the Affordable Care Act (ACA), the health care reform statute that was signed into law in March 2010.
The ACA established two new entities within CMS to advance, test, and implement new payment and service models.

The Medicare-Medicaid Coordination Office (MMCO) is dedicated to ensuring that “dual-eligible beneficiaries have full access to seamless, high-quality health care and to make the system as cost effective as possible,” says the website description. The MMCO goals include: simplifying access for beneficiaries, improving quality for this population, eliminating regulatory conflicts between Medicaid and Medicare program rules, and improving the quality and continuity of care. The office is integral, for example, to the oversight and administration of CMS’ dual-eligible integration initiatives.
A second office, the Center for Medicare and Medicaid Innovation, “has the resources and flexibility to rapidly test innovative care and payment models and encourage widespread adoption of practices that deliver better health care at lower cost,” according to the center’s Web page. In addition to testing new dual-eligibles models, the center will be engaged in such issues as the development of payment innovations like bundling and accountable care organizations (ACOs).

Push for Managed Care

Both offices were created “to push the envelope,” says AHCA’s Gregory. “The direction we’re seeing this going in is a lot of advancement with managed care concepts,” including care coordination, case management, and capitation, he says. The new offices within CMS are “breaking down the silos” that separate the Medicare and Medicaid programs, he adds. “They are operationalizing that through managed care concepts.”
Since enactment of the ACA, change is on a fast track, Gregory says. Previously, demonstrations projects would have to be evaluated, and it would have taken many months to accomplish what can now happen much more quickly. Advocates for the integration of Medicaid-Medicare service delivery and payment for dual eligibles say it has the potential not only to curb costs, but improve care by alleviating the fragmentation that results from providing care through two disparate programs.
Medicare, which covers acute and primary care services, and Medicaid, which provides the lion’s share of long term care for dual eligibles, “have different benefits, billing systems, enrollment, eligibility, and appeals procedures, and often different provider networks,” said an August report on states’ integration proposals from the Kaiser Commission on Medicaid and the Uninsured.
Misalignment keeps beneficiaries in “treatment silos, connecting with one provider at a time—even when they have five doctors—and getting one prescription at a time—even when they take 15 different pills a day,” said a 2009 policy brief in support of integrated care for dual eligibles by the Center for Health Care Strategies.
Lack of coordination means that beneficiaries, who tend to be sicker and less educated than the general population, must navigate a health care system that is “mind-bogglingly complex,” Verdier says. “There are a substantial number of things you can do to improve care for dual eligibles, and improve their experience of care, by doing a better job integrating Medicare and Medicaid services,” he says.

The Arizona Experience

At the 190-bed Apache Junction Health Center in Apache Junction, Ariz., most of the residents are covered by the Arizona Long Term Care System (ALTCS), one of the few Medicaid managed care programs for long term care in the country.
Administrator George Jacobson says the 190-bed facility contracts with four plans that operate in Maricopa County and Pinal County, where Apache Junction is located.
“Each of those plans has a separate case management function and separate reimbursement. It’s like dealing with a health plan,” Jacobson says. While providers in most states transmit information to their Medicaid agency for payment, Jacobson says his billing office deals with all four payers each month.
The process takes “more coordination and in some cases more time compared to working with a single Medicaid agency,” he says. Jacobson, who is president of the Arizona Health Care Association’s board of directors, has been a health care administrator for more than 25 years. As an operator in the state with the longest-running and most comprehensive statewide Medicaid managed care program in the nation, Jacobson has a unique understanding of the changes providers will face, as states transition their Medicaid programs to an integrated managed care model for dual-eligible beneficiaries.
One of the biggest differences, he says, is managed care organizations’ (MCOs’) heightened focus on ensuring that people are placed in the least restrictive, least costly setting, Jacobson says. The plans monitor that more intensively than a state Medicaid agency, he adds, resulting in higher acuity and resource needs for the residents who remain in nursing facilities.
Jacobson says he supports appropriate home- and community-based placement and appreciates the need for related cost savings.
“That’s a good thing,” he says. “The problem is that coupled with that, the nursing facility needs to be paid commensurate with the resource intensiveness of the people who do end up in a nursing facility.”
This year, the state cut Medicaid rates 5 percent across the board, on top of a three-year freeze already in place for ALTCS rates.

“We’re losing ground each year of the freeze,” Jacobson says. At some point, the market is going to respond to unsustainable revenue losses, he adds.
“One of the things we are seeing in the market in Arizona is facilities that specialize in Medicare-only post-acute care,” Jacobson says. “That’s the market talking and saying we choose not to accept the financial losses that participation with Medicaid results in.”

Kathleen Collins Pagels, executive director of the Arizona Health Care Association, says a central concern in a managed care system is that the “currency for negotiation is a vulnerable elder.” The greatest challenge, she says, is that “not all of the incentives are aligned.”
Managed care companies receive a capitated rate for care. “It’s in their financial best interest to place people in the least costly setting, but it’s not necessarily in the patient’s best interest,” she says. It is “absolutely critical that both parties keep the patient’s or resident’s best interest at the core of their mission. That has to do with aligning incentives properly.”
Pagels says the integration of Medicare and Medicaid for dual-eligible beneficiaries “makes great sense from a clinical perspective.” But the transition must also make sense from a payment standpoint, she says.
“If providers don’t have adequate resources to care for [dual-eligible residents], it doesn’t make sense,” says Pagels. “We see the advantage of continuity of care for dual eligibles, but there needs to be a close examination of the challenges that places on the provider for payment.”

The Competitive Edge

Operating in a managed environment also challenges providers to sharpen their competitive edge and adapt to shifting policies and expectations, say Jacobson and Pagels.
“Our facilities have become very savvy in dealing with the complex diversity of payers,” says Pagels. “We may have one facility with four managed care payers and over 10 subacute commercial Medicare plans in one building,” she says.
The plans have different quality assurance requirements, different three-day authorization codes, and a wide range of individual demands, Pagels adds. “These are very idiosyncratic plans with unique qualities,” she says. “Providers have had to learn how to deal with that.”
Providers have also learned to be responsive to the wider marketplace. For example, Apache Junction has modified its practices to support local hospitals as they work to reduce readmission rates, Jacobson says. A new Medicare initiative, which takes effect Oct. 1, 2012, will penalize hospitals whose 30-day readmission rates are deemed too high for certain conditions—heart failure, heart attack, and pneumonia.
“Hospitals have become very interested in working along the continuum to make sure we are synchronizing with them in terms of what kind of community care and follow up we can give to reduce readmission levels,” Jacobson says. One hospital wants Apache Junction to follow up with residents who are discharged to the community to ensure that people are keeping their doctor appointments, filling prescriptions, and receiving the home health services that have been ordered for them.
The facility doesn’t have a home- and community-based services (HCBS) division, but it does arrange for home health and equipment needs and has begun making follow-up calls to residents for three weeks after their discharge “to keep tabs on folks so that fixable barriers don’t get in the way of the services and care they need,” Jacobson says.
“One thing the managed care environment has prepared us for is we have to meet different expectations from different partners,” Jacobson says. “Some plans are aggressive on length of stay, some plans are aggressive on certain formulary restrictions.”
The range of expectations means providers must be flexible and responsive, he adds. “We’re in a mindset of adapting to challenges.”
During the early managed care evolution, providers struggled, and many went out of business, Pagels says. Over time, however, providers “not only survived but thrived,” she says.

Raising The Bar

Long term care providers face the likelihood of operating in a wider Medicaid managed care marketplace at a time when the Medicare program is also making game-changing policy shifts, such as the development of  ACOs, payment bundling, and implementation of a program that will penalize hospitals for excessive readmission rates.
As these changes come to fruition in the marketplace, providers will have to adapt to new performance expectations, forge new relationships with providers along the continuum of care, and respond to competitive pressures that may lead them to seek out new opportunities in the marketplace, experts say.
Whether the expansion of managed care comes from “Medicare pilots, such as ACOs or bundling, which we are going to see more of,” or from traditional managed care plans, providers operating in this evolving marketplace “will have to sell themselves from a quality perspective,” says Darryl Nixon, director of reimbursement for the California Association of Health Facilities (CAHF). Nixon says CAHF is encouraging providers to strengthen current and develop new relationships with hospitals and managed care plans in order to be able to compete as these new models of care take shape.
In addition, providers will need the capability to gather and analyze data.
“Whether it’s knowing your hospital readmission rates or knowing what it costs to care for a specific diagnostic condition, you have to have the ability to gather analytics internally,” Nixon says.
“You also have to have the ability to analyze outside competitors and partners.”
Providers must also be able to look at their quality indicators and manage those in order to maximize their performance and enhance relationships with other providers along the continuum.
“A lot of that will have to go on to survive,” Nixon says.

New Competitive Models

Some providers are ahead of the curve. In Oakland, Calif., Windsor Healthcare has turned around an under-performing 94-bed skilled nursing facility and positioned for future success by identifying niche opportunities and strengthening ties with physicians and local hospitals.
Windsor Healthcare, a division of SnF Management with 34 nursing facilities in California, took ownership of the inner city Oakland facility in August 2010, says David Farrell, director of organizational development and regional director of operations.
“We began to implement strategies necessary to survive and stay open, and step one was an organizational shift to person-centered care,” says Farrell, a licensed nursing home administrator for 25 years and a member of the Pioneer Network Board of Directors.
The facility took the strategic step of developing specialized wound care, a service that local hospitals and the wider community needed, says Farrell.
“Hospitals want to discharge patients with wounds to only trusted providers,” he says. “We sent our nurse to become a certified wound specialist and began to market our commitment to healing wounds with data in hand to local hospitals.”
The relationship is a win-win: Windsor Healthcare Center of Oakland provides needed care that enables the facility to grow its Medicare census, and the hospital is able to discharge these patients sooner than they otherwise would.
The facility took the added step of hiring a prominent wound care physician in the local area for consultation rounds, teaching on-site, and participation with the QI team each month. The wound care program, made possible by “real partners who are strategically aligned,” has allowed the facility to have a more balanced mix of payers, which in turn gives it the resources to provide higher quality charity care, Farrell says.
The facility has recently launched a second program focusing on congestive heart failure, a condition with a high rate of hospital readmissions. Windsor has recruited two local physicians who specialize in the condition to be part of their QI team. 
“Now we’re positioning ourselves to be another solution to hospitals” and are aligning niches with their needs for ACOs or any model that enters the marketplace, Farrell says.
“We’re not a separate cog in the health care community, we’re part of the local health care continuum,” Farrell says.
“If we’re going to have a 14-day-stay patient, we have to make sure that the home health care provider we transition the patient to is a quality provider and can be trusted, because if they fail, and the patient is re-hospitalized, then we fail in the eyes of the hospital.”
Lynn Wagner is a freelance writer based in Shepherdstown, W.Va.