The remainder of this book focuses on long-term care Medicaid. Long-term care refers to a wide range of supportive and health services for persons who have lost the capacity for self-care due to illness, frailty, or a disabling condition. It differs from acute care in that the goal of long-term care is not to cure an illness that is generally of short duration, but to allow an individual to attain and maintain an optimal level of functioning over the long-term. [Note 20].

Since the establishment of the Medicaid program in 1965, long-term care services (i.e. nursing home and home care) have been delivered largely through the fee-for-service delivery system. A 1981 amendment to the Medicaid statute established Section 1915(c) waivers, giving States the option of providing home and community-based services to individuals who otherwise would be eligible for institutional care. Many States arrange for these services to be delivered on a fee-for-service basis, often using case managers to determine service needs and authorize delivery. Concerns about uncoordinated long-term and acute care, inefficiencies in disease management for persons with multiple chronic conditions, and growing costs, however, have encouraged Federal and some State governments to develop alternative systems to pay for and deliver long-term care services.

In recent years, many of the alternative delivery systems that States and the Federal government have developed coordinate long-term care services for dual eligibles – persons who are eligible for both Medicaid and Medicare–through managed care programs. One example is the Program for All-Inclusive Care for the Elderly (PACE), originally modeled after the On Lok Senior Health Services pilot project in San Francisco. PACE makes available all services covered under both programs without amount, duration or scope limitations, and without application of any deductibles, co-payments or other cost sharing. Under the program, certain low income individuals age 55 and older, who would otherwise require nursing home care, receive all health, medical, and social services they need. An interdisciplinary team of physicians, nurses, physical therapists, social workers, and other professionals develop and monitor care plans for enrollees. Monthly capitated payments are made to providers from both the Medicare and Medicaid programs.

As specified in Medicare and Medicaid statutes, the amount of these payments from both programs must be less than what would have otherwise been paid for a comparable frail population not enrolled in the PACE program. Payments are also adjusted to account for the comparative frailty of PACE enrollees. PACE providers assume the risk for expenditures that exceed the revenue from the capitation payments. The Balanced Budget Act of 1997 made PACE a permanent benefit category under Medicare and a State plan optional benefit under Medicaid. As of February 2003, there were 28 PACE sites across the country.

Other examples of State initiatives to provide coordinated long-term care services include the Minnesota Senior Health Options (MSHO), the Wisconsin Partnership Program, and the Continuing Care Network (CCN) demonstration of Monroe County, New York. The MSHO program combines Medicare and Medicaid financing to integrate acute and long-term care services for dually eligible seniors residing in seven counties in Minnesota. The program consolidates all Medicare and Medicaid managed care requirements into a single contract overseen by the State, allowing MSHO to reduce duplication and resolve important differences across Medicare and Medicaid delivery systems. Like PACE, the Wisconsin Partnership Program pays capitated payments to providers to coordinate acute and long-term care services for persons who would otherwise qualify for nursing home care. It also places a strong emphasis on services provided in home and community settings. This program, however, was designed specifically to serve rural areas. New York’s CCN project enrolls at least 10,000 elderly beneficiaries, including 1,500 who had been certified for care in a nursing facility. To participate, enrollees must be age 65 or over, eligible for Medicare and/or Medicaid, and reside in the program’s service area. Capitation payments made to CCN are intended to cover all of Medicare’s acute care services for this population and most of Medicaid’s long-term care services. Medicaid prescription drug coverage, for example, is paid separately on a fee-for-service basis.

States have also experimented with other initiatives that capitate payments for acute and long-term care services under the Medicaid program only. Examples of these demonstrations include the nation’s only statewide mandatory Medicaid managed care program–the Arizona Long-Term Care System (ALTCS)–and small, voluntary programs such as Florida’s Community-Based Diversion Pilot Project. Florida’s Diversion program serves selected metropolitan areas and counties. Case managers employed through both of these programs arrange Medicaid long-term care services and coordinate with Medicare providers to deliver acute care services.

All of these programs were designed with the expectation that they would control costs and reduce administrative complexity. They also intend to delay institutionalization, and thus incur savings for Medicaid through the provision of expanded home and community-based care options and, in some cases, greater beneficiary control over services. Those programs that also capitate Medicare are intended to reduce hospitalization and skilled nursing facility expenditures as well as other acute care costs associated with institutional care. While these initiatives exist in a number of States, they account for a relatively small share of total Medicaid spending for long-term care.