59

that was lifted, and then, it was raised to a possible limit of 12,000,
which has not been imposed in our case.

Mrs. JOHNSON. The government put the limit on?

Mr. Ervin. I am sorry?

Mrs. JOHNSON. The government established the limit?

Mr. ERVIN. The 1993 legislation gave the Secretary the right to
impose a limit of no less than 12,000. Previous to that time, it had
been 7,500.

Mrs. JOHNSON. Are you still operating under a limit?

Mr. ERVIN. At this time, two of the sites have been told that they
are junder a limit, as far as I know, of 12,000. We have not received
such.

Mrs. JOHNSON. Does the limit in and of itself make it difficult to
compete?

Mr. ERVIN. Yes, it does. It certainly limits your ambition in de-
veloping a network and in geographic expansion, and, therefore, in
what your business plan for growth and expansion is.

Mrs. JOHNSON. Do you have any comment to HCFA’s evaluation
that the SHMOs have tended to serve the healthier clients?

Mr. ERVIN. Twelve percent of our population are nursing home
certifiable. That has obviously changed over the years. There was
a queuing mechanism in place for the Social HMOs to help prevent
too great an adverse selection, which could have made it a very
risky proposition and possibly driven us out of business early on.
At this point, with 12 percent nursing home certifiable, definitely,
we do not have a favorable selection compared to other risk
contract HMOs.

Mrs. JOHNSON. Ms. Hansen, what about your population?

Ms. HANSEN. Our population probably is distinguished from the
SHMOs. Our population is 100 percent targeted toward the 12 per-
cent that he just mentioned, whereas the SHMO programs are
really the blend of the well and a smaller proportion of the frail.
And so that is the reason for the different types of programs that
are here. When I mentioned the rates earlier, they are rate ad-
justed for that core population that is 100 state-certified to be
eligible to be in a nursing home.

Chairman THomas. Before I turn it over to my colleague from
California, Mr. Ervin, if, in fact, you were a regular HMO, and this
program went permanent, and you could increase your amount

rom 95 percent of AAPCC to 100 percent, and you could remove
the 50/50 rule and some of the other provisions, would not this be
relatively attractive to a number of HMOs?

Mr. ERVIN. We believe it would.

Chairman THomaSs. Yes, I think it would, too. It would, signifi-
cantly change the marketplace. Thank you.

The gentleman from California?

Mr. Stark. Thank you, Mr. Chairman.

I want to welcome Ms. Hansen here and welcome her to the East
Bay of the San Francisco Bay area. I hope you do well.

You mentioned that you have both Medicaid and Medicare, and
you do not charge premiums above that. What percentage of your
budget comes from Medicaid—Medical, as we call it in California?

Ms. HANSEN. As is true for most of the sites, it is approximately
70 percent of the budget.


128

MEDICAID INTEGRATED CARE PROGRAM

The Medicaid integrated Care Program (MICP} will optimize the health, independence,
and weil being of those clients who have persistent and ongoing medical or functional
problems, The program will primarily serve the frail elderly and the chronically
disabled but can also assist any client who needs non-acute as well as acute care.
The MICP addresses a wide variety of client needs (medical, functional, emotional,
social, and cognitive) and develops care plans directed at fulfilling these needs. A
primary objective of the program is to provide the right care at the right time in the
right place. By assuring that proper care is provided as soon as it is needed, the MICP
seeks to prevent unnecessary hospitalizations and emergency room visits, and to delay
or eliminate the need for nursing home admission.

Within the MICP, the management of care is linked acrass time, place and profession.
Efforts are made to detect and correct problems early--before they become difficult to
remedy. The activities of all care givers - physicians, nurses, institutions, family, and

provided is necessary, adequate,
timely, and consistent with other services the client may be receiving. In all cases,
the program endeavors to help clients retain independence and functional capability,
and to avoid unnecessary and unwanted institutionalization.

Historically, health care has focused primarily on acute care - seeking to cure disease
or repair injuries. While an acute care emphasis continues to be vital, it does not
adequately address the needs of people requiring longer term care. If a person’s long-
term care needs (proper nutrition, healthy living conditions, adequate exercise, health
education, personal care, etc.) are not adequately addressed, the person may become
ill or incapacitated, sometimes critically. When this happens, the person typically
must seek an acute care solution.

The MICP integrates acute and non-acute services in order to serve a variety of patient
needs. The program offers easy access to integrated care, formalized care
coordination, patient-specific care plans, regular monitoring of progress, early
detection procedures, and a team approach to managed care,

Easy Access

‘The program is accessed by a simple inquiry to the care coordination unit by the
client, the family, a doctor, or any other concerned party. Clients are screened to
determine needs, and those detarmined to be at-risk are assigned a care coordinator
who assesses the client for deficits, prepares a plan of care, and initiates services.
The care coordinator addresses all the needs of the client and plans all care. The
client works directly with this one individual, not with a myriad of agencies.



25

type of care, there is the incentive. If this is the most costly end
over here, and you put a little money in over here, the patient ends
up with better care, and in the long run, you save dollars.

Mr. Vuapeck. Mr. Ensign, every well-managed Medicaid
Program in the United States has a group of its staff and a set of
tules that in New York we were—New Yorkers being New York-
ers—more explicit about, but every other state does it, and we call
it the Medicare Maximization Program. And, the basic rules were
that for everybody in the long-term care system, both the providers
and the state had to do everything that they could to bring in every
Medicare dollar before Medicaid would pay something.

And in Medicare, we are not quite as good on the on-site man-
agement. We have a lot of policies that are designed either to pre-
vent the shifting of Medicaid costs to us or to dump costs on the
Medicaid Program. And, the net result is not only significant ineffi-
fiency and additional cost to the system as a whole, but we put our
beneficiaries and our providers of service through some ridiculous
hoops as a result.

Mr. ENSIGN. Mr. Chairman, I know my time has expired, but just
one last comment. And, the comment that Sierra made to me yes-
terday is an example. CCU is the most expensive area in our
health care system on a per-day basis. And obviously, if you are en-
couraging through preventative health, proper diets, exercise, and
counseling in those areas, you are keeping somebody out of a CCU
unit. The taxpayer through lower payments to Medicaid and Medi-
care is going to be better off. The patient is better off because they
are thier and this whole concept of a win-win-win situation is
the way we should go, and I thank you for your efforts.

you.

Chairman THOMAS. Does the gentleman from Washington wish
to inquire?

Mr. McDermott. Thank you, Mr. Chairman.

Dr. Vladeck, you are looking at a 1 of proof that Tip O'Neill
was right when he said that all politics is local. I think on this
panel there are at least five of us up here who have a parent in
their nineties. So, we all have more tl a passing interest in this
issue. There have been proposals made in this Congress for climati-
cally changing the structure both of Medicare and Medicaid. Please
tell me what the impact of those proposed policy changes would be
on the PACE program and the SHMO program.

Mr. VLADECK. Well, I can do this in general terms, because I
think there are a lot of specifics as well, for both SHMO and PACE
and for other long-term care experiments. We use essentially the
current system as the baseline or the template against which we
both set prices and compare for standards of quality of care and for
customer satisfaction and so forth. Any radical changes in the con-
ventional baseline system are going to reverberate significantly
through programs that are tied to that, even if the conventional
system is only sort of a counter-example to them in one sense or
another.

The most significant issue here, or I think the easiest and most
straightforward is probably on the Medicaid side, given the nature
of the proposed legislation.


COMMITTEE ON WAYS AND MEANS.
BILL ARCHER, Texas, Chairman

PHILIP M. CRANE, Illinois SAM M. GIBBONS, Florida

BILL THOMAS, California CHARLES B. RANGEL, New York
E. CLAY SHAW, JR., Florida FORTNEY PETE STARK, California
NANCY L. JOHNSON, Connecticut ANDY JACOBS, JR., Indiana

JIM BUNNING, Kentucky HAROLD E. FORD, Tennessee
AMO HOUGHTON, New York ROBERT T. MATSUI, California
WALLY HERGER, California BARBARA B. KENNELLY, Connecticut
JIM MCCRERY, Louisiana WILLIAM J. COYNE, Pennsylvania
MEL HANCOCK, Missouri SANDER M. LEVIN, Michigan
DAVE CAMP, Michigan BENJAMIN L. CARDIN, Maryland
JIM RAMSTAD, Minnesota JIM McDERMOTT, Washington
DICK ZIMMER, New Jersey GERALD D. KLECZKA, Wisconsin
JIM NUSSLE, lowa JOHN LEWIS, Georgia

SAM JOHNSON, Texas L.F. PAYNE, Virginia

JENNIFER DUNN, Washington RICHARD E. NEAL, Massachusetts
MAC COLLINS, Georgia MICHAEL R. MCNULTY, New York

ROB PORTMAN, Ohio
JIMMY HAYES, Louisiana
GREG LAUGHLIN, Texas
PHILIP S, ENGLISH, Pennsylvania
JOHN ENSIGN, Nevada
JON CHRISTENSEN, Nebraska
PHILLIP D. MoseLeY, Chief of Staff

JANICE MAYS, Minority Chief Counsel

SUBCOMMITTEE ON HEALTH
BILL THOMAS, California, Chairman

NANCY L. JOHNSON, Connecticut FORTNEY PETE STARK, California
JIM MCCRERY, Louisiana BENJAMIN L. CARDIN, Maryland
JOHN ENSIGN, Nevada JIM McDERMOTT, Washington
JON CHRISTENSEN, Nebraska GERALD D. KLECZKA, Wisconsin
PHILIP M. CRANE, Illinois JOHN LEWIS, Georgia

AMO HOUGHTON, New York
SAM JOHNSON, Texas

ay


119

MEDICAID INTEGRATED CARE PROGRAM

CONCEPTUAL DESIGN

The Medicaid Integrated Care Program was designed by Rocky Mountain Health
Maintenance Organization, the Colorado Department of Health Care Policy, and the
Mesa County Department of Social Services to provide integrated acute and long-term
care to 8,000 Medicaid and Medicare/Medicaid clients in Mesa County, Colorado. The
program is founded on an alliance of clients, families, doctors, other medical
professionals, regulators, institutions, collateral caregivers and payors--all working
together to create and meintain an integrated care delivery system which produces
better client outcomes and lower costs.

Improved outcomes and reduced costs are achieved through careful planning, delivery
and monitoring of all types and levels of care--preventive, primary, acute, home-based
and institutional. The intent of the program is to assure that each client receives the
right care at the right time in the right place.

OBJECTIVES OF THE MICP

+ Easier client access to integrated services.

+ Enhanced care coordination to eliminate gaps and duplications.

+ Aligned incentives for all caregivers to encourage delivery of the most appropriate
care in the proper setting.

+ Innovative alternatives to traditional ways of providing care.

+ Care giver collaboration to achieve better client outcomes.

+ Increased home care leading to reduced nursing home residency.

+ Emphasis on preventive care to reduce acute care episodes.

The program is highly client focused. Client needs are identified and assessed early.

Care decisions are based on each client's particular needs. Cooperation and collabora-
tion among caregivers result in improver

The program operates with common assumptions which are tested frequently to
assure that all participants are reaching similar conclusions. The program employs
system-wide incentives, with all caregivers sharing proportionately in financial
outcomes. This allows care decisions to be based solely on client needs and the
outcomes desired, never on individual provider profitability.



(1993), Design of Second-Generation Social HMO Sites (Under cooperative agreement #99-C-
98526/1-07), Brandeis University Institute for Health Policy.

Boose, L. (1993). 1
Beneficiaries Enrolled in Kaiser Permanent tion Cont

PRD Diseration, Porland Oregon:
Portland State University,

Brody, K. (1990). Social HMO and HMO members use of services in the last year of life.
Presentation to the American Public Health Association Annual Meeting,

Social HMO Consortium (1996). Managemem Data Set. Waltham, MA: Brandeis University.

Fischer, L. R. (1996). Personal Communication. Group Health Foundation, Minneapolis, MN.

Greenlick, M. R., Nonnenkamp, L., Gruenberg, L., Leutz, W., & Lamb, S. (1988). The
S/HMO Demonstration: Policy implications for long term care in HMOs, Pride Institute
journal, 7(3), 15-24.

Gruenberg, L., Silva, A., & Leutz, W. (1993). ve
HMO demonixrauon, Cambridge, MA: Longterm Care Data Insitute
Harrington, C., Lynch, M., Newcomer, R., & Miller, N. (1993).

i insu for Health and Aging, Univ or CA ni San

Francisco.

HCFA, (1988). lnterim report to Congress: Evaluation of the Social/ HMO demonstration .
DHHS.

Kane, R., Illston, L., & Miller, N. (1992). Qualitative analysis of the program for all-inclusive
care for the elderly. Gerontologist, 32(6), 771-780.

Kane, R., Kane, R., Haye, N., Mollica, R., Riley, T., Saucier, P., Snow, K. ., & Starr, L.
(1996). Managed Care Handbook for the Aging Network . University of Minnesota National
LTC Resource Center.

Karon, S., Capitman, J., 8 Leutz, W. (1990). fit le
i i + Bigel Institute for Health Policy,
Heller School, Brandeis University.

Leutz, W., Capitman, J., MacAdam, M., & Abrahams, R. (1992). Care for frail elders:
developing community solutions . New York, New York: Auburn House.

Leutz, W., & Greeolick, M. (1995). Reply to Manton et al. Medical Care, 33(32), 1228-1231.
Leutz, W., Greenlick, M., & Capitman, J. (1994) Integrating acute and longterm care. Health
Affairs, (Fall).

Leutz, W., Greenlick, M., Ervin, S., Feldman, E., & Malone, J. (1991). Adding longterm care
to Medicare in HMOs: Four years of Social HMO experience. Journal of Aging and Social

Policy, 4(3), 69-88.
Leutz, W., Greenlick, M., Ervin, S., Feldman, E., & Ripley, J. (1995). Medical Services in
Social HMOs: A Reply to Harrington et al. The Gerontologist, 35(1), 68.

Leutz, W., & Hallfors, D. (1993). Lessons from Social HMO Marketing . Report to HCFA
under cooperative agreement #99-C:98526/1-07. Institute for Health Policy, Florence Heller
Graduate School, Brandeis University.

Leutz, W. N., Abrahams, R., Greenlick, M., Kane, R., & Prottas, J. (1988). Targeting
expanded care to the aged: early SHMO experience. The Gerontologist, 28(1), +17.


19

REFERENCE LIST

Ansak, M., 1990. "The On Lok Model: Consolidating Care and Financing." Generations
14(@2):73-74.

‘Applebaum, R. and Austin, C., 1990. Long-Term Care Case Management: Design and
Evaluation, New York: Springer Publishing Company.

, L., 1994. Quality of Care in the Arizona Long:
, CA: Laguna Research Associates.

Balaban, D., McCall, N., and

‘Residents, San Franci

Batavia, A., 1993. "Health Care Reform and People with Disabilities.” Health Affairs 12(1):
40-57.

Branch, L., Coulam, R., and Zimmerman, Y., 1995. "The PACE Evaluation: Initial
Findings.” Gerontologist 35(3):349-359.

Brown, R., et al., 1993. "The Medicare Risk Program for HMOs-Final Summary Report on
Findings from the Evaluation." Princeton, NJ: Mathematica Policy Research, Inc...

Carlisle, D., et al., 1992. "HMO vs Fee-for-Service Care of Older Persons with Acute
Myocardial Infarction." American Journal of Public Health 82(12):1626-1630.

Evashwick, C. "Definition of the Continuum of Care.” in Evashwick, C. and L. Weiss, eds
- Gaithersburg, MD: Aspen Publishers, 1987.

Finch, M., et al.,1992. "Design of the 2nd Generation S/HMO Demonstration: An Analysis,
of Multiple Incentives.” Minneapolis, MN: Institute for Health Services Research.

Greenberg, J., et al., 1988. "The Social HMO Demonstration: Early Experience.” Health
Affairs 7(2):66-79.

Greenwald, H. and Henke, C.1992 "HMO Membership, Treatment, and Mortality Risk
Among Prostatic Cancer Patients.” American Journal of Public Health 82(8):1099-1104.

Gruenberg, L.. Rumshiskaya, A., and Kaganova, J., 1993. “An Analysis of Expected
Medicare Costs for Participants in the PACE Demonstration.”
Replication of the On Lok Model. San Francisco: On Lok, Inc..

Harrington, C., Lynch, M., and Newcomer, R., 1993. "Medical Services in Social Health
Maintenance Organizations.” Gerontologist 33(6):790-800.

Harrington, C. and Newcomer, R., 1991. "Social Health Maintenance Organizations’ Service
‘Use and Costs, 1985-89.” Health Care Financing Review 12(3):37-52.

Harrington, C., Newcomer, R., and Preston, S., 1993. "A Comparison of S/HMO
Disenrollees and Continuing Members." Inquiry 30(4):429-440.

Irvin, K., et al., 1993 1 Profi Snitiati
Portland, ME: National Academy for State Health Policy.

Kane, R., Illston, L., and Miller, N., 1992. "Qualitative Analysis of the Program of All-
inclusive Care for the Elderly (PACE).” Gerontologist 32(6):771-780.

Leutz, W., et al., 1993. "Design of Second Generation Social Health Maintenance
Organization Sites." Waltham, MA: Institute for Health Policy, Brandeis University.


15

SJHMOs is now set to expire on December 31, 1997. An extension of the S/HMOs program
would provide additional time necessary to establish a comparative study and to assess its
performance potential

OTHER INTEGRATED SERVICE MODELS

HCFA is also testing other approaches to actieve integration, The projects differ in how funding
is integrated, the way in which care is coordinated, and in the use of case management or other
Program elements. Among these projects are the following examples that vary approaches to care
delivery.

EverCare isa demonstration designed to study the effectiveness of managing acute care
‘needs of nursing home residents by pairing physicians and geriatric nurse practii

‘who function as primary medical caregivers and case managers. EverCare seeks to reduce
bbospital care when patients can be managed safely in mursing homes if they receive
‘appropriate services. Three sites are operational in Georgia, Maryland, and
Massachusetts.

‘The Wisconsin Special Care Initiative is designed to provide Medicaid-covered
medical services and additional social services such as respite care, family training, long-
‘term planning, referral and medication services to up to 3,000 Medicaid eligible SSI
recipients in Milwaukee County. About 75 percent of projected enrollees are between 21
and 64 years of age, most are unemployed, and many receive some form of adult day care
services. This model includes a physician panel of experienced providers, case

‘management services provided by a multidisciplinary team, and specialized clinics.
‘Enrollment in the three-year demonstration began in July 1994,

‘The Project for Noa-Eiderty Disabled is a demonstration to develop integrated care

‘Ohio are in various stages of development.

package of primary, acute and long-term care services as part of « prepaid capitated health
‘plan. Maine plans to implement the program in January 1997,

CONCLUSION
‘Our primary goal in PACE, S/FIMO, and the other integrated service projects being tested by

speading, we recognize the central role our programs must play in developing a more beneficiary.

centered system. What we have alresdy seen of PACE warrants shifting PACE from

demonstration to a permanent program. We look forward to working with Congress on

legislation which makes this a reality.

‘We also think there is much to be learned from the S/HMO projects. Because of the importance
of implementing an effective managed care program for the chronicallyill and elderty in need of

long-term care, we recommend an extension of the S/HMO demonstrations authority


14

‘An argument in favor of integrated systems is that quality of care and consumer
isfaction will be improved because artificial barriers between care providers will be
eliminated. Overall, evidence concerning Medicare and Social HMOs suggests generally
high levels of consumer satisfaction among enrollees (U.S. Department of Health and Human
Services, Office of the Inspector General, 1995; Brown et al.. 1993; Newcomer; Weinstock,
and Harrington, 1989). Consumers were most satisfied with covered benefits and the out-of-
pocket costs. However, compared to persons receiving fee-for-service care, consumers were
generally less happy with the care provided. A notable exception to this generalization is the
“impaired” group within the Social HMO, who were more satisfied than the comparison
‘group on almost all dimensions of care.

Formal studies of quality of care have shown mixed results, Although evaluations of
Medicare HMOs generally show that they produce outcomes roughly comparable to the fee-
for-service sector, enrollees receive less care (Brown et al., 1993; Greenwald and Henke,
1992; Carlisle et af., 1992; and, Yelin, Shearn, and Epstein, 1988). Of concem is that some
studies find outcomes fos persons with disabilities and persons with chronic illness to be
worse in HMOs than in the fee-for-service sector (Shaughnessy, 1994). Within the Social
HMOs, at least some disabled groups had higher mortality rates than persons receiving fee-
for-service care (Manton et al., 1993), although, again, these results have been challenged by
the Social HMOs on methodological grounds (Leutz, Greenlick, and Capitman, 1994). In a
evaluation of nursing home care, quality of care was lower in Arizona under the ALTCS
program compared to New Mexico, but itis difficult to know the cause of the differences
(Balaban, McCall, and Paringer, 1994).

To policymakers, one of the major attractions of the integration of acute and long-
term care services is the potential for cost savings in acute care that could be used to finance
Jong-term care services ot to reduce overall expenditures. In evaluating this issue, it is
difficult to separate the effects of capitation from the effects of integrating acute and long-
term care services. Evidence concerning Medicare HMOs, Social HMOs and On Lok/PACE
show that acute care utilization can be reduced in capitated care settings, but it is less clear
that integrating acute and long-term care services generates additional savings (Brown et al
1993; Finch et al., 1992; Harrington and Newcomer, 1991; On Lok, Inc., 1995; On Lok,
Inc., 1993). Social HMOs did not appear to do substantially better than conventional HMOs
in reducing acute care expenditures. The early evidence from On Lok/PACE is more
encouraging, but the data are very preliminary, do not adjust for casemix, and involve a
relatively small sample. Complicating the evaluation of cost savings are the inadequacies of
the Medicare and Medicaid payment methodologies which do not adjust adequately for risk
(National Chronic Care Consortium, 1993; Kane, Illston, and Miller, 1992; Leutz, et al.,
1993; and, Brown et al.. 1993). As a result, for conventional HMOs the evidence suggests
that Medicare is overpaying the plans, and thus losing money (Brown, 1993).

‘The ALTCS program appears to save money, largely because of how it provides
services to the population with menial retardation and developmental disabilities (McCall et
al., 1993). For older people and persons with physical disabilities, savings are smaller and
derived largely from providing services to fewer people than would have received them in a
traditional Medicaid program. 11 is unclear whether the savings come from acute or long-
term care services. In an early assessment of the home and community-based services
provided under ALTCS, the program appeared to successfully target persons at high risk of
insttutionalization and was cost-effective in its provision of noninsticutional long-term care
services (Weissert, 1992).

POLICY CONSIDERATIONS
As slates and the federal government explore ways to reform its system of financing

‘and paying for acute and long-term care services for persons with disabilities, at least seven
issues should figure in the calculus:



32

‘Statement of Jennie Chin Hansen, M.S. R.N.
Executive Director, On Lok, Inc.

Mr. Chairman and Members of the Subcommittee:

{am accompanied by Judy Baskins, the President of the National
PACE Association and Project Director of Palmetto SeniorCai
PACE site in Columbia, South Carolina. Also here is Dr. Chris
Reenen, the Executive Director of the National PACE Association, and
Dr. Bob McCann, a primary care physician at our Rochester PACE site,
from whom you will be hearing later on.

the

Thank you for the opportunity to comment today on the unique health
and social service needs of frail older Americans. | am speaking on
behalf of On Lok, a non-profit, community: organization in San
Francisco which has, since 1973, provided home and community-
based care to thousands of frail elders. On Lok currently serves over
430 older persons. We currently are in the process of expanding our
service area to make On Lok an option to frail elderly throughout the
San Francisco Area. | also represent ten programs that have
successfully replicated On Lok’s experience in California, Colorado,
Massachusetts, New York, Oregon, South Carolina, Texas and
Wisconsin. Many more programs across the country, like On Lok’s,
are under development in states such as Florida, Georgia, Ilinois,
Maryland, Virginia and Washington.

Since 1973, On Lok has evolved from a single adult day health care
program to a total system of care directly providing a
comprehensive package of acute and long-term services on a fully
integrated basis. On Lok was designed specifically to address the
complex medical and social service needs of frail older adults.
Congress has specifically supported and encouraged the On Lok
program, virtually from its inception. Then, in 1986, Congress
initiated a national demonstration of On Lok's cost-effective,
managed care system called PACE -- the Program of All-inclusive
Care for the Elderly. The objective of the demonstration was to
determine the feasibility of making this unique program more
widely, and ultimately, generally available.

All PACE programs share the same basic elements:

PACE programs enroll only the very frail -- older persons
who meet their states’ eligibility criteria for nursing home care.
‘This approach is fundamental and unique among managed care
programs -- there is no mixture of “good risks” with “poor
risks.” All PACE enrollees are in immediate need of
comprehensive and continuing chronic care. A key objective of
PACE is to maximize the functioning and independence of
enrollees in order to delay or prevent nursing home placement.

= PACE programs provide thelr enrollees a comprehensive
benefit package including all necessary medical and long-term


103

from everyone I have talked to to a very great extent a qualitative
improvement, and there is some value in that as well.
I want to thank the panel very much. We may have you back.
The Subcommittee stands adjourned.
(Whereupon, at 1:12 p.m., the hearing was adjourned.]
{Submissions for the record follow:]


39

a month or so before, was totally bedbound. I started him on an
antidepressant, which led to an improvement in his appetite and
a little bit of improvement in his cognitive function. Over the next
few weeks, he really blossomed. He became one of our most social
members in our day center. He continued to be incontinent of
urine, but this was managed somewhat by just having him get
toileted regularly, again, something that sounds simple but is very
hard in reality to carry out sometimes, and to train people to do,
particularly in the community.

an enrollee, he did well for about 3 years, becoming again
someone that everyone just fell in love with, and he engaged in a
lot of activities, including playing checkers at our center, and he
usually lost, but his checkers partner was extremely happy about
that. And during these days, he did experience one episode of pneu-
monia. I remember going in to see him on a Saturday at our day
center. For this condition, people would almost certainly go to the
hospital. We gave him intravenous antibiotics at the center. I made
sure that he kept walking. I made sure that he got proper nutrition
and he did not get deconditioned and end up sort of in the same
spot he had been a few months or years before.

Eventually, he developed abdominal pain and had a bowel ob-
struction due to a colon cancer. We brought him to the hospital to
have this obstruction relieved and after a few days, brought him
back out to his home with extensive home care. His wife and
daughter were not comfortable with him dying at home, however,
so after about 2 weeks, we brought him to a transitional housing
apartment that we rent and staff around the clock with aides and
with nurses who can visit and with physicians who will visit to
make sure that he is comfortable, and that he dies with ‘dignity
and without a lot of pain. And he died very comfortably, with his
wife and daughter present.

Now, had he not come into our program, he would have certainly
ended up in a nursing home. And besides the excellent care that
he got, Medicaid’s costs were substantially reduced. Today, the
nursing home that we will send people to, the Medicaid daily rate
is about $122 per day, and this translates to about $3,700 a month,
and our payment is about $2,900 per month. And again, when we
look at Medicare costs, we look at the first 350 people who came
into our program, and they utilized about 21 hospital days per per-
son per year before coming into the program. And now, they spend
about 4 to 4.5 days per year in the hospital. So, this is a substan-
tial savings for Medicare.

And how does this work? How does it end up saving money?
Well, the incentives are so different. A lot of times, you will have
a patient in the hospital, and maybe the lift did not show up at
home to be able to transfer them. Well, people will say, OK, we will
send them tomorrow. Well, we say no, get them out of the hospital
today; get that lift at home today. Because for me, every day in the
hospital is a hearing aid, or every day in the hospital is an upper
denture. And again, we have got so many incentives to use the
money wisely in a capitated system and we know that the money
will be used to go back into the system to provide further care that
1 think this is the reason why we really save money.


64

LEARNING FROM THE SOCIAL HEALTH MAINTENANCE
ORGANIZATION DEMONSTRATION: 1985-1996

Testimony to the Health Subcommittee
‘Ways and Means Committee

April 18, 1996

by Waker Leutz, PhD
Associate Research Professor
Instivute for Health Policy
Florence Heller Graduate Schoo!
Brandeis University
Waltham, MA 02254

Introduction

My name is Walter Leutz, Iam an Associate Research Professor at the Institute for Heakth
Policy at Brandeis University’s Florence Heller Graduate School. [am also the Director of
the Social HMO Consortium, which is an informal partnership of Brandeis and the Social
HMO demonstration sites. Although I have long been associated with the Social HMO sites, T
speak here today for myself and not the Consortium.

“The purpose of the Social HMO Consortium is to perform research and improve policies
concerning integrated acute and longrterm health eare systems. Although my colleagues and 1
have been an advocates of the Social HMO concept, in our work together we have tried to be
objective, to be concerned about public and beneficiary interests, and to share our experience
in the public domain. Over the years we have published more than 25 journal articles, 12
public reports, and one book on the Social HMO. A recent bibliography is attached.

Overview of the Social HMO Model

From a research and policy perspective, there are four distinctive things about the three So
HMOs that are now in their t1th year of operations under Congressional authority:

1. Social HMOs add community long-term care (LTO) to a Medicare HMO. By community
LTC, I mean care beyond where Medicare definitions of skilled care leave off. The current
sites" benefits cover up to $1,000 per month for personal and social care in the home and in
adult day health centers. Short-term nursing facility stays are also included, Over che first
ten years of the project, about 8,000 of the 40,000 Medicare beneficiaries who have been
members have used the Social HMO’s LTC benefits (Altman, et al., 1993; Consortium, 1996).

beneficiaries, In contrast to PACE, which concentrates on Medicaid aig who meet
nursing home eligibility criteria, che great majority of Social HMO members are private-pay
and not disabled. The representative membership and private premiums create a private risk
pool for financing long-term care and other supplemental benefits. Over the first ten years of
‘operations, more than $60 million worth of community LTC benefits and case management
have been provided ~ an average of more than $5,500 per year for members who have used
these benefits (Consortium, 1996).

3. Social HMOs integrate the delivery of acute care and LTC. Social HMOs send their new
members a health status screening form to identify individuals with disabilities and other risk
factors. ‘The forms are screened by nurse and social worker case managers. ‘They connect
members who have medical risks co physicians, and they go on to develop and oversee care
plans for members needing community LTC. The case managers work closely with hospital
discharge planners, nursing home staff, home health nurses, physicians’ offices, and families to
identify members who are newly disabled, who are transitioning across settings, and who need
ongoing care (Abrahams, Capitman, Leutz, & Macko, 1989; Abrahams, Greenberg, Gruenberg,
& Lamb, 1988; Leutz, Abrahams, Greenlick, Kane, & Prottas, 1988; Yordi, 19912).



35

their staffs. We want to note that the relationship between PACE
and HCFA has been collaborative and constructive over some 15
years, and surmise that HCFA may have encouraged the specific
Tecommendation to expand the program in the President's budget.

The urgency to expand PACE is generated not just by widespread
unmet needs but also by the managed care focus of Medicare and
Medicaid reform legislation.

Status qualifies them for long-term institutional care. Again, PACE
programs have already proven they can effectively meet the needs of
the frail elderly, a population considered by many to be increasingly
vulnerable in the context of expanded managed care. The frail
elderly are not sought after by managed care plans which prefer to
avoid the risk and often do not have the capability, interest or focus
to address the needs of this high-risk, high-need, chronic care
population. in that regard, | would like to point out that provider
status for qualified PACE programs is vital to assure that frail
individuals have direct access to enrollment in a program designed
to fully address their unique needs. Further, provider status would
facilitate subcontracting arrangements with managed care plans and
other insurers for the provision of PACE services. Parenthatically,
without ultimately affording provider status to successful PACE
programs, they are almost condemned to demonstration in
perpetuity!

S. 990 is consistent with efforts to provide states greater

flexibility in administering Medicaid. Stemming from a commitment
to develop viable alternatives to high-cost “bricks and mortar”
titutionalization, over the last several years states have joined
with community charitable and public organizations ta develop PACE
programs, S. 990 would provide states the option to pursue PACE
development and, as under present law, state participation would
continue to be yoluntary. Thus, states would make their own
evaluations of the need for and cost-effectiveness of PACE within
their boundaries.

It should be emphasized that enactment of the provisions of S. 990
would not expand the number of individuals eligible for benefits.
Rather, it would make more generally available a preferable, less
costly, and more humane, community-based and community
sponsored alternative to institutionalization for persons who are
already or will be eligible for nursing home care. Implementation of
the proposal would certainly contribute significantly, on a cost-
effective basis, to the care and well-being of frail, older Americans
‘on a basis not inconsistent with broader health care efforts, We
urge your support and timely action in the near future on the
provisions of S. 990.

Attachment: List of Sites in Development


67

LTC for either a subset of the population or 2 subset of services. Such specialty programs
have the advantage of concentrating on populations and services that they know well.
However, they operate with eligibility and service network barriers that limit the number of
beneficiaries they can serve and how they can serve them. The Social HMO is the only
‘model that stands ready to enroll all Medicare beneficiaries and provide the full range of acute
and LTC services. It thus has the potential to serve beneficiaries with all types of chronic
illnesses, all levels and durations of disability, and in all settings. As the Kaiser Permanente
Interregional Committee on Aging has affirmed, the model of care can and should be extended
beyond the Medicare and Medicaid populations to citizens of all ages (Nonnenkamp, 1996).

Recommendations

The Social HMO sites are now in their 11th year of operations, and their Medicare waivers
are set to expire on December 31, 1997. This schedule will require current sites to begin
closing down and disenrolling members at the end of 1996. Pursuant to Congress's 1990
expansion of Social HMO authority, seven new sites are scheduled to begin operations this
summer. Additionally, as directed by Congress in its 1993 waiver extension, in February 1996
HCFA issued an RFP for sponsors to demonstrate a capitated managed care program for End
Stage Renal Disease (ESRD) beneficiaries. The ESRD site(s) may be ready to begin operations
next year.

Both the current Social HMO sites and these new demonstration efforts deserve the
continuing support of Congress. Two actions make sense: (1) making the Social HMO a
Medicare option and (2) extending the waivers to allow further research on the model.

1, Develop a program to allow any qualifying managed care organization to become a Social
HMO. Such Social HMOs would be paid ata slightly higher rate than regular HMOs using 2
disability-based payment formula providing they met minimum standards concerning benefits
(LTC, prescription drugs, and other supplements) case management, and enrollment. ‘There
has been ample testing of the essential Social HMO operational protocols to feel confident of
success, and time can be built in to refine other mechanisms. The Social HMO Consortium
developed a proposal (but did not submit anything to the House yet) that would accomplish
these ends by making the Social HMO one of several managed care options available to
Medicare beneficiaries.

2, Extend the waivers for four years to support futher research, The 1997 waiver end date
will not allow a test of the second-generation Social HMO and ESRD initiatives, and it will
not allow time for the first-round sites to transition to new operational authority. More
research should be conducted on both the new sites and the existing sites, which have not been
studied in the last six years. A four-year extension through December 31, 2001 would cover
all needs. HCFA has the authority to extend these waivers, but extension can be assured and
greatly expedited with a Congressional mandate. This continuation of waivers needs to
happen soon and should be enacted independently of making developing the Social HMO
program within Medicare.

REFERENCES

Abrahams, R., Capitman, J. A., Leutz, W., & Macko, P. (1989). Variations in care planning in
‘the Social/HMO: A qualitative study. Gerontologist, 29(16), 725-736.

Abrahams, R., Greenberg, J. N., Gruenberg, L., & Lamb, S. (1988). Reliable assessment data in

muhisite programs: ‘The Social/ HMO example. Quality Review Bulletin, 12(2), 153-169.
‘Abrahams, R., Macko, P., & Grais, M. J. (1992). Across the great divide: integrating acute,
post-acute, and longterm care. Journal of Case Management, 1(4),

Altman, $., Leutz, W., Capitman, J., Abrahams, R., Hallfors, D., Ritter, G., & Gruenberg, L.


104

l

il
if
i
Ht

Bnited States Senate

WASHINGTON, DC 20610-1001

April 18, 1996

All-inclusive Care for the Elderly, is a cost-effective managed
care system pioneered by On Lok Senior Health Services in san

PACE programs provide a comprehensive package of primary

PACE program staff.

1; Gealzman, PACE programe axe cost effective in that thay

s capitated basis, at rates that provide payers
savings relative to their expenditures
Medicare, medicaid, and privste pay ayeteas,

The PACE Provider Act does not expand the number of
individuals eligible for benefits in way. Rather, it makes
available to individuals already eligible for nursing home care,

because of their poor health status, a preferable, and less
costly alternative.

Specifically, the act would increase the ounber of PACE
prograns authorised from 40° in 1996; to s0 in 1997; and to an
unliaited number in 199

Chairman, PACE programs provide services to
2,200 fadividuale” Rag eight “jeates-vCaliformia, Col
Maseacl

husetts, New York, Oregon, south Carolina, Texas,
Wisconsin. At'loast 4s other organizations are actively working
to develop PACE in many other States.

By expanding the availability of community-based long-term
care services, On Lok’s success of providing high quality care
with an emphasis on preventive and supportive services, can be
replicated throughout the country. programs have
dubstantially reduced utilisation of high-cost Anpatient
gervices. In turn, dollare chat would have been spent, on
Rowpital and nursing howe services are used to expand tl
availability of community-based long-term care.

Mr. Chairman, analyses of costs for individuals enrolled in
PACE show a 5-to iS-percent reduction. in Medicare and Medicaid
spending relative to a comparably frail population in the
traditional Medicare and Medicaid systems.

States have Soluntarily joined together with commnity
organisations to develop PACE prograne out of their comtuent to
developing viable alternatives to institutionalisation. This is

particularly relevant as the demand and responsibility for
Yoog-term cure expands ¥

Mr. Chairman, as our population ages, we must continue to
place a high priority on long-tere cere services. diving our
Seniors alternatives to cursing howe care and expending the

choices available, only cost effective, but will also
Geprove the quality of lite for older Americans,

comers,
same rine at A FOREST


126

Increasing the use of home-based and assisted living services in lieu of
institutionalization.

Expanding the use of wellness education and similar activities to prevent or
delay the onset of illness or disability.

Developing an information network to improve decision making by providing
all care givers with up-to-date information regarding all services being provided
to each individual patient.

Earl Elicker
Integrated Care Program Design
April 1996


45

TESTIMONY OF SAM ERVIN
PRESIDENT AND CEO, SCAN HEALTH PLAN

before the
HOUSE WAYS & MEANS SUBCOMMITTEE ON HEALTH
April 18, 1996

1. INTRODUCTION

Mr. a en es Members OF Ths Sutcommitiee 1 am Sam Exvin, President
& CEO of SCAN Health Plan, one of the ‘Social Health Maintenance Organization
(Social HMO) demonstration sites. T appre the opportunity ety today ce bbal of
all Social HMO sites and to share with you our perspectives on the value of this important
demonstration program.

Mr. Chairman, I am here today not only to provide evidence of the Social HMO’s value, but
also to urge your serious consideration of making permanent the current waiver authority for
the existing sites and to provide a mechanism enabling other organizations to develop similar
innovative approaches to integrated care. It seems to me entirely appropriate that the Health
‘Subcommittee is reexamining the Social HMO and PACE demonstrations at a time when
health care systems consolidation and integration are at their zenith and when there is so
‘much interest in the concept of Medical Savings Accounts, Medicare and Medicaid
resrutring and the development of managed care options forthe elderly in many ways
have their very origins in the Social HMO demonstration. The Social HMO is among the
most successful demonstration programs and has provided approximately 50,000 seniors the

to enroll in a program that covers the provision of home and community-based
long-term care services. Upwards of ten years of experience demonstrates that the Social
HMOs have proven effective in improving quality and consumer satisfaction while reducing
costs and has provided literally thousands of Medicare beneficiaries an alternative to nursing
home placement.

| would like to focus my testimony today on four areas of support for the Social HMO
program. These include (1) the future of the program; (2) the tremendous benefits these
programs offer to senior citizens and their caregivers, and by implication, other chronically-
ill populations; (3) the benefits to both consumers and the health system that can be derived
from the establishment of integrated systems of care that coordinate the provision of and pool
financing for primary, acute and long-term care services; and (4) the cost-savings potential of
this model.

I, BACKGROUND

‘The Social HMO demonstration was authorized under the Deficit Reduction Act of 1984.
‘This purpose of this demonstration was to develop innovative financing and delivery models
for integrating acute and long-term care services, and in the process, reduce health care costs
and improve quality and appropriateness of care. Since the program’s inception, more than
50,000 seniors have been served. ‘The program currently serves approximately 19,500
seniors through three of the four original Social HMO sites.

Four sites initially were selected by the Health Care Financing Administration (HCFA) to
ppafticipate in this demonstration: Elderplan, Inc. in Brooklyn, New York; Kaiser
Permanente Center for Health Research in Portland, Oregon; SCAN Health Plan of Long
Beach, California; and HealthPartners (Seniors Plus) of Minneapolis, Minnesota. The
original (1984) legislation provided for a three and a half year demonstration which
subsequently was extended three times (1987, 1990, and 1993), Current waiver authori
due to expire December 31, 1997. Three of the four sites continue to operate. In addition,
the Social HMO I sites were instrumental in gaining the approval of six additional “second
‘generation sites ("Social HMO TI ) which are scheduled to become operational next year
under authority granted by OBRA 1990. These projects will test variations on the Social
HMO I demonstration.

‘The architects of the Social HMO intended to eliminate many of the problems which continue
to plague the traditional fee-for-service system such as fragmentation of service delivery and


87

diminishes the size of the pool of potential providers and contractors with whom the stale can contract. Although
states may have a wide network of contracts for serving the Medicaid population on a risk basis, these contractors
‘can not provide Medicare services to the dually eligible unless at least 50% of their plans’ enrollees are
‘commercially insured ~ even though Medicaid rules require that only 25% of enrolles come from the commercial
pool. This forces states to develop multiple contracts for serving the same population, and prevents them from
Ddeing able to adequately and efficiently coordinate the delivery of services to the dually eligible by using the same
providers for a defined population.

Enrollment Options

Under 1115 waiver programs, states are permitted to mandate the enrolisent of the Medicaid population in
‘managed care plans if they offer enrollees more than one choice of plans. In large states with heavy managed care
Populations, this "freedom of choice” requirement generally is not a problem. In small states, however, this
requirement can virtually doom a state's ability to mandate enrollment, Because HMOs do not perceive significant
enrollment opportunities in rural regions, small states have experieaced difficulty in attracting managed care
‘organizations.

‘The Medicare prohibition against mandatory enrollment and “locking-in” for more than 30 days Medicare
beneficiaries who voluntarily enroll also disadvantages states, Since states may not require the dually eligible to
obiain their Medicare benefits through a managed care plan, opportunities to coordinate and manage the care of
this population through a single network operating under joint risk contracts are severely diminished. States have
argued that this probibition reduces the incentive to produce Medicaid savings since these savings are passed on
‘to Modicare. In effect, states pay double for services: once for the Medicaid capitation payment, and a second
‘time for Medicare premiums, deductibles and cost-shar - To maintain states’ interest in the
establishment of ‘are programs for the dually eligible, states should be permitted to require subscribers
to pay the difference between Medicare fee-for-service costs and the costs of providing the care through a capitated
payment arrangement or provide opportunity for a lock-in fora limited period of time, e.g., one year.

Covered Benefits

Differences in Medicare and Medicaid requirements regarding covered services and benefit levels can complicate
‘the provision of care to the dually eligible for both states and providers. States can dictate what Medicaid benefits
a bealth plan must offer, but they have 0 control over Medicare benefits. Each individual health plan can
‘determine which optional Medicare benefits to offer in addition to those required by Federal law. Furtbes, health
plans are required to offer supplemental benefits if Medicare payments in a given community excesd the plan's cost
‘of providing the standard benefit package. This vatiation prohibits the establishment of uniform state-wide
‘programs and diminishes opportunities for minimizing costs through administrative efficiencies.

‘The provision of care for the dually eligible also creates challenges for provider networks that offer secvices in
‘multiple locations within a stte or in more than one state, Networks must effectively develop multiple “products”
or benefit packages to account for variations in benefit requiremems across countits — due to different Medicare
‘payment levels — and across states ~ due to differeaces in Medicaid coverage requirements.

Differences in benefit requirements between Medicare and Medicaid programas further complicate care tothe dually
eligible due to conflicting financial inceotives that lead to cost-shifting. For example, since Medicare is biased
toward acute care, hospitals have the incentive to discharge patients as quickly as possible to LTC settings to
maximize their DRG rate. Since Medicaid is biased towards long-term care, nursing home residents often must
be transferred to an acute care setting to receive payments for services such as physician care.

Finally, differences in requirements for accessing certain benefits, such as Medicare's three-day-prior hospital
requirement prevent providers and purchasers from providing the most efficient combination of secvices atthe best
time to mect patients needs. For example, under the Medicare fee-for-service program, bome and commounity-
based service eligibility is conditioned upon prior receipt of a higher level of care. Second, most HCBS waiver
programs only allow Medicaid to pay for community-based services ifthe person is at risk of institutionalization,
‘This probibits providers from offering services early enough in the disability process to prevent further decline and
ultimately leads to bigher health care costs per capita and in the aggregate.

NCCC recommends that Congress address these problems by vesting authority for the Medicare and Medicaid
programs for the over 65 with either the Federal ot state governments in favor of the current structure of parallel
sautbority between the two. Vesting authority with a single governing entity would pave the way for establishing
uniform standards of care forthe chronically ill and consolidating under a uniform system administrative structures,
‘oversight requirements, reporting procedures and payment rules. It would substantially reduce duplication and
limainate conflicting incentives that frequectly lead to cost-shifting from one program to the other. Further,
delegation of authority for the Medicare and Medicaid programs for those over 65 to either the Federal or state


8

enough already to make the PACE model a permanent part of the
Medicare Program. We will draw on what we have already learned
about SHMOs as we seek to refine the legislative base of Medicare
and managed care going forward.

Again, I appreciate the opportunity to share our views on these
subjects with you, and, of course, I am happy to answer any
questions you might have, Mr. Chairman.

The prepared statement follows:]


LONG-TERM CARE OPTIONS

THURSDAY, APRIL 18, 1996

House OF REPRESENTATIVES,
COMMITTEE ON Ways AND MEANS,
SUBCOMMITTEE ON HEALTH,
Washington, DC.
The Subcommittee met, pursuant to notice, at 10 a.m., in room
1100, Longworth House Office Building, Hon. William M. Thomas
(Chairman of the Subcommittee) presiding.
{The advisory announcing the hearing follows:)

@


42

If Mr. B had not had the option of enrolling in the ILS program, he would have
eventually been discharged from the hospital three years ago to a nursing home
with very little or no prospect of ever returning home. Beyond ILS’ ability to
enhance Mr. B’s quality of life, by preventing nursing home placement, Medicaid’s
costs were reduced substantially. Today, the Medicaid nursing home rate in
Rochester is $122 per day. On a monthly basis, this translates to almost $3,700 in
contrast to Medicaid’s monthly payment to PACE of $2,900 ~ a savings of 20 percent.

This case, which is very typical of ILS" enrollees, illustrates the benefits of
comprehensive care aimed towards improving psychological and physical function
that maximize a person’s independence. Many aspects of this care would have been
difficult to provide in the traditional fee-for-service system, particularly the
coordination of care within our interdisciplinary team. The continuous process of
assessment and care planning that occurs at PACE sites contrasts dramatically with
the comparatively intermittent approach to case management in the traditional
long-term care system. Our unique financing breaks down the barriers between
acute and chronic care and allows us to give participants what they need, when they
need it.

Prior to my working in geriatrics I worked in a busy hospital emergency department.
Emergency departments provide a unique opportunity to see many of the lesions in
our health care system for older persons. The fragmentation of care, overuse of
medications and testing, and lack of discussion about end of life decisions can lead to
interventions that do not improve, and often adversely affect, a person’s quality of
life. Working in the PACE program has allowed me to work in a stimulating
environment that addresses many of the problems in our current medical system
for this population and aligns the incentives towards what people really need and
not just what can be billed for.

Our participants and their families have been very happy with their care. A three
year study of our program was conducted by the Center for Governmental Research
(funded by the John Hartford Foundation, Feb. 1994). This study assessed patient
and family satisfaction to be very high.

We have a very low turnover of staff including our personal care aides, which
speaks to the satisfaction that our workers experience in working as equal team
members with a real ability to be heard and influence the plan of care. This
satisfaction can only lead to more efficient and compassionate care that we would
want our own family members to experience.


73

persons. In fact, the overwhetming majority of enrollees are not disabled. While all
enrollees are Medicare eligible, relatively few Medicaid beneficiaries are enrolled. Enrollees
ay premiums to cover the extra benefits. Originally a four-site initiative, Congress has
authorized a "second generation” of demonstrations.

Qn Lok/Program of All-inclusive Care for the Elderly (PACE)

In 1983 On Lok Senior Health Services obtained federal waivers allowing it to receive
monthly capitation payments from Medicare, Medicaid, and (in a few cases) individuals to
provide a comprehensive range of acute and long-term care services (Ansak, 1990; Zawadski
and Eng, 1988). PACE is a an effort to replicate the On Lok model in 10 sites throughout
the country (Kane, Hlston, and Miller, 1992; Irvin et al., 1993). Enrollment is limited to
persons who are so disabled that they meet nursing home admission criteria, Because
expenditures per person are so high, very (ew persons can afford to pay an actuarially fair
insurance premium. As a result, almost all enrollees are Medicaid eligible. PACE sites
‘operate as geriatrics-oriented, staff model HMOs, with primary cate physicians as employees
of the organization. Finally, the approach makes heavy use of adult day health care, which
is integrated with primary care.

Arizona Long-Term Care System (ALTCS)

The Arizona Health Care Cost Containment system (AHCCCS) is a statewide
‘demonstration project which finances medical services for the Medicaid-eligible population
through prepaid contracts with providers. Beginning in 1989, the ALTCS program
incorporated Medicaid long-term care services into the AHCCCS program (Northrup, 1994;
McCall, Korb and Bauer, 1994; McCall et al., 1993; and, Irvin et al., 1993). Participation
in the program is limited to individuals who are certified to be at risk of institutionalization.
ALTCS covers acute care services, as well as care in nursing facilities, intermediate care
facilities for the mentally retarded, and home and community-based services. Under the
ALTCS model, the state contracts with one entity in each county to assume responsibility for
covered services to elderly and physically disabled eligibles. In the overwhelming majority
of cases, the contractor for elderly people and persons with physical disabilities is the county
government.

WHAT HAVE WE LEARNED?

Research on Medicare HMOs, Social HMOs, On Lok/PACE, and ALTCS provide
evidence regarding enrollment, satisfaction, quality of care, and utilization and costs. With
the exception of the ALTCS program, these demonstration projects generally depend on
voluntary enrollment, which provides both a market test of different plans and a check on
quality of care. In most areas of the country, these capitated approaches, which requice
enrollees to give up freedom-of-choice of providers, have had a difficult time enrolling the
elderly and disabled populations (McMillan, 1993; Harrington and Newcomer, 1991; Finch
et al., 1992; Leutz et al., 1993; Kane, Illston, and Miller, 1992; Branch, Coulam, and
Zimmerman, 1995). As more older persons become familiar with managed care, this
resistance appears to be diminishing, at least for the Medicare HMO program.

Evidence from conventional HMOs and the Social HMOs suggests that Medicare
‘enrollees tend to be healthier and less disabled than persons remaining in the fee-for-service
system (Brown et al., 1993; Riley, Rabey, and Kasper, 1989; Newcomer et al, 1995; and.
Manton et al., 1994). Some researchers and administrators associated with the Sociat HMOs
strongly challenge these findings as methodologically flawed (Leutz, Greenlick, and
‘Capitan, 1994). Although the On Lok/PACE enrollees are clearly very disabled, they
‘appear 10 be Jess disabled in the activities of daily living than nursing home patients and may
have other characteristics that distinguish them from persons who are institutionalized (On
Lok, 1993). Medicare HMOs and Social HMOs tend to have fairly high disenrollment, but
Medicare makes it extremely easy to disenroll (Brown et al., 1993; and, Harrington,
Newcomer, and Preston, 1993).



82

Chairman THOMAS. Mr. Bringewatt.

STATEMENT OF RICHARD J. BRINGEWATT, PRESIDENT,
NATIONAL CHRONIC CARE CONSORTIUM, BLOOMINGTON,
MINNESOTA

Mr. BRINGEWwarTT. Mr. Chairman and Members of the Subcommit-
tee, I appreciate the opportunity to testify today on behalf of the
National Chronic Care Consortium. The National Chronic Care
Consortium represents 27 of the nation’s leading health networks
and functions as an operational laboratory for integrating primary,
acute and long-term care for people with serious and disabling
chronic conditions such as heart disease and Alzheimer’s. These
people represent the highest cost and fastest growing care segment
of health care spending.

Today, I would like to make three points. First, Medicare prob-
lems only can be fixed by a better understanding of the problems
faced by chronically ill people. Let me give you an example related
to the care of Mrs. Jones, an 88-year-old woman with Alzheimer’s.
Mrs. Jones was living alone in her apartment when she developed
Alzheimer’s. Her children were concerned that their mother was
falling, but the present Medicare and Medicaid system does not
generalize a process for identifying risk. Further, existing payment
strategies are designed to react to events, not to prevent them.

So, Mrs. Jones eventually fell and broke her hip. Then, the entire
continuum of care became available to her, until Mrs. Jones was
transferred to a nursing home for rehabilitation. Then, Medicare
stopped paying part A benefits, because she was not making
progress with her rehabilitation. Her coverage was shifted to
Medicaid, enabling her to continue to receive nursing home care.
But after several weeks, she developed a urinary tract infection be-
cause she was eating poorly and became dehydrated.

The payment system favored transferring her back to the hos-
pital for IV fluids, antibiotics and feeding tube placement. After 3
days in the hospital, she returned to the nursing home for a feed-
ing tube and continued to collect Medicare part A coverage for the
full 100-day benefit as long as she kept the feeding tube. To con-
tinue receiving payment, the nursing home did not resume regular
feeding until day 101. Does this sound like humane or cost-effective
care?

Second, Medicare long-term demonstrations have provided us
very valuable information about meeting the needs of the chron-
ically ill. Just three quick examples. These demonstrations first tell
us that containment of Medicare costs requires long-term care to
become more integral to integrated health networks. People in need
of long-term care also have extensive medical needs. Keeping long-
term care out of integrated health networks does a disservice to the
payer and to clients as well.

Second, the current wave to consolidate assets and authority for
hospitals and physician groups may increase efficiency, but it will
never improve health care for the chronically ill or save money un-
less these mergers also integrate the ongoing management of care
across the spectrum of services used by disabled people.

My final point is to reduce spending and contain long-term costs,
we must develop policies that reduce the accumulation of costs


LONG-TERM CARE OPTIONS

HEARING

BEFORE THE

SUBCOMMITTEE ON HEALTH

OF THE

COMMITTEE ON WAYS AND MEANS
HOUSE OF REPRESENTATIVES

ONE HUNDRED FOURTH CONGRESS
SECOND SESSION

APRIL 18, 1996

Serial 104-85

Printed for the use of the Committee on Ways and Means

ae

U.S. GOVERNMENT PRINTING OFFICE
40-378 CC WASHINGTON : 1997

For sale by the U.S. Government Printing Office
‘Superintendent of Documents, Congressional Sales Office, Washington, DC 20402

ISBN 0-16-055344-X



108

‘CONSUMER BENEFITS OF SOCIAL-HMO's

Social HMO’s, which operate under TEFRA risk contracts, such as in the case at Fallon ean
‘offer Medicare beneficiaries an enhanced package of Medicare services. In addition to all
Medicare part A and B services, coverage includes pharmacy benefits, hearing aids, eyeglasses,
and up to $1,000 per month in home and community long term care services. ‘These benefits
help members to avoid insticutionalization and maximize independent functioning, Under
the Social HMO model of care, early identification and interventions can prevent serious
illness or disabilities.

Under Social HMO’s consumers have comprehensive coordination of all health as well as
related services. Consumer choice will be enhanced and consumers will be able to choose a
richer package of long term care benefits currently aot available under Medicare risk
contracts.

RECOMMENDATIONS

‘The SocialHMO demonstration programs are effective mechanisms for integrating acute and
long-term services, offering richer benefit packages not available under Medicare risk
programs. Consumer choice is enhanced. ‘There is potential with the second generation sites
and continuation of the first generation demonstration to continue to explore cost savings
measures in order to reduce health care expenditures as well as improved health outcomes.
Authorization for both the first and second generation Social HMO’s will expire on
December 31, 1997. The Fallon Healthcare System, as well a the other Social FIMO's sites,
will not become operational until July 1996 or, in many cases, late 1996. Therefore, the Social
HMO's Il sites would not be operational for more than a year and then would have to begin a
process of phasing down the program. An extension of the Social HMO demonstration will
provide the necessary time to further determine the potential for providing higher quality
integrated care and extended benefits, ih the most cost effective manner.

We respectfully request that:
© Congress direct the Secretary of Health and Human Services to develop regulations
‘which grant permanent waiver authority for existing sites and which provide a
mechanism for other entities to apply for Federal qualifications as a social HMO;

‘© Congress provide legislative authority to continue the Social HMO I and II programs
until the Secretary of Health and Human services promulgated such regulations;

We also recommend the following modifications to the current waiver authority
The Social HMO waivers currently provide for the following:
‘© Payment at 100% of the AAPCC;

‘© the option to queue applicants according to disability;




109

@

Oxford Health Plans

1800 Connecticut Avenue + Norwalk, CT 06854 + 203-852-1442 + 800-444.6222

Timothy B. Meyer (203) 851-1865
Director, Goverament Relations Fax: (203) 851.2465

April 30, 1996

Ms. Elise Gemeinhardt

Professional Staff

Subcommittee on Health

Committee on Ways and Means

1136 Longworth House Office Building
Washington, DC 20515

Dear Elise:

Enclosed is Oxford's written testimony for the record regarding the Long Term
Care of April 18th, 1996. As you will note Oxford is supportive of the PACE
program but we do believe we have additional experiences which we should
have the opportunity of bringing to the program. Therefore, we oppose any
restriction to participation whether it be prohibiting for profit companies or
limiting participation to community based provider organizations.

I look forward to working with you on these issues. Please don't hesitate to
contact me if we can be of any assistance.

Sincerely,
ve hye
Timothy B. Meyer

ce: Kate Sullivan
Enclosure


30

cal director of our Rochester, New York project, Independent Living
for Seniors.

1 would really appreciate the opportunity to comment on a pro-
gram that has drawn so much response. Having been at On Lok
now for my 16th year, it is very satisfying to see the evolution of
this unique program much more mainstream. I represent not only
On Lok but frankly, the other 10 projects that Dr. Viadeck men-
tioned which are also operating under full risk and the waivers
that span from California to Colorado, Massachusetts, New York,
Oregon, South Carolina and Texas as well as Wisconsin. And fi-
nally, as you have heard, there are other programs that are greatly
interested in this approach that are in the states of Florida,
Georgia, Illinois, Maryland, Virginia and Washington. The attach-
ment that you have indicates that besides the 10 projects that are
under full waivers, there are actually 59 projects spanning close to
30 states that are interested in this model.

Since 1973, On Lok had started with what was known to be a
day program but really has evolved to a whole system of care that.
integrates acute and long-term care services for adults. And it was
in 1986 that Congress authorized a demonstration to continue to
test this pilot to see whether or not it could be replicated in other
states around the country. And as you have heard, that, in fact,
has occurred. There are probably five key elements of the model
that I would like to address, some of which were asked in the
questions here.

First and foremost, this is unabashedly a targeted program for
who are frail elderly people. People qualify for this program as a
result of the respective states’ approach to certifying them for nurs-
ing home care. One question was whether or not this was strictly
for the Medicaid population, and the answer is no. Nursing homes
oftentimes a U.S. Senator from the State of tend to service low-in-
come, Medicaid individuals, but we all have private-pay individuals
in our programs.

Second, the programs provide a comprehensive set of benefits
that are both acute and long-term care. This covers medical serv-
ices as well as comprehensive long-term care services, and this is
without limits in terms of dollars or duration of service. Third,
PACE programs fully integrate the delivery system of acute and
long-term care, and one thing that marks this program is not the
financing but frankly, the way the services are actually adminis-
tered by an interdisciplinary team that is familiar with the frailty
and multiple problems in a very intimate way and can respond,
frankly, on a dime. The ability to really quickly respond to emer-
gencies, even on a Sunday, 7 days a week, these are the ways that
you save money.

Fourth, PACE programs are reimbursed on a capitated basis.
And what that means is rates are set for Medicare, for Medicaid
in a way that addresses savings for the respective parties. Fifth,
the programs assume total financial risk, and thereby, there is no
incentive to really bump the cost to somebody else. The fact is we
provide the services fully ourselves.

Dr. McCann will really give a clearer example of what a typical
enrollee is like, but I brought some pictures to give you a sense of
some of the people who are enrolled in the On Lok program, which


89

aust be assessed “aursing home certifiable” to qualify for coverage, On average, members are disabled in between
1.8 to 3.4 out of S activities of daily living

‘The iene nthe populations served has ld ach of hse model 0 focus ons diferet spect of integration
and a different area of health service delivery. The Social HMO has expanded LTC insurance opportunities for
the petra popaon of Matic Dane, cause the Socal HMOs ong erm cae isk i ited

benefit cap, these demonstrations have placed greater emphasis on issues of rehabilitation prior

‘month is intended to supplement the Medicare skilled benefit through coverage of convalescence after Medicare
using home coverage expires, payment for short respite stays to provide relief fr family caregivers and to pay
for the initial portion of a permanent nursing home admission. Social HMOs would bave stronger incentives to
manage the interrelated costs of primary, acute and long-term care benefits if they were fully at risk for all of these
benefits.

‘The PACE program targets a smaller niche of the Medicare market, those who are extremely frail as well as dully
ligible for Medicare and Medicaid services. About 90% of PACE enrollees are dually eligible. Since PACE is
fully at risk for all primary, acute and long-term care services for 2 frail population, this program has been forced
‘to more extensively restructure and more fully integrate all patient care services, but only after the subscriber bas
become severely disabled. This is accomplished through an interdisciplinary team approach to care provided under
sn aul ay cae cater roel. PACE enrolls vis day care centers upto 6 days ex week where they recive
a wide range of primary care, rebabilitation and medical services on frequent basis.

‘Another important advantage of the Social HMO and PACE models over the TEFRA model relates to the payment
structure for disabled enrollees. Both models include stronger financial incentives to care for the severely
tronlcally Ul, wake wadon) 8k conracs, TERA risk contractors ae only reward fnacaly fr

who are sufficiently ill or impaired to warrant institutionalization, Payment for the institutionalized
tate eigofeanly higher than for community-dwelling subscribers. The Social HMO and PACE programs
include a risk-adjustment for communizy-dwelling seniors who are frail as well, Plans receive almost 2.4 times the
premium level for frail elderly, regardless of where they are living.

‘The Social HMO and PACE programs have demonstrated the importance of linkages between the acute and long-

sebscribers’ plans of care are monitored continuously thorough day care staff to determine the need for a change
in proposed treatment plans. The care coordination resulting from regular communication with subscribers belps
to anticipate health problems, avoid flair-ups of chronic illness and preveat acute illness, While PACE bas not
been formally evaluated, sites report a 15% savings compared to the traditional fee-for-service sector.

‘The Social HMOs perform quarterly assessments of the nursing bomne certifiable population to determine ongoing
need for services. This care management function is extremely important to helping control costs since Social
HMO beneficiaries only remain eligible for long-term care services while they are nursing home certifiable. Less
than half of those qualified as oursing bore certifiable at any time remain in this category consistently for more
than ope year and many fully recover following rehabilitation. Thus, the long-term care benefit can be
discontinued for those who regain functional ability and these dollars can be redirected to those in need, thus
helping to maintain sable costs and premiums, Social HMOs also bave ideotified several factors which predict
‘the likelihood of someone remaining nursing bome certifiable vs regaining functional ability. This information
is used to monitor subscribers’ health starus and develop appropriate interventions.

Notwithstanding te nal progres towards Integra and cost onalnment mae by thete demonstration ates
‘there are a number of constraints that will need to be addressed in further generations. One of the most significant

they are stat fan ikfor thet sevice. PACE has the financial incentive to manage all services, but
‘opportunities to reduce expenditures associated with chronic ilness are limited by the nursing home certifiable
eligibility roquirement, This represents a significant limitation relative to overall system cost containment since
the majority of long-term care episodes originate from acute illness,

‘The Social HMO and PACE models also could be significantly eahanced through consolidation of administrative
and oversight requirements. While both models permit providers coasiderably greater flexibility in clinical
Gecisions regarding service allocation by virtue of waiver authority, many of the administrative barriers to
integration cited above continue to plague these programs. For example, providers must eater separate contracts

‘with Medicare and Medicaid and are subject to parallel and oftea duplicative oversight requirements related to data
‘collection and documentation. NCCC also believes that the PACE program could be enhanced through relaxation
of prescriptive protocols governing service delivery. For example, barriers to entry include unwillingness of


84

STATEMENT OF RICHARD J. BRINGEWATT
PRESIDENT, NATIONAL CHRONIC CARE CONSORTIUM

re
WAYS & MEANS SUBCOMMITTEE ON HEALTH
APRIL 18, 1996
1. INTRODUCTION

‘Mr. Chairman and Members of the Subcommittee, I appreciate the opportunity to testify today on behalf of the
National Chronic Care Consortium (NCCC) regarding long-term care and managed care options for Medicare

jaries. NCCC is a national nonprofit eseating 27 ofthe nation's leading health networks,
all of whom serve the Medicare and Medicaid populations. Our mission is to establish new methods of i i
care for persons with serious and disabling chronic conditions, such as heart disease, Alzheimer's and stroke. We
appreciate the Subcommittee's interest in the Social HMO and PACE programs as examples of how Medicare could
bbe restructured to expand managed care options for our nation’s seaiors, Several Consortium members operate
PACE and Social HMO programs within their systems and over half have Medicare risk contracts. In addition,
NCCC members are participating in other long-term care managed care programs such as the Alzheimer's Medicare
Demonstration Program and the Community Nursing Organization Demonstration and several have submitted
proposals to be demonstration sites for the Minnesota Long-Term Care Options Program (LTCOP). The
‘Consortium itself has a contract with the state of Minnesota to develop a Technical Assistance and Education
Program for LTCOP. This extensive experience with managed long-term care programs affords the NCCC an
‘inside view of the advantages and constraints inherent in these models.

| would like to focus my testimony on three critical issues related to long-term care options including: (1) the
rationale for developing integrated financing and delivery models providing primary, acute and longterm care
services forthe elderly and chronically-ill populations; (2) the lessons we have learned from existing demonstration
‘Programs such as the Social HMO, PACE and LTCOP; and (3) the rationale for moving beyond the demonstration
‘mode for Medicare and Medicaid demonstration programs and into mainstream delivery systems. I will conclude
my testimony with NCCC’s recommendations for moving beyond the stanus quo.

NCCC strongly supports Congressional efforts to expand Medicare options for integrating primary, acute and long-
term care services through managed care and integrated delivery system approaches. We believe that sufficient
evidence from private sector initiatives and public demonstrations exists regarding the cost-containing potential of
integrated delivery and managed care approaches to warrant deployment of these models and other variations into
mainstream programs. NCCC strongly urges the Subcommittee to make permanent the waiver authority for the
existing Social HMO sites and to establish a new managed care option under the Medicare program which provides
for the expansion of Social HMO and PACE programs and includes enough flexibility for sponsoring entities to

it provider
‘ecotmmend that such legislation (1) consolidate administrative and oversight requirements for integrated provider
‘networks that serve a common high-risk population; (2) establish incentives for risk-based capitated financing for
provider-based networks building upon risk-based payment methodologies which adjust for health status; and (3)
direct the Secretary of HHS to conduct research to determine the aggregate costs targeted, high-cost chronic
conditions and to establish outcome indicators for chronic conditions that measure quality over time, place and
profession.

A CASE FOR HEALTH SYSTEMS INTEGRATION

‘The prevailing view in the United States is that our nation no longer can afford its current health care system. The
‘government, business and the geveral public increasingly are burdened by unmanageable expenditures and by
‘concerns that high priced care is not resulting io desired health care outcomes. The past few years have wimessed
‘tremendous consolidation in the health care marketplace among providers and payors in the form of joint ventures,
mergers and other affiliation models. In most cases, integration efforts have focused on the merger of assets and

among provider

have sought to achieve 3 competitive advantage in contracts with third party payors and
ding sod sablizag ther hare of ae heal cre matic, ‘They hope to achieve new levels of efficiency
reduction in hospital decreased expenditures for subspecialties and medical technology and greater

‘own that mirror developments in the acute care sector.
‘These tegration efforts have significantly changed the nature of authority and the distribution of health care dollars

health care professions. The effectiveness of cost containment initiatives and care for millions of


12

used by Medicare to pay for at-risk health maintenance organizations is modified for Medicare
capitation payments in PACE. The basic AAPCC rate is multiplied by a “frailty adjustment” of
2.39 t0 reflect the costs Medicare would bear in caring for the frail elderly in the fee-for-service
system,

In order to protect against unanticipated costs, unanticipated disenrollment rates, and the
unavailability of stop-loss insurance coverage, PACE demonstration sites share risk with
Medicare and Medicaid. During the first three years of operation, sites assume progressively
increasing risk, and at the start of the fourth year assume full risk. Currently, special
demonstration waivers permit the integration of Medicare and Medicaid funds.

PERFORMANCE OF PACE

‘A preliminary evaluation of PACE should be available later this year. State participation in PACE
is Voluntary, and continued states have shown a great deal of interest in continuing their

participation. Based on enrollees’ low disenrollment rates, enrollees appear satisfied with PACE.
the combined rate of voluntary and involuntary disenrollment from PACE is considerably lower
‘than the voluntary rate of disenrollment from other Medicare risk-based health plans. Other states
are interested in developing their own demonstration sites.

PACE SHOULD BE MADE PERMANENT

Based on our current knowledge of the succes of PACE, ‘we recommend that PACE be shifted
from a demonstration project to permanent program. We support legislation, such as the PACE
provision included in the President's Balanced Budget Initiative for Fiscal 1997, to accomplish
this goal. Under the President’s plan, providers would be monitored closely, while progressively
‘assuming full risk. ‘The Presidents plan permits the Secretary to continue to set Medicare
payments to ensure budget neutrality. We recommend that the budget neutrality language be
retained. The President's proposal is supported by both On Lok and the National PACE
Association

OVERVIEW OF S/HMOz

HCFA’s Social Health Maintenance Organization demonstrations were established by Congress.
in 1984 to test whether investing in some long-term care benefits for Medicare HMO enrollees
could save money through coordinating care and providing services that might prevent more
costly medical complications. The S/FMO demonstrations have provided standard HMO benefits,
such as hospital, physician, skilled nursing home, and home health services, together with limited
long-term care benefits to Medicare beneficiaries who voluntarily enroll. In addition, expanded
benefits, such as eye glasses and prescription drugs, are available, S/HMOs enroll a cross-section
of the elderly living in the community. S/HMOs’ services range from community-based care to
institutional nursing home care. Services provided include personal care aides, homemakers,



54

‘Mr. Chairman, I have tried to impart to you and Members of the Subcommittee the
compelling nature of this HCFA program success which has proved to be a tremendous
‘win/win for seniors and government, both federal and state. It is hard to paint a compelling
picture in words about a faceless senior citizen whose dignity and dwindling independence
has been buoyed by the application of the Social HMO program. But the essential morals
and messages of the story are easy to tell:

.

‘The Social HMO is a program that really works by allocating monies in the most cost
efficient and beneficiary effective manner possible;

‘The cost savings to the Medicare and Medicaid programs are just beginning to be
quantified and understood;

It is the type of government sponsored program which offers seniors significant
choice in controlling their lives, offers health program planners the most cost effective
approach to date in dealing with the fast growing frail population, and offers support
and encouragement to families as they carry out their care giver roles; and

Provides a care paradigm applicable to other costly home-bound and medically needy
populations,

‘Mr. Chairman, this program is one that warrants you attention and support. We sincerely
hhope that you will consider the SHMO Consortium recommendations outline in Section IV of
this testimony and help to make this cost effective care program available to thousands more
seniors in the years to come.


96

an integrated geriatric program instead of—and I do not mean this
pejoratively—a narrow, doctor-controlled program that did not look
at the larger picture—there would be winners and losers. And I
would much rather have the marketplace try to determine winners
and losers than government trying to identify structures that may
or may not work.

Mr. WIENER. Well, we can certainly—if we can open things up,
we could see what the effects of the market are. As you know, only
about 9 percent or 10 percent of the elderly have chosen to join
HMOs, and we have only a small handful of programs that inte-
grate acute and long-term care services. In terms of integration,
the Social HMOs have focused on smoothing the transitions be-
tween acute and long-term care. But certainly the PACE model has
done that. But again, we just do not have a whole lot of data. It
may be that PACE and the SHMOs are able to take into account
the needs and the desires of the individual clients. But it may also
be that, driven by the need to save money, in a larger setting, they
may decide that there are certain things that people cannot have.
And at least at this point, there are not a lot of options out there
for people.

Chairman THOMAS. Well, and the other cost that I am looking at
is the last 6 months argument and the quality of life versus quan-
tity and the expense that this society currently spends on the ques-
tion of death and near dying. And finally, and Dr. Leutz, if you
want to get in, I will let you in, the whole question of data collec-
tion has been frustrating us across the health care spectrum in
terms of outcomes research not just for this particular area. Frank-
ly, we are way behind the curve in utilizing the current data gath-
ered in a way and manipulated in a way with complete security for
privacy that would provide us with a whole lot more information
than we should have. And so, one of the thrusts, I think, which is
currently bipartisan that we are trying to move forward on is
outcomes research and data collection.

Mr. Leutz. Mr. Chairman, I just wanted to respond to your ques-
tion about putting this out on the market. It is important, I think,
if this does go on the market that there be some minimum stand-
ards set about what a Social HMO is and what you do for this
extra_5 percent. The proposal that we made has set out minimum
benefits in terms of dollar amounts. Prescription drugs has always
been and I would maintain should continue to be a part of the ben-
efit package, and also, you might include standards around geri-
atric care; you might include standards around service integration;
about screening the membership; having case management; doing
chronic disease management and so forth. And there should be a
minimum set of things that you do in order to be able to call your-
self a Social HMO on the market, it seems to me.

Chairman THOMAS. Well, my concern there would be to define a
particular product which would not allow for continued innovation,
which I think we probably need, although obviously, a positive defi-
nition of who you are to me is far better than a waiver structure
with a restriction on the amount of folks you can bring into the

rogram. That seems to me relatively self-defeating; in fact, it de-
ines a demonstration program and guarantees that you will re-


15

7 2 2

To date, managed care organizations have mostly focused on providing acute care to
the nonelderly population. Nationally, only about 10 percent of the elderly Medicare
beneficiaries are enrolled in HMOs (HCFA, 1995). In addition, the vast majority of states
have focused their Medicaid managed care programs on children and nondisabled adults; few
states have actively attempted to enroll the elderly or persons with disal
care programs (Rowland et al., 1995). Only a scattered number of health
“organizations provide long-term care services. AS a result, few managed care organizations
have any experience with low-income elderly and virtually none have any experience with
Jong-term care. Thus, it may take time before a substantial number of providers become
knowledgeable about caring for this population.

‘Will Managed Care be Good for Long-Term Care?

A persistent concer of long-term care advocates is that the integration of acute and
fong-term care services will have negative consequences for the provision of long-term care
services (Wiener and Iliston, 1994; Schlesinger and Mechanic, 1993; and, Batavia, 1993).
One concern is that fiscal pressures within integrated systems will end up shortchanging long-
term care, Within the Social HMOs, there is some evidence that chronic care benefits were
reduced because of rising acute care costs and market resistance to higher premiums
(Harrington and Newcomer, 1991). Another concern is that long-term care will become
overmedicalized in integrated settings and that services will become fess consumer-directed.
After all, many would argue that the essence of managed care is that the balance of power

from the individual client and his chosen provider to HMOs, insurance companies, of
other administrative entities. On this issue, there are virtually no data in the published
literature, although managed care supporters deny that this has been a problem in the
demonstrations (Leutz, Greenlick, and Capitman, 1994).

Proposals to “integrate” acute and long-term care services are receiving increasing

attention as a way to save money and provide better care. Conceptually, financial integration
relatively straightforward, referring to the pooling of funds from Medicare, Medicaid,
irance, and consumers.

‘On the other hand, there is little consensus about what constitutes “integration” in the
delivery system. One view conceives of integration as improving the transitions and referrals
back and forth between the acute and long-term care services (Leutz et al., 1995). ‘The
alternate view conceives of integration as dramatically changing how acute and long-term
care providers provide services and puts multidisciplinary teams trained in geriatrics at the
centet of the care process (Harrington, Lynch, and Newcomer, 1993), The shape of the
delivery system will depend on which model is promoted, if any

Ss os - ”

‘A major issue with all managed care initiatives is how to make sure that the drive to
reduce utilization does not result in underservice to beneficiaries. This is a particular
concern when managed care organizations enroll disabled individuals, who are likely to have
hhigh needs for both acute and long-term care services. Unfortunately, at this time, the states
and the federal government lack the technology, personnel, and data systems to monitor the
ual of care im managed cate organizations. As Vite as their general capability 1

r quality of acute care, there is no experience in assessing quality of long-term care in
managed care settings.

How Should Managed Care Organizations be Paid?

With the exception of the ALTCS, almost all managed care providers of integrated
acute and long-term care are paid a rate based on a percentage (usually 90 to 100 percent) of


36

PACE is replicating the On Lok model...

Organizations with Waivers to Operate PACE as of April 1996

‘CALIFORNIA
ON LoKSmnon Haatma Sexvices,
‘San Francisco

4% Cuvran ror Epes INDarENDANCR
‘Oakland

 Surtma HuALTHY’s SurTa SeMOnCARE
Sacramento

gotoxapo
LonecTuns Cana, INC.

MASSACHUSETTS
ok Bast Boston Nexcronooo HEALTH Conran’
‘Bupam SaxviCe PLAN

NEW YORK
BETH ABRAHAM HosPrrav’s
(Connon Cans MANAGE
rox

‘NEW YORK (Cont'd)

ROCHESTER GENERAL Hosert AL's
INDEPENDENT LIVING Pom Sains
Rochester

OREGON

SISTERS OF PROvIDENCE's
Provipence ELDERPLACE
Portland

SOUTH CAROLINA
RICHLAND MEMORIAL HOSPTTAl’s
PALMETTO SHMIORCARE

TEXAS
¢ Bumwiv Senior HuaLTH Sanvices,
Et Paso

WISCONSIN
8 Conmmuntry Cans ORGANIZATION’
SOuMUNITY CAREFOR TB ELDERLY
Milwaukee

Organizations Delivering Services under Medicaid Capitation as of April 1996

CALIFORNIA
"ALTAMBD SENIOR BUBNA CARE
‘Los Angeles

HAWAIL

Honolulu
ILLINOIS

MASSACHUSETTS (Cont'd)
ESP Hatton HEALTH
Dorchester

[ESP of Murua Hatta Cana
Roxbury/Dorchester

ESP op Tt NORTH SHORE
Tyan

MICHIGAN
‘Hianay FoRD CANTER FOR SeNIOR INDEPENDANCE
Detroit

WASHINGTON
‘PROVIDENCE ELDERPLACE OF SEATTLE
Seattle

WISCONSIN
Lan CARR
Madison


48

Medicaid contributions. Differences in funding streams affect the relative size of the
‘contribution to care. For example, SCAN contributes approximately $625 per month toward
the cost of home and community-based services to the first two subscriber groups, but up to
$1,000 per month for the dually eligible since SCAN also receives a capitation payment from
Medicaid for this population. ‘The enhanced package of services received by enrollees are
provided in a budget neutral fashion. Social HMOs are paid, on average, 100% of the
average adjusted per capita cost (AAPCC) of serving beneficiaries in their counties. Actual
payment amounts are adjusted to account for the functional status of individual beneficiaries,
as discussed under our recommendations in Section IV of my testimony.

Neither the Social HMO nor HCFA has conducted a comprehensive study of the cost-savings
potential of this model. There are a number of built-in mechanisms to reduce or minimize
health care expenditures, however, which we believe have substantially reduced system costs,
Further, the Kaiser Permanente Center for Health Research conducted a study focusing on
nursing home use between 1986 and 1988 which revealed substantial savings under this
model. Data collected by the Social HMO Consortium reveal that the average spending for
long-term care services plus the service coordination function averaged $38 per member per
‘month across all four sites in 1990, ‘This amount was equivalent to about 11% of Medicare's
‘per capita payment to plans that year. There are several ways in which the Social HMOs
have been able to hold down costs. Part of the cost-savings are achieved through the
structure of the benefit. The Social HMO benefit package does not include unlimited long-
term care services, but caps annual expenditures at between $7,500 and $12,000, depending
‘on the site, In addition, the model includes a 14 to 30 day limit on non-Medicare nursing
home care per spell of illness, consistent with the nature of the nursing home benefit which
is used as a supplement to the community-based service benefit to pay for short-term respite
slays, convalescence after Medicare nursing home coverage expires, of to cover the first
portion of a permanent admission.

Data reveal that this per spel! of illness limit has not placed a severe burden on enrollees.

Of all Social HMO members using the long-term care benefit during a four year study
period, less than 25% were authorized for care that exceeded 85% of the cap. Further,
authorization for care does not automatically translate into the use of services. We attribute
the efficient use of the long-term care benefit to our highly effective care management system
which continuously monitors the health status of those at risk for nursing home placement,
coordinates informal support services with those of paid services and maximizes the use of
the Medicare skilled benefit which is otherwise available to Social HMO members.

Data produced by the Kaiser Permanente study reveal the cost savings potential of this
model. This study compared the experiences of members enrolled in Kaiser Permanente's
standard Medicare HMO and the Social HMO. During the study period, the Social HMO
offered 100 days of ICF or SNF coverage per benefit period as well as up to $1,000 per
‘month in services delivered in their home or community-based settings. Member copays
‘were 10% for institutional and home care services. The benefits were managed by a servi
coordination unit that worked closely with hospital discharge planners, nursing home staff
‘and home health care nurses to ensure appropriate and coordinated use of services. A major
{goal of members, their families and service coordinators was to avoid unnecessary
institutionalization and to maximize independent functioning of members. Regular HMO
members (ie., those not enrolled in the Social HMO) received only Medicare-covered
rtursing home and home health care benefit.

“The Kaiser Permenante study revealed many positive effects from the Social HMO benefit
structure and service system. For example:

© short-term nursing home benefits reduced barriers to nursing home use for
recuperative, respite and rehabilitative stays;

© home care benefits reduced nursing home lengths of stay by supporting more
effective transitions back to the community;

© Medicaid expenditures resulting from “spend-down” were reduced by over
‘50% and these savings offset the higher AAPCC rate paid to Social HMOs by
almost half;


lq

demonstration will be to make the long term care benefit available to enrollees who are
beginning to become frail, but who are not yet “nursing home certifiable”. This change
will enhance the program’s ability to offer home and communitv-hased services which can
prevent or delay the dectine in a enrollee's health and funcuuona, status

‘The Social HMO II geriatric care system will fully integrate the plan's medical, acute and
Jong term care benefits and services. Early detection of health and functional problems
through risk screening processes, preventive care and services, physician and care
management protocols and guidelines and a coordinating managemer information system
will facilitate implementation of this new approach The olan will uti» care managers '=
‘coordinate the care and to facilitate enrollee’s transiions oetween cae settings

Implementation of a risk-adjusted prospectively determined Medicare HMO
reimbursement system isthe third important research and policy Social HMO It
intervention. This new reimbursement approach will annually determine an enrollee’s
future likelihood of using Medicare services in the next year. The Health Care Financing
‘Administration has projected that this new approach will improve the current AAPCC
system and will provide incentives for IIMO’s to enroll more frail Medicare beneficiaries

Linkage of Medicare and Medicaid

Federal and state health care policy for Medicare and Medicaid must recognize the
importance of each program to older persons who depend on these programs for their
health care. Categorical funding for these programs has been an impediment to care
‘management and coordination of benefits across all settings. The PACE and Social HMO
TI models integrate these financing systems through a capitated payment to the plan. This
linkage gives the plan added flexibility to address the enrollee's health care needs

‘Recommendations

Legislative authorization for the PACE and Social HMO demonstrations is needed. ‘The
PACE model has been replicated through Medicare and Medicaid waivers and additional
sites are being developed. This approach was necessary intially, but the program must
now become a permanent provider type within the Medicare program.

Recommendation: PACE should be shifted from a demonstration to a permanent

The Social HMO Ii demonstration provides an opportunity to introduce new elements into
the Medicare HMO program. ‘The current legislative authority for the demonstration
expires on December 31, 1997. The authorization needs to be extended to enable the
demonstration to be fully implemented and evaluated.

Recommendation: The Social HMO I demonstration should be extended to December
31, 2001

‘Thank you Mr. Chairman and members of the Subcommittee for this opportunity to
submit written comments about these important health care initiatives for Medicare
beneficiaries.


53

© Coverage of prescription drugs, eyeglasses and hearing aides.

© Home and community-based service benefits of at least $7,500 per member
‘pet year (exclusive of member copayments). Services would include personal
‘care, homemakers, respite, medical transportation and adult day health care,
‘light for services would be defined by te Soccary and iacude those
who meet nursing facility admission standards and others at high risk for
‘adverse long-term care outcomes.

© A minimum of 14 days per spell of illness $7,500 per lifetime of nursing
facility care for stays that do not meet Medicare skilled criteria, (New spells.
of illness are defined as those beginning after 60 days of continuous
‘community residence.

Case Management Standards

AAs indicated earlier in my testimony, the case management function has been critical to the
success of the Social HMOs, from a cost-savings, quality and consumer satisfaction
perspective. We recommend, therefore, that to qualify as a Social HMO, sites be required to
Provide comprehensive post-acute and long-term care case management services, including
the following:

© initial and periodic screening of the enrolled population through a self-report
‘health status form designed to identify members who meet nursing home
admission standards, or who are otherwise at risk due to medical or functional
difficulties;

© referral mechanisms that identify newly disabled and at risk members in acute
care settings and through self-referral;

© comprehensive functional and social assessments;

© care planning, service authorization, and monitoring systems that ensure
attention to member and family preferences and participation in decisions;

© linkages with acute care providers in hospitals, nursing homes, home health,
physicians’ offices and other settings to ensure timely sharing of appropriate
clinical information, assignment of responsibility and coordination of care
plans and covered benefits;

© a quality assurance system that integrates quality assurance activities for acute
and long-term care services.

Payment Standards

‘We recommend that Social HMOs continue to receive reimbursement according to the
current payment methodology. There are two important differences in the way Social HMOs
and TEFRA HMOs ate reimbursed. First, Social HMOs receive 100% of the AAPCC
instead of 95% to account for the additional chronic care benefits provided. Second, while
the only risk-adjustor used by the TEFRA plans to reflect health status is an institutional rate
‘cell for those placed in nursing homes, the 1984 waiver language for Social HMOs specified
payment at a higher rate for community-based residents who are “at risk of
institutionalization.”

Between 1985 and 1994, the AAPCC institutional cells were applied to both nursing home
residents and “at risk" community residents. In 1995, a new formula was implemented based
‘on updated research. This formula pays somewhat higher rates for those at risk of
institutionalization than nursing home residents. Both the old and new formulas adjust the
payment cells for members not meeting high risk criteria to keep the whole formula budget
neutral. Accordingly, while Social HMOs are paid 100% of the AAPCC, on average, their
‘actual reimbursement depends on the mix of well and frail or high-risk enrollees.


49

© members received access to a coordinated package of chronic care services and
‘a supplemental long-term care benefit which significantly reduced the out-of-
pocket costs they otherwise would have incurred without access to the long-
term care benefit.

‘The Kaiser Permanente study showed that, compared to the regular HMO programs, Social
HMO members were more likely to enter 2 nursing home but less likely to stay as many
days. Social HMO members had 25% higher admission rates but they spent 29% fewer days
in ICFs and 24% fewer days in nursing homes overall. These patterns suggest that the
‘Social HMO long-term care management and benefit systems reduce barriers to nursing
home entry for short-term and recuperative slays and helped members return home more
‘often and sooner.

‘The study also revealed that Social HMO reduced Medicaid spending on nursing home care.
Since less than 1% of these members were categorically eligible for Medicaid, almost all of
the savings were due to delaying or avoiding Medicaid spend-down. Medicaid spending for
ICF and SNF care for regular HMO members was about $212 per member per month
‘compared to about $80 per month for Social HMO members. Over the 24 month study
period, the Social HMO saved Medicaid an average of about $5.50 per member per month
which is equal to about 2.2% of the average Medicare capitation rate during the study
period. Accordingly, although Medicare pays Social HMOs an average of 5% more than
standard HMOs (i.e., 100% of the AAPCC vs 95% of the AAPCC), almost half of this
additional reimbursement is offset through Medicaid savings.

Social HMOs alto have developed a number of innovative spprosct 1 ft

formal services igh Medicare, and private insurance. I'd like to
Niplight cn crample of one noch approac underaken by Eldcrplan ell the “Member-o-
Member" program which operates as a Service Credit Bank. This program was established
to help extend the formal chronic care benefit offered by the Social HMO. In this program,
1. These
services fall into the general categories of escort, shopping, transportation, respite, friendly
visiting, telephone reassurance, hospital/nursing home visiting, minor home repairs and peer
counseling.

Service Credit Banking is an exciting new approach to mutual aid. It is based upon
volunteers earning and spending Service Credits. Service Credits are a local, tax-exempt,
computerized currency that utilizes time as the medium of exchange. Service Credits enable
an individual to convert personal time into additional purchasing power by providing service
to others. With this mode, itis possible to generate large amounts of service without
payment in money and, therefore, to operate a social service barter system on a scale much
larger than ever before. Since the program’s inception in June 1987, the Member-to-
Member program has provided over 56,500 hours of service to almost 3,000 service
recipients through the voluntary efforts of 238 volunteers. ‘To provide some sense of the

‘economic value of these services, in 1995 alone, this volunteer program delivered $161,701
worth of preventive and supportive services at cost of about $74,000.

C. Health System Benefits

Chronic care represents the fastest-growing and highest cost segment of the health care
sector. (ur system i auickly moving from a preominane of sorte, curried
conditions to a predominance of conditions that require ongoing, multidimensional and
coordinated care. Eighty percent of all deaths and 90 percent of all morbidity are due to
chronic conditions. Health care costs for the chronically ill only can continue to grow as the
‘over 85 age group increases and the incidence of heart disease, strokes, respiratory disease,
‘dementia and other chronic conditions expand as well.

To effectively meet the needs of this population, and reign in health systems costs, our health
care system must recognize the critical importance of the Linkage between acute and long-
term care services. National studies as well as data collected by the Social HMOs reveal that
almost all long-term care needs originate from acute care illness, Accordingly, efforts to


18

Make Social HMOs and On Lok/PACE a Regular Part of Medicare and Medicaid

Finally, the Medicare and Medicaid programs should be altered to allow states and
providers that want to experiment with the integration of acute and long-term care services to
do so without having to obtain research waivers. Under current law. organizations seel
to integrate acute and long-term care services generally require Medicare "222" and
Medicaid "1115" waivers, the research and demonstration waiver authorities under the two
programs, Waivers arp restricted to time-limited periods and to specific projects.

This is a controversial recommendation because Social HMOs were not without their
problems and the On/Lok PACE demonstrations have yet to be evaluated. While these
shortcomings are undeniable, the basic principles of these wo demonstrations~—providing
comprehensive care to older people in a capitated environment~are basically sound. This
recommendation is not made with the intent of propagating the “one true model,” but rather
in the spirit of “letting a hundred flowers bioom.” The purpose of the recommendation is to
‘move the integration of acute and fong-term care beyond "greenhouse boutiques” and into the
‘mainstream of care for the elderly population (Personal Communication from R. Bringewatt
to J. Skaggs, 1994),

While there are several minor changes to Medicare and Medicaid statute and
regulations that would be necessary (e.g... requirements for statewide implementation and
uniformity in terms of amount, duration and scope of services), there are two important
changes that should be made to Medicare and Medicaid and one commonly proposed change
that should be rejected at this time. First, organizations that wish to replicate Social HMOs
‘ot On Lok/PACE of that want to try new methods to integrate acute and long-term care
services need an adjustment to the Medicare AAPCC in order to account for the costs of
caring for severely disabled persons in the community. Without this adjustment, there would
be a perverse incentive for organizations to admit persons to nursing homes in order to
‘oblain the higher Medicare reimbursement rate that is available for the institutionatized
population.

Another change that should be enacted is the elimination of the Medicare requirement
that Medicare and Medicaid beneficiaries comprise no more than half of the membership in
any participating HMO; a similar Medicaid requirement limits the proportion 10 75 percent
‘This requirement was initially enacted to guard against poor quality HMOs that would only
enroll Medicare and Medicaid beneficiaries. Since the financial incentives under capitated
arrangements are to undersupply services. quality of care in HMOs remains an issue.
However, organizations that do not specialize in the elderly populations are less likely to
change their delivery systems to accommodate persons with disabilities.

Finally, in response to the original Social HMO concerns about adverse selection due
(o enriched benefits, HCFA permitted waivers of the requirement for open enrollment
without regard to medical status. In the demonstration, the sites were permitted to close
enrollment to the impaired population if enrotiment exceeded estimates of the proportion of
the elderly populations residing in the community who were functionally impaired. Although
allowing queuing woutd make life easier for new organizations, it should not be permitted.
Closing enrotiment based on health status is inconsistent with the fundamental tenet of equity,
which requires open enrollment for all individuals regardless of health status. Moreover, if
the technology becomes available to make improvements in the reimbursement methodology,
plans would be more likely to receive adequate payment if they enrolled a disproportionate
number of disabled individuals, thus tempering concerns about adverse selection...



88

goverameats not only would diminish the challenges of caring for the dually eligible populations, but also, it would
‘also create incentives for establishing a uniform policy for caring for the chronically ill in general,

Payment Methodology

States experience several problems based on differences in Medicare and Medicaid payment methodotogies.
Medicare payment rates are established by the Federal government bated on a formula that takes into account
utilization sates and prices in the fee-for-service sector. A payment rate is established for each county based on
the “average adjusted per capita cost" of caring for the population and plans are paid 95% of this amount. States
have no ability to negotiate rates with Medicare risk contract plans. Further, states are vot permitted to receive
direct payments from Medicare which would enable them to merge Medicare and Medicaid dollars into a single
‘pool and establish a single, bleaded capitation payment for each plan enrollee. Under the Medicaid program, states,
hhave the ability to set capitation rates and providers can negotiate these rates with the state. States clearly would
have greater flexibility in providing services under a pooled capitation rate, It also would enable them to address
‘to some degree the county-by-county variance in Medicare AAPCC rates which makes it impossible to establish
standardized benefit packages across the state.

IV. _ DEMONSTRATIONS FOR INTEGRATING PRIMARY, ACUTE & LTC SERVICES

‘Over the past 15 years, the public sector has undertaken a number of demonstration programs designed to eliminate
Jegislative and regulatory barriers to the integration of primary, acute and long-term care services, ‘These programs
hhave been directed at improving access to services, enhancing quality of care, and reducing public expenditures
for health care services. For purposes of this testimony, I will focus on three particular demonstration programs,
including the Social HMO, PACE, and the Minnesota Long-Term Care Options Project (LTCOP). Each of these
programs diverge from the Medicare HMO program established under the Tax Equity and Fiscal Responsibility
[Aa of 1987 (TEFRA), the Fadeal govertven’s fet wlempl ui makisg maaged care oploss wvalable 19
‘Medicare beneficiaries, Each of these programs operate under TEFRA-like contracts, but extend TEFRA benefits
to include some level of coverage for long-term care services. Each of these programs offer important lessons
‘which will inform the ongoing development of managed care approaches and integrated delivery networks.

Social HMO and PACE Demonstrations

‘The Social HMO and PACE demonstrations have been operational the longest ofthe three demonstration programs.
Upwards of 10 years experience with Social HMO and PACE programs provides extremely fertile grounds for
better understanding how to predict and contro! chronic care risk and reduce costs through the integration of
primary, acute and long-term care financing and delivery structures and aggressive care management techniques.

Both models represent prepaid, capitated heath plans which provide elderly beneficiaries an eahanced package of

primary and acute care services and varying amounts of long-term care benefits. For example, in addition to all
Medicare Part A and B benefits, beneficiaries receive coverage for prescription drugs, eyeglasses, and hearing
aides. Standard Medicare risk contracts cover all Part A and B services and Medicare copays and deductibles, but
are only required to offer additional benefits if the cost of a health plan's benefit package costs less than 95% of
the AAPCC based on the average community rate for the area. The Social HMO also includes up to $1,000 per
month in home and community-based service benefits and PACE offers unlimited coverage of long-term care
services. TEFRA contracts only cover short-term skilled nursing facility and home health care services for
rehabilitation services related to acute care episodes. Providers also have more flexibility to allocate resources
based on individual patient needs — as opposed to restrictive payment guidelines ~ under the demonstration
‘programs than TEFRA contracts. For example, enrollees can be admitted directly to nursing homes without a prior
‘three day hospital stay.

Social HMO and PACE Services are financed chrough pooled funding from Modicare, Medicaid and private
premiums. Between two-thirds and three-quarters of PACE dollars are contributed by Medicaid and most of the
remainder by Medicare. Only two sites (The Bronx and Rochester) bave a relatively high percentage of Medicare
only clients where subscribers pay a monthly premium equivaleat to the Modicaid payment,
‘Alternatively, Social HMO funding is provided almost entirely by Medicare. Less than 5% of Social HMO patients
‘are dually eligible and two of the three operational sites have eliminated private premium contributions.

Despite tee similares, the Sail HMO and PACE modes der significa inthe poplin they serve ant
the focus of their integration efforts. The Social HMO is an insurance model targeted toward x cross section of
wel and fal let. fitout Soi HMOs se permitted to queue to prevent adverse selection, only one site

iy, between 10% and 15% of Social HMO beneficiaries are disabled. The PACE
Program ina ik-anagonen model drestedexcstely ste fa dey, Applicants to the PACE program


43

Chairman THOMAS. Thank you very much, Dr. McCann.
Mr. Ervin.

STATEMENT OF SAM ERVIN, PRESIDENT AND CHIEF
EXECUTIVE OFFICER, SCAN HEALTH PLAN, LONG BEACH,
CALIFORNIA

Mr. Ervin. Good morning, Mr. Chairman and distinguished
Members of the Subcommittee. I am Sam Ervin, president and
chief executive officer of SCAN Health Plan, Long Beach,
California. We are one of the original Social HMO sites selected by
HCFA for the Social HMO demonstration. Directly behind me are
representatives of the other two sites: Lucy Nonnenkamp, site di-
rector for Kaiser Permanente in Portland, Oregon; Eli Feldman,
president of Elderplan, Brooklyn, New York.

I appreciate this opportunity to testify today on behalf of all of
the Social HMO sites and to share with you our perspectives on the
value of this important demonstration. This is an issue that should
touch the heart of everyone in this room, everyone who has a moth-
er and father, grandparents, ourselves as we age: How do we cost
effectively enable older people to remain as independent and living
in dignity as long as possible?

In the 11 years of operation of the Social HMO, we have served
more than 50,000 seniors with this unique marriage of acute and
community-based long term care. The program currently serves
about 19,000 seniors, 12 percent of whom are classified as nursing
home certifiable. This means that almost 2,300 of these members
are eligible, based on state Medicaid guidelines, to be placed long
term in custodial care.

Mr. Chairman, we are proud to report that we have been suc-
cessful in meeting our program’s goals. This vision of care integra-
tion, which was put in place in 1984, has succeeded in keeping over
90 percent of our nursing home-certifiable population in their own
homes. That means that over the last 12 years, millions of dollars
in state and Federal Medicaid funds were not spent on custodial
care. It means that hundreds of seniors without the traditional
support of nuclear families have been able to remain financially
and physically independent. It also means that hundreds of fami-
lies have been spared the pain of watching their loved ones placed
in institutions for the remainder of their days.

This has been accomplished through the cost-effective application
of services such as adult day care, respite care, emergency re-
sponse, homemaker services, and personal care assistants, all of
this coordinated by trained geriatric social workers. And impor-
tantly, it has reduced health care costs and improved quality and
appropriateness of care.

I would like to share one brief case study, which happens to in-
volve one of SCAN’s members. A 73-year-old man Became the
prime care giver for a wife who developed Alzheimer’s disease and
for his mother, who was left half-paralyzed by a stroke. On the
verge of emotional and physical burnout and severe financial dis-
tress in helping to pay for all of this care, they all enrolled in
SCAN. SCAN pays $625 a month toward 24-hour, 7-day a week
care for his mother and also provided for medical equipment and


113

significant problems building census due to the difficulties involved in marketing to the frail
population.

The lack of a clear marketing strategy and an inability to reach the home-bound elderly have
‘been census-building barriers for PACE sites.' Oxford, in contrast, has a strong marketing
and sales organization that has led to an increase in Medicare membership of over 5,000 per
month. Oxford's Medicare sales approach involves a motivated and compassionate sales
force that often provides one-on-one sales calls in the home. These “house calls” are
particularly essential when marketing to a frail, home-bound elderly population.

Inadequate initial marketing budgets and inexperience in marketing to Medicare beneficiaries
were also cited as reasons for enrollment problems. Oxford has a strong reputation in its
service area and significant resources dedicated to acquisition of members. In addition,
Oxford has a well developed marketing program with which to target potential members for
a long term care program. Oxford has a large, experienced staff dedicated to acquisition
marketing. We are skilled in developing communications appropriate for elderly
consumers. This is important because we are able to demystify complicated concepts and
‘make sure that potential members know what they are buying.

One of our most successful marketing programs is our Ambassador program for Medicare
Advantage. Our Ambassadors are Members who voluntarily communicate the advantages
of Oxford within their own communities. We have found that our audience is more
receptive to our messages when they come from people they know and trust. When peers
from their community believe in Oxford and the benefits of managed care, community
Members feel more secure in having Oxford as their healthcare provider.

‘Tracking Systems
Another important attribute of for-profit Medicare HMOs is the ability to use sophisticated
information systems to tack encounters and outcomes. This ability is critical to evaluating
the effectiveness of any demonstration effort.

Oxford has developed an information system specifically to meet the needs of the Medicare
population and the providers who serve them. This system includes software for physician
profiling and hospital profiting, allowing Oxford to evaluate practice patterns and analyze

* Robert Kane, MD, Laurel Hixon Ilston. MPH, and Nancy A. Miller, PhD, “Qualitative Analysis of the
Program of All-Inclusive Care for the Eldetly.” The Gerontologist, 1992, Volume 32, Number 6, page 778.



122

From WE CAN'T to WE MUST

‘The current system has caused people to become defeatists. People are told that
something can’t be done, and they believe what they are told. This negativism must
be abolished. Caregivers must instead be encouraged to work together to create new
and better ways to serve their clients.

Earl Elicker, MSA
Integrated Care Program Design
Rocky Mountain HMO


CONTENTS

Advisory of April 9, 1996, announcing the hearing ..
WITNESSES

Health Care Financing Administration, Hon. Bruce C. Vladeck, Adminis-
trator

DiPietro, Rosalie, Brookl:
Leute, Walton Brandes University, Waltham, MA”
National Chronic Care Consortium, Bloomington, MN, Richard J. Bringewatt
On Lok, Inc., San Francisco, CA, Jennie Chin Hansen’

Rochester General Hospital, Rochester NY, Robert Mc!
SCAN Health Plan, Long Beach, CA, Sam Ervin
Wiener, Joshua Mt Brockings fastitution

SUBMISSIONS FOR THE RECORD

Dole, Hon. Robert J., a Senator in Congress from the State of Kansas,
statement
Fallon Healthcare System, Worcest , statement
Oxford Health Plans, Norwalk. CT, Timothy B. Meyer, letter and statement .
Richland Memorial’ Hospital, Columbia, SC, Thomas E. Brown, dr.
statement
Rocky Mountain HMO, Grand Junction, CO, Michael J. Weber, jeter and
attachment ..

«aD

104
105
109
116

118


106

Fallon has also been coordinating members’ medical care with available community support

services.

In 1994, Fallon became the only HMO to sponsor a PACE (Program of All Inclusive Care for
the Elderly) replication. ‘The Elder Service Plan is part of a statewide replication as one of six
sites in Massachusetts serving the most frail and at risk seniors. Elder Service Plan at Fallon
provides all inclusive care for chose age 55 and older who are eligible for nursing home care but
prefer to remain in their own homes. All medical and long term care services needed are
provided or arranged for by the ESP team of professionals. Services include but are not limited
to primary care, in-home care, adule day health care, physical therapy, transportation podiatry,
dentistry, and prescription drugs.

‘As the population ages, the need to supplement the basic Medicare benefit with additional
supportive services and long-term care becomes increasingly urgent. Fallon believes that the
SHIMO model can address the needs of those seniors who are at risk but not yet nursing home
eligible.

BACKGROUND OF SOCIAL HMO.

The Social HMO demonstration was authorized under the Deficit Reduction Act of 1984,
‘The purpose of the demonstration was to determine if investing in some long term care
benefits for Medicare HMO enrollees could save money through coordination of care and the
provision of services that might present more costly medical complications. Services
provided include personal care aides, homemakers, medical transportation, adult day health
care, respite care and case management in a community serting. In 1985 the first generation of
Social HMO projects became operational at the following four sites: SCAN Health Plan in
Long Beach, California; Group Health and Ebenezer Society established Seniors Plus in
Minneapolis-St. Paul; Kaiser Permanente Northwest established Medicare Plus IL in Portland,
Oregon. In 1990, Congress authorized an extension of the demonstrations and established the
second generation of social HMO projets, known as Social HMO Il. These sites are Fallon
Community Health Plan; CAC-United Healthcare Plans of Florida in Coral Gables, Florida;
‘Contra Costa Health Plan, in Martinez California; Health Plans of Nevada, Inc. in Las Vegas,
‘Nevada; Richland Memorial hospital in Columbia, South Carolina and Rocky Mountain
HMO in Grand Junction, Colorado.

BENEFITS UNDER SOCIAL HMO's

The Social HMO program provides standard HMO benefits such as hospital, physician
services, skilled nursing home, and home health services as well as excended long term care
benefits not currently available or provided through traditional fee for service Medicare or
Medicare risk contracts, Extended long term care benefits under Social HMO range from
community-based care to nursing home care. Services include personal care aides,
homemakers, medical transportation, adult day health services, respite care and case
‘management in a community setting. The Social HMO I sites will continue to provide many
of the expanded benefits offered in Social HMO I sites. It is expected that the Social HMO TI
sites will address the following areas. Expand chronic care case management with linkages to
acute and long-term care; geriatric focused care delivery; redefine the long term care benefit
package; refine the financing methodology to a risk-adjusted payment methodology; target
special populations such as minorities and residents living in rural areas.

GERIATRIC FOCUSED CARE

‘The elderly population often have multiple interactive chronic conditions, which need co be
addressed chrough specific approaches to geriatric care. Medicare risk contracting allows for
‘more flexibility in care provision than is possible within the traditional Medicare program.
However, risk contracting does have its limitations The reimbursement in risk contracting is
based on costs incurred for acute care only. While innovation is possible, it simply cannot
‘meet the long-term, multi-dimensional needs of the elderly. ‘The dual themes of the SHMO IL
project - expanded benefits and more comprehensive geriatric care will enable a new level of
effectiveness in caring for the elderly.


Other research
Several other research findings based on studies by the sites and Brandeis are worth noting.

1. Medicaid savings: Kaiser Permanente Social HMO members had significantly fewer days of
nursing home care, later Medicaid spend-downs, and lower Medicaid costs than Kaiser TEFRA
members, after controlling for age and gender (Boose, 1993).

avings: Kaiser Permanente Social HMO members in their last year of life had
icwer days of turtng home tare and were more key to die home than Refer TEERA
members, after controlling for age and gender (Brody, ).

3. Low. benefits: Numerous community care
demonstrations and national health reform proposals have examined how to deliver an
affordable benefit o cover community LTC (Leutz, Capitman, MacAdam, & Abrahams,
1992). ‘The Social HMO sites have shown definitively that community LTC is an insurable,
affordable, and manageable risk in the context of a Medicare HMO supplement (Altman, et
al,, 1993; Greenlick, Nonnenkamp, Gruenberg, Leutz, & Lamb, 1988; Leutz, et al., 1994;
Leutz, Greenlick, Ervin, Feldman, & Malone, 1991). ‘The Social HMO thus shows a way for
‘managed care organizations Co fill’a gaping hole in the private insurance coverage available to
Medicare beneficiaries.

4. Private LTC benefits for the middle class: Citing reimbursement shortfalls, Health
Partners closed the Twin Cities Social HMO site in 1994. Out of concern for its vulnerable
members, Health Partners has studied experiences their experiences in the year after the
closing. Preliminary results show that LTC services were reduced and stress was increased for
these members, particularly for those who did not qualify for public LTC benefits (Fischer,
1996). This shows that the Social HMO was providing benefits that were difficult to replace
in the private market.

Policy issues

‘Taking a step backward, the experience to date with Social HMOs, PACE, and other
integrated health care approaches raise several questions for future policy at the federal, state,
and provider level. On each of these issues, the Social HMO is testing unique, powerful, and
potentially valuable approaches to service delivery and financing.

1. Geriatric care or community LTC? A second generation of Social HMO sites will soon
test a model of care chat expands geriatric evaluation and management services for Social
HMO members with chronic illnesses (Harrington, Lynch, Newcomer, & Miller, 1993). This
will require more far-reaching changes in sites’ acute care systems than did the first generation
model of integrating community LTC with existing acute care systems. It remains to be seen
whether expanding benefits to geriatric services (the second-generatin Social HMO model) will
produce better outcomes than expanded community LTC (the firs-generation model), but
both models are certainly worth testing (Leutz, Greenlick, Ervin, Feldman, & Ripley, 1995).

2. Integrated Medicare and Medicaid financing or expanded private LTC financing? The
PACE initiative, as well as a number of state initiatives, seek to achieve savings and improve
‘outcomes by integrating Medicare and Medicaid financing and services (Kane, Illton, & Miller,
1992; Wiener, & Skaggs, 1995). The Social HMO is the only major initiative that integrates
Medicare with expanded private financing of LTC. Because it reaches the private market, the
Social HMO is the only current managed care approach that has the potential to provide an
affordable choice for millions of Medicare beneficiaries to insure for prescription drugs and
community LTC.

3. Several Medicare
demonstrations (eg., PACE, Medicare ithcimess EwerCare ‘Community Nursing
Organization) (Vladeck, Miller, & Clauser, 1993), as well as a number of state Medicaid and
provider initiatives (Kane, et al., 1996; Saucier, & Mitchell, 1995) all seek to integrate acute and



52

To accommodate both current and future subscribers and sponsors, we respectfully request

© Congress direct the Secretary of Health and Human Services to develop
regulations which grant permanent waiver authority for existing sites and
which provide a mechanism for other entities to apply for Federal qualification
as a Social HMO;

© Congress provide legislative authority to continue the Social HMO 1 and IT
Programs until such time as the Secretary of HHS has promulgated such
egulations;

‘© Upon promulgation of regulations, existing sites shall be granted permanent
waiver authority if they meet the standards set forth in the legislation (and
described below). If the Secretary does not promulgate regulations by
December 31, 1998, the existing sites shall automatically be granted permanent
status.

We also request that Congress direct the Secretary to immediately make several modifications
to the current waiver authority, as enumerated below, to allow current sites to operale more
consistently with all TEFRA HMOs. Below is a description of our proposed modifications

4 well as recommendations regarding the standards organizations would be required to meet
for qualification as a Social HMO.

‘Modifications to Current Waiver Authority

‘The Social HMO waivers currently provide for the following:

© payment at 100% of the AAPCC;

© the option to queue applicants according to disabilit

© waiver of the 50/50 requirement that limits enrollment of the Medicare and
Medicaid populations to 50% and requires that 50% of the membership be
‘composed of commercially insured beneficiaries;

© waiver of the 3-day prior hospitalization requirement for SNF coverage.

We recommend and request several immediate changes to our waiver authority to allow the
current demonstrations to operate in a manner more consistent with all TEFRA HMOs and to
permit Social HMOs to be more competitive with TEFRA plans:

© eliminate any enrollment ceiling;
© eliminate the existing prohibition against enrolling nursing home residents;

© make regulations regarding marketing and evidence of coverage consistent with
other plans.

Medicare Standards for Social HMOs

Social HMOs currently provide an enhanced package of primary, acute and home and
‘community-based long-term care services to Medicare beneficiaries. We recommend that
plans applying for Federal certification as a Social HMO under an expanded Medicare
managed care program comply with several standards distinct from standard Medicare HMO
risk contracts to ensure consistency with the current program. These standards pertain to
benefits, case management functions and payment rules.

Benefit Standards

In addition to the Medicare benefits required under MedicarePlus, Social HMOs would offer
the following benefits:


101

Mr. WIENER. Well, we do not have a whole lot of evidence. There
is some evidence—Walter may wish to dispute it—that over time,
that as the Social HMOs entered a more competitive acute care
marketplace and as the costs on the acute care side rose, that the
long-term care benefit, was pared back so that they could keep the
total premium down to a competitive level. So, that is one illus-
trative example, but we do not have a lot of evidence on that. But
it is a worry. If you have a Social HMO model, the vast bulk of
the expenditures are for acute care, and the long-term care is rel-
atively small, and it just becomes easier to chip away at that to
feed the much larger, much more dominant acute care system. It
does not necessarily have to happen; it is just one of the risks that
is out there.

Mr. McCrery. Dr. Leutz, do you have any comments about that?

Mr. LeuTz. Well, one place that I think Josh is right that the
current sites did cut back on their coverage of long-term nursin;
home care. But most of them increased their coverage of home an
community-based services, because this was where they thought
they were having the most effectiveness and this was the
preference of members.

The fear, though, that is expressed is a fear that I hold, too, and
I have been an advocate of having minimum or clear standards for
eligibility so that people understand what their benefit is in long-
term care and also clear standards for what it buys in terms of a
set of services up to some kind of well-understood amount, a dollar
amount like the current sites have if there is going to be a limit.

Mr. McCrery. And finally, Dr. Leutz, do you have anything to
add on this whole question of whether this form of providing medi-
cal services, this continuum of care concept, provides us any long-
term savings in the system? Dr. Wiener, for example, pointed out
that as you keep people in a community setting rather than a nurs-
ing home setting, you continue to give them SSI benefits, food
stamps, have you considered that whole question of net costs to the
system?
yr. LeutTz. Well, I guess it depends on how large you define the
system. Medicare has been set up—at least under the demonstra-
tion so far—not to make any savings. Medicare pays its fee for
service equivalents, So then, the question is if there are savings on
that, where do they go? And I think that there have been savings
on the Medicare package of services. If you look at the utilization
levels for hospital care, for example, they are much lower than fee-
for-service. And those savings have now gone to the members who
joined the plan in the form of a richer package of benefits; prescrip-
tion drug benefits and the long-term care benefits are the primary
ones.

There has also been some evidence of savings for Medicaid, in
terms of reduced utilization of nursing homes by private-pay mem-
bers, which has slowed spend-down.

Mr. WIENER. I think it is an important thing to underline that
these demonstrations have not been set up to produce large sav-
ings. There may be large reductions in utilization; there may not
be. But whatever savings you get from that are being recycled back
into the program for other kinds of benefits. So if your eye is on
the, the Medicare Trust Fund, you are not getting any particular


26

Mr. McDERMoTT. You mean the proposed legislation to make
block grant Medicaid to the States?

Mr. VLaDECK. The block grant legislation.

Mr. McDermoTr. So, we will have 50 different Medicaid
Programs.

Mr. VLADECK. We already have 50 different Medicaid Programs.

Mr. McDERMoTT. That's true.

Mr. VLADECK. But we cannot do the arithmetic in a way that
makes the block grant proposals work out et the fourth or fifth
year without a significant loss of coverage for lots of folks who are
now getting Medicaid or who would be eligible for Medicaid in the
future. We just cannot make the arithmetic compute. So, we are
talking about building long-term care programs around folks who
would be eligible for Medicaid, and taking the Medicaid and
Medicare dollars and pooling them.

Our belief is that in the future under the Balanced Budget Act,
a lot of those folks would not be eligible for Medicaid, nor would
they be able to afford what would otherwise be paid for Medicaid
in terms of a private premium. So these programs may be cheaper
than existing Medicare and Medicaid. They are not cheap by any
objective standard. And if you take the kinds of cuts that are being
talked about in both of the programs out a number of years, again,
I would ask the direct providers of these services themselves, we
may be able to run PACE for 5 percent, 7 percent lower than what
the same client would cost Medicare and Medicaid under current
law. I do not think we could run them for 30 percent lower, which
is where the Balanced Budget Act would take us in 2001-2002.

Mr. McDeERwoTT. Is it fair to say, then, if we pass legislation ex-
tending these programs, it really is a hollow promise if the other
changes were to pass in terms of Medicare and Medicaid, particu-
larly the Medicaid proposal, that you are looking at a bill that says
yes, you are eligible, but there is no money to give you the services.
Is that a fair thing to say?

Mr. VLADECK. Well, I think in all fairness, it is not inappropriate
to suggest that we had made it clear that at least during the life
of this administration, there will not be cuts of that magnitude in
Medicare and Medicaid.

Mr. McDERMOTT. Thank you.

. Chairman Tuomas. Does the gentleman from Louisiana wish to
inquire?
r. McCrery. Just briefly, Mr. Chairman.

Dr. Vladeck, would you just briefly go over for me the qualifica-
tions for enrollment in PACE? What does a person have to have in
terms of income, or what are the other characteristics to enroll in
PACE?

Mr. VLADECK. By and large, the income characteristics per se are
not that important. The major criterion in general, which takes dif-
ferent specific forms in every State, is that that person be eligible
for nursing home care as defined by the State’s Medicaid Program.
Now, the reason I say as defined by the State’s Medicaid Program
is that for private users of nursing homes in most states, eligibility
is a determination made by the individual family and the facility.
So, the only sort of systematic criteria we have for eligibility for a
nursing home level of care, for long-term care, are those adminis-


22

care expenses that were not ordinarily part of the Medicare benefit
package.

And so, to the extent that much of the work in the development
of SHMOs to this point has been an effort to define the size of that
supplemental long-term care package in order to create an insur-
ance package within 100 percent of AAPCC plus a market-sensitive
premium, I think it has been very successful. Now, that is limited.
It is limited compared to what Medicaid beneficiaries are entitled
to; it is limited compared to what people who have very extensive
long-term care needs require over a period of time. But it is more
than is now currently available in conventional Medicare HMOs.
So, I guess the question really comes down to one of continuing to
identify the long-term care insurance product that can be delivered
in conjunction with a more conventional HMO package of services.
Then, as the Medicare Program evolves in terms of customer
choices, we need to subject that to a market test in terms of how
many beneficiaries find that important as opposed to, say, alter-
native supplemental benefit packages, and how much of a dent that
makes over time in the demand for non-Medicare-covered long-term
care service.

Mr. CaRDIN. The alternative, of course, is that if you do not have
a representative group, and it is actually costing Medicare more
money to provide the SHMO type of a program, we should be look-
ing at alternatives within traditional Medicare to expand the cov-
erage for all beneficiaries that could save unnecessary utilization
on nursing home care.

Mr. VLADECK. Well, I think that is a very good point. And one
of the things we are doing a lot of work on at the moment has to
do with the notion of case management, which again is, in many
ways, the key to these effective integrated programs. If you look at
what is happening in the private sector, there are a number of non-
traditional so-called managed care plans, which are still very much
fee-for-service oriented, or even Took more like indemnity plans, ex-
cept for formal case management functions somewhere in the
system.

And one of the questions is the extent to which within the
Medicare fee-for-service program we could build in that kind of
case management, and the extent to which it would provide an ad-
ditional benefit for beneficiaries and produce better outcomes and,
thereby, produce savings to at least offset the additional costs.

Mr. CaRDIN. I hope you will continue to explore that.

Mr. VLADECK. We are working on that very aggressively.

Mr. CarDIN. Good.

Chairman THOMAS. Does the gentleman from New York wish to
inquire?

ir. HOUGHTON. Thank you, Mr. Chairman.

Mr. Vladeck, nice to see you. Tell me once again what it is we
need to do in order to expeditiously extend PACE and SHMO this
year.

Mr. VLADECK. We need legislation, Mr. Houghton. We have spe-
cific statutory authority to operate our existing levels of demonstra-
tion activity. Actually, we have 10 PACE sites; we have authority
to go to 15. We are operating all of the SHMOs that are permitted
under existing authority, which is going to expire in another 20


105

STATEMENT OF DEBRA SYLVESTER,
COORDINATOR, SENIOR HEALTH
FALLON HEALTHCARE SYSTEM

‘The Fallon Healthcare System is a vertically integrated system made up of a well-developed
network of services and facilities offering different types and levels of health care. Within
this network, Fallon can provide continuity of care and utilize alternatives to costly
treatments,

‘The Fallon Healthcare System includes Fallon Community Health Plan (FCHP), a federally
qualified HMO with over 178,000 members; the Saint Vincent Healthcare System with an
acute hospital, a home health care provider, 2 nursing home system and a laboratory; and
‘The Fallon Clinic, a large mult-specialty group model clinic. Fallon is a physician directed
system in which primary care physicians coordinate care for their patients within a seamless
delivery system. By bringing all ofthe elements of health care together, Fallon enables
patients to move among the levels of care effectively and efficiently.

Fallon Community Health Plan, established in 1977, is recognized as a leader in providing
high quality care at an affordable price. Approximately 1000 of the areas best doctors are
affliated with Fallon, with chat number growing continually. FCHP continues to grow and
expand into new areas with the most recent expansion into the Boston area adding even more
physicians and hospitals from which to choose. In addition, Fallon introduced the Peace of
Mind Program for HMO members enrolled through group plans, This program enables
‘members to request specialty care at some of the most prestigious of Boston's hospitals.

Fallon continually works to ensure a network of the highest quality providers, following
stringent credentialing procedures and closely monitoring the quality of care provided by all
network providers. In 1994, FCHP received 2 full three year accreditation from the National
Committee on Quality Assurance, one of only a small percentage of HMOs to do so. In
addition to Fallon’s achievements in the areas of quality and utilization management, Fallon is
also proud of its 93% member satisfacton ratings for the commercial plan and 98.4%
satisfaction ratings for our Senior Plan().

EXPERIENCE WITH THE MEDICARE POPULATION

Fallon has been a leader in managed care for the Medicare population since the Health Care
Financing Administration (HCFA) initiated the Medicare risk contracting process. On April
1, 1980; FCHP became the first HMO nationally to enroll Medicare beneficiaries and accept
reimbursement from HCFA on a prospective, per capita basis as a demonstration project.
Since then, Fallon has maintained a risk contract with HCFA and has consistently offered a
more comprehensive range of heath care benefits than standard Medicare supplements, while
‘maintaining competitive premiums.

Since 1980 Fallon has offered the Senior Plan, now called Senior Plan Preferred, which
provides a full array of benefits including full prescription drug coverage. In 1994, Fallon
introduced two new benefit plans {rom which Senior Plan members can choose in addition to
the established plan. Senior Plan Saver's coverage is identical to Senior Plan Preferred's
coverage but does not include drug coverage. Senior Plan 1000 also offers identical coverage
‘except for a cap of $1000 on prescription drug coverage in each calendar year. Senior Plan
Preferred and Senior Plan 1000 are offered to members enrolling through employer groups.

‘The Fallon Senior Plans are open to individuals who reside in the FCHP service area and are
eligible for Medicare Parts A and B or Part B only. Individuals are entitled to join when they
first become eligible or during a yearly open enrollment. There is no screening of applicants.

‘After fourteen years in Medicare risk contracting, the Fallon Senior Plans have grown to over
28,000 members. Fallon’s experience as a leader and agent for innovation in senior health care
‘makes it an ideal site for the SHMO Il expansion. In particular, Fallon has made strides in
‘member screening, use of Geriatric Nurse Practitioners and Social Workers, geriatric
assessment, coordination of the care of nursing home patients, health maintenance programs
for the well elderly, and participation in the Medicaid Managed Care Program. Since 1986,


34

assuring continuity of care between services provided in the Center,
at home and in institutions. Under contracts with hospitals and
nursing homes, PACE’s medical teams follow our patients right into
the hospital or nursing home to both monitor their care as well as to
formulate appropriate plans for ongoing care, either in the
institution or community.

| would emphasize that by expanding the availability of community-
based long-term care services, tightly integrating all aspects of
PACE enrollees’ care, and emphasizing preventive and supportive
services, PACE programs have substantially lowered the utilization
of high-cost, inpatient services. In turn, dollars that would have
been spent on hospital and nursing home services are used to expand
the availability of community-based long-term care which, again,
teduces the need for high-cost services.

Hospital utilization rates for PACE enrollees are at or below levels
for the general older population, and nursing home rates are way
below levels for a comparably frail group. Analyses of costs for
individuals enrolled in PACE show that Medicare and Medicaid save
between 5% and 15% relative to expenditures for a comparably frail
Population in the traditional Medicare and Medicaid systems. These
savings ate apart from the humane aspects of the program to
maximize and prolong the capacity of an individual to function
independently in his community. {t should be emphasized that where
a PACE site generates income in excess of program expenditures,
these funds are placed in reserve so as to smooth out fluctuations in
utilization or reimbursement.

Quality of care at PACE sites is monitored at both federal and state
levels -- by HCFA and through states’ review processes. In 1993, an
independent review by the Community Health Accreditation Program
found quality and coordination of care at PACE sites surveyed to ba
exceptional. And, importantly, the National PACE Association
recently received a grant from the Robert Wood Johnson Foundation
to develop standards of care for PACE programs and an accreditation
process which we believe will help enormously to maintain PACE's
present quality of care in the future.

‘On Lok and PACE have always enjoyed bipartisan encouragement and
support which has culminated in the introduction by Senators Dole,
Inouye and others of “The PACE Provider Act of 1995.” The
legislation would: 1) expand the number of PACE programs: and 2)
move qualified existing and future PACE sites from demonstration to
provider status. Based upon the years of experience of the PACE
demonstration, CBO has found S. 990 budget neutral. However, the
legislation includes a specific provision limiting provider status to
only those programs which the Secretary finds generate cost savings
to Medicare and Medicaid.

Since S. 990 was introduced last June, HCFA had raised a couple of
concerns regarding its specifics, concerns which we found
reasonable and consistent with the overall thrust of the proposal.
We support changes designed to address those concems in a modified
version of S. 990 which has been made available to Members and


115

778) Oxford's reserve policy is very conservative; we currently have $301 million in
reserves which translates to 72 days of operations. In addition, Oxford has reinsurance
coverage to cover excessive medical expenses for our members.

‘Risk Management Experience

Many Medicare HMOs have already demonstrated though management of their current
membership the ability to manage risk effectively. With capitated payments from HCFA
for over 80,000 Medicare Members, Oxford has experience in successfully managing
health care of the elderly in a capitated environment. Our satisfaction surveys show that
this can be done while continuing to keep members satisfied,

Conclusion

‘We at Oxford truly believe in the concept of capitating acute and long-term care for the
elderly and providing a comprehensive plan of care coordinated by a single entity. We also
believe that as an for-profit HMO we bring attributes that can enhance a managed long term
care program significantly.

It would be a disservice to the recipients of integrated long term care to preclude any
interested party from participating solely based on its organizational structure. Instead,
guidelines should be set for provision of care, and each organization should then be
evaluated individually to determine whether it can provide acceptable care, Quality of care
should not determined by the profit status of an organization, but by the outcomes it
achieves in caring for its members.


58

Mr. ERVIN. There are several waivers that the Social HMOs have
which enabled us to exist. We were a small, community-based non-
profit organization which clearly could not meet the 50/50 rule; did
not meet the Federal qualification rule and several other provi-
sions. So we would not, for example, be able to continue. We have
recently at SCAN, for example, started a commercial plan, which
we hoped to build up to be Varge enough that we can apply to be
a regular risk contractor side-by-side with the Social 0. It
would provide a certain level of insurance should the Social HMO
ever come to an end. We hope that does not happen because of the
incredible benefits that we are able to offer. And Elderplan is in
a similar position, where they could not meet the requirements of
a risk contractor currently.

Mrs. JOHNSON, Could they organize themselves simply as a
Medigap insurance policy, offering all of the things that Medicare
does not offer that you offer, the lower copayments and so on?
What prevents that?

Mr. ERVIN. The thing that makes these benefits possible——

Chairman Tuomas. Mr. Ervin, would you talk directly into the
mike?

Mr. ERVIN. Yes; I am sorry.

The thing that makes the benefits possible is the managed care
system, putting all of the benefits into one managed system of care
in an integrated fashion. In an indemnity model, it would cost far
more to provide the same benefits.

Mrs. JOHNSON. Mr. Ervin, it is possible under current law to or-
ganize yourself as a managed care system and then offer yourself
through the Medigap policy process. This is outside of the HMO
risk contract. This is a completely different avenue. And if your law
expires, what would be the impediments to organizing yourself as
a managed care plan and offering a Medigap insurance policy for
a zero premium? Is it that you could not have access to the
capitated payment?

Mr. ERVIN. Yes, that would definitely be a major obstacle. It is
the capitated payment that allows us to organize all of the strata
of care that are required for the whole population that we serve,
and in a managed care setting, you can accomplish that, and the
capitation really is the financing mechanism that makes it possible.

Mrs. JOHNSON. Why have you found it difficult to compete with
the TEFRA plans in your area?

Mr. ERVIN. I am sorry, Congresswoman, I missed the question.

Mrs. JOHNSON. Why have you found it difficult to compete with
the TEFRA plans in southern California?

Mr. ERVIN. Well, in southern California, you probably know that
it is certainly one of the two most competitive markets in the coun-
try. There are about 30 Medicare HMOs there. They are far larger
than we are, almost all of them, and they have far greater money
to spend on marketing, and it is a costly and labor-intensive effort
as well, because we enroll generally one person at a time. We talk
to them; we educate them. And it takes an educational process for
them to understand the value of these added benefits, especially
having them available if they do not need them right now. So this
is not an easy thing to develop, plus, we have started very small,
and we had an enrollment limit of 7,500 members until 1993, when


112

initiatives include a pilot study to measure the impact of nutritional education on the health
of our Members through the nationally recognized Nutrition Screening Initiative; and a
‘comprehensive flu immunization program to educate our Members and physicians about the
importance of receiving flu vaccinations.

‘Oxford has also received a matching grant from The Robert Wood Johnson Foundation to
un a service credit banking program which also can provide community based seniors with
needed services. This program encourages our active Members to volunteer their time to
help frait Members perform custodial care activities, such as light housckeeping and
cooking. In exchange, Members receive a guarantee which states that they will be eligible
for those services if they ever need them.

Disease Specific Programs

‘Oxford is currently developing a number of disease specific, Member-help-Member
Programs. We will start with COPD “Leaders in Learning” this summer. The frail elderly
could benefit immensely from “Learning to Live with Lung Disease,” where they might be
visited by a community senior who also has lung disease, and taught relaxation techniques
customized for the frail elderly. ‘These specific programs demonstrate our commitment to
serving the elderly as well as the innovative community based approaches that we take
‘which could be beneficial to these managed long term care programs.

‘Network

While HMOs are often not direct providers of medical services, they generally have broad
based, well-established networks of providers that can meet all of their Members’ needs.

(Oxford maintains a network of top-quality hospitals and physicians. Oxford requires each
physician to have board certification in his or her specialty (as recognized by the American
Board of Specialties) or become board certified within five years of becoming eligible. Our
corporate medical director of data analysis employs an extensive software system to
‘manage our 33,000 physicians, hospitals and ancillary providers. Through its network
development and medical management, Oxford has consistently been able to reduce overall
health costs in each region it covers while maintaining quality,

Marketing

‘One important aspect of any comprehensive care site is attracting a sufficient number of
participants. The literature shows that current non-profit capitated long term care programs
such as the PACE sites and Social Health Maintenance Organizations (SHMOs) have had


76

what it is estimated the enrollee would have cost if he had remained in the fee-for-service
system. The model for this reimbursement methodology--Medicare's Adjusted Average Per
Capita Cost (AAPCC)--does a poor job predicting an individual's use of services (U.S.
General Accounting Office, 1994; National Chronic Care Consortium, 1993; Kane, Ilston,
and Miller, 1992; Leutz et al., 1993; and Brown et al., 1993). The payment rate varies with
the individual's geographic location, age, gender, reason for entitlement (age or disability),
institutional status (residing in a nursing home or not), and whether they are Medicaid
eligible. In spite of these adjustments, Medicare spends approximately 5.7 percent more for
persons who enroll in HMOs than it would have spent on fee-for-service care (Brown et al.,
1993), Thus, Medicare is currently losing money on its HMO program. The inctease in
costs to HCFA is due primarily to favorable selection in the Medicare HMOs, which leads to
a healthier than average enrollment within each payment category. Because of lack of
confidence in the reimbursement methodology, providers fear that they will not be adequately
reimbursed, while policymakers worry that the government is spending more than is
necessary.

In addition, capitated Medicaid rates, which generally follow the Medicare model of a
percentage of the costs that would have been incurred in the fee-for-service system, are
difficult (0 calculate because they must be relative to some comparison group. States are
uncertain whether the appropriate comparison group for rate calculation is with nursing home
residents, nursing home eligible or certifiable clients, community-care clients or some blend
of these. The fact that some beneficiaries become Medicaid-eligible only after they have
been admitted to a nursing home and impoverished themselves further complicates the
computation of Medicaid payment rates for integrated systems.

utilization by increasing the use of home and community-based
services and sometimes nursing home care. Thus, cost savings usually accrue to the acute,
rather than long-term care side of service delivery. As 2 result, Medicare rather than
Medicaid may claim the savings. In addition, if the proposals to control Medicare

xtract the savings that managed care

as noted above, limited research raises
‘questions as to whether the addition of long-term care services produces additional acute care
savings.

‘How Much Freedom of Action Will States Have?

‘Under current law, most projects that integrate acute and long-term care financing
equire waivers of Medicare and Medicaid regulations. For example, to operate a Social
HMO, administrators must obtain waivers of regulations regarding open enrollment, covered
services, payment methodologies and levels, and the limitation on the percentage of HMO
enrollment that can be Medicare or Medicaid beneficiaries. But these waivers are only
available for research purposes and the process for receiving waivers is cumbersome, time
‘consuming, and approval is not guaranteed. Moreover, because these waivers are for
research demonstration purposes, the waivers are time-limited and tied to specific
populations.

Under changes being considered by Congress, States will have much greater freedom
of action to fashion their Medicaid managed care programs, but they will not have any
control over the Medicare program. Since Medicare reimburses most of the acute care
expenditures of elderly Medicaid beneficiaries, Medicaid agencies will either have to obtain
Medicare waivers or work around the Medicare program. Because Medicaid pays only the
deductibles, coinsurance, and uncovered services (mosily prescription drugs), the State may
‘not have a great deal of leverage over the HMO’s provision of acute care services. In
addition, given the relatively small role of Medicaid in acute care for the elderly, it may be
difficult to mandate that the elderly enroll in HMOs.



28

ence on differing offerings as to how much some folks want, and
they could even move between an HMO or a SHMO, moving into
more, then, of a PACE kind of a program, and it is that broad op-
tion structure that I think will give us the best test environment
for what works and does not work, limited only by the dollar
amount available for the overall program. Is that——

Mr. VLADECK. Well, I think, as I said earlier, Mr. Thomas, I
think that is right. I think the future of SHMOs lies in changes to
the underlying legislation affecting Medicare and managed care,
and I think under the President’s proposal, in fact, it would be pos-
sible for many HMOs and other new kinds of plans to offer essen-
tially the SHMO benefit package as one of a number of separately
priced supplemental benefit packages. I think the future is in that
direction. And I do not think now is the time to talk about the com-
parisons between the structure of choice in the various proposals,
but I think it is not at all inconsistent with what the administra-
tion has proposed, let alone what others have proposed as well.

Chairman Tuomas. And I started out by asking the question
where do we get the savings if there are any? Is it integration, or
is it the multidisciplinary approach? Fairly obviously, with an
HMO, there tends to be by definition a multidisciplinary approach
in the managed structure. What concerns me is that I think where
the savings are going to tend to come from is an elimination of
what I consider to be more and more needless bureaucratic hurdles
in the utilization of the various services in the old-fashioned fee-
for-service that you have eliminated by waiver in the SHMO pro-
gram, that probably should be eliminated all together. I am looking
forward to trying to find some evidence that perhaps the ability to
utilize, even in fee-for-service, some removal of barriers for use in
a timely fashion for intervention and then pulling out might not
save money all across the board for the Medicare Program.

Mr. VLADECK. Well, let me just suggest that the evaluations sug-
gest that even with full capitation, the amount of integration that
actually occurs and the amount of multidisciplinary integration in
Barticular across service integration that has occurred in the

HMOs, has been highly variable and not something that occurs
automatically by virtue of the financing mechanism.

Chairman THoMa~S. Nor do we have a good grasp, as Dr. Wiener
and others have indicated, as to whether we are robbing the chron-
ic to pay the acute, or robbing the acute to pay the chronic the way
the mix is structured. But frankly, that is less important to me,
and it is inside the black box if we can get an overall program that
meets a dollar amount regardless of which side the money is going
on. If you are getting a product coming out that people like, and
they can use, and it is not costing us any more, I think from a
quality point of view, you have got to say it is a better program

Thank you very much, Dr. Vladeck. One moment. The gentle-
woman from Connecticut has some more questions.

Mrs. JOHNSON. I didn’t quite understand your answer to an ear-
lier question. What assumptions did you use in estimating the 3-
, 4-, 5-, 6-year money available for Medicare/Medicaid eligible pa-
tients under a block grant? You said there would not be sufficient
money. What were your growth rate estimate assumptions?


94

Chairman THoMas. Thank you very much.

Mr. Bringewatt, my goal when I first involved myself in this area
was to try to get the payment system to reflect a continuum of care
based upon patient need. You have given us a couple of good exam-
ples of how it simply does not do that. You deal with the patient
care based upon the payment system, and I went through this per-
sonally with my father, which got me focused in the area. It made
no sense in terms of some of the things I had to do based upon his
needs, and the answer I always got was well, if we do not do it that
way, we do not get paid for it.

And so, my goal has been to create a need-based continuum of
care that you draw on. I agree with you totally on that, and then,
you went to a solution, which is to create a permanent waiver for
particular programs. And my concern is to find out what it is that
we are waiving that makes these programs work and get rid of it,
because I think it is a problem for the entire system, and that I
do not want to go to a permanent waiver for particularly defined
programs; I want to change the system so folks can get in and out
of it in providing for the various needs.

In listening to the discussions, and even, Dr. Wiener, in yours,
and I want to know if this is a fair criticism because I simply do
not know; we are talking about making comparisons in the costs
for these programs to the traditional Medicare and Medicaid, and
I am wondering if we are looking at the universe of costs when we
compare, say, a SHMO, integrating long-term care into the normal
acute program. Is there any money outside of the Medicare/
Medicaid model we use for comp arative purposes on costs that we
are not considering which should art of the pot if we are creat-
ing a completely integrated program had sebed acute and chronic?

Just let me give you an example: We passed a health care bill—
it is over in the Senate; it is being debated right now—in which we
are allowing long-term care insurance costs to be deducted as part
of health care costs above 7.5 percent of AGI on your income tax,
on Schedule D. And we accepted a memo which would allow actual
long-term care costs to be deducted. It seems to me when we are
dealing with several billions of dollars of deductions off of income
tax, that is probably not part of the pot we have considered histori-
cally available to pay for these programs. And one of the things
this Committee has wrestled with is long-term care. Everybody
talks about it out there; it is something we need to deal with; it
is on the horizon; when in fact, it is here, and we are not really
facing it. And what I see is the possibility of setting up a program
which takes the current arrangement, increases it 5 percent from
95 to 100 percent, gets rid of some arcane rules as far as I am con-
cerned that may have had some historical use for us, 50/50 or oth-
ers, and we essentially begin to deal with the long-term care prob-
lem. To say that it may not be cost-effective because it does not
stay within 100 percent of the expenses of Medicare and Medicaid
is not fair because it requires that model be based upon the poten-
tial costs that this Congress will place on the American taxpayer
in another context to deal with long-term care. Do you understand
my direction? Are we not counting all of the money that should be
in the pot to deal with the unique continuum of care provided by
the SHMOs and for a defined group, the PACE program?


STATEMENT OF
BRUCE C. VLADECK, ADMINISTRATOR,
HEALTH CARE FINANCING ADMINISTRATION

INTRODUCTION

Mr. Chairman and Members of the Subcommittee, it is a pleasure to appear before you today to
discuss an issue close to my hean: the development of new models of comprehensive care for the
fail elderly, Specifically, I have been asked to talk about two important demonstration projects in
which HCFA has invested years of thought and effort: the Program of All-inclusive Care for the
Elderly (PACE) and the Social Health Maintenance Organization (S/HMO) projects. These two
projects provide, we believe, important inital building blocks in our effort to develop high quality,
locally sensitive, customer-oriented, community-based services for those in need of long-term
care.

It is important to begin by talking for just a moment about community-based long-term care.
Both PACE and S/HMO emphasize home and community-based services. Most beneficiaries and
their families greatly prefer home and community-based care to institutional care, and we want to
continue to explore how to best serve their needs. We have come a long way since the early
1970s, when home and community-based care was a fairly new idea and was considered largely as
‘a way to reduce the length of hospital stays or as an alternative to institutionalization in a nursing
home.

Today, Medicare and Medicaid each provide substantial amounts of home and community-based
care, More than 250,000 people receive long-term care services in a home or community setting
under Medicaid’s home and community services waiver program alone. More than

2.5 million beneficiaries annually receive services through Medicare’s home health benefit.
Because of the breadth of services and the capitated payment approaches of the PACE and
‘S/HIMO programs, these programs differ from standard home health benefits of Medicare and
Medicaid, Both PACE and S/HMO emphasize reducing the burden on informal caregivers,
improving social and psychological well-being, improving health status and functional
independence, and increasing longevity. Our experiences with the PACE and S/HMO programs
are providing us with important information about how best to provide integrated acute and long-
term care.

INTEGRATION

Integration of services is very important for the estimated five to six million individuals who are
cligible for both Medicare and Medicaid. Many of these “dual eligibles” have multidimensional,
interdependent and chronic health care needs. However, as currently structured, the Medicare
and Medicaid programs are not sufficiently coordinated to serve many of these complex health
needs.

Because the financing, administration, and delivery systems are fragmented, services are often
duplicated and access to care can be limited. Further, since care is financed from different funding
sources, there are insufficient incentives to integrate services. For example, increased emphasis
on rehabilitation in the acute setting might reduce long-term care spending, but Medicare


vil

RECOMMENDATIONS

Although integrating acute and long-term cate carries risks, such as overmedicalizing,
long-term care and loss of funds transferred (o acute care from long-term care, the overlap of
long-term care and acute care needs of persons with disabilities makes the integration of the
financing and delivery of these two disparate systems a worthwhile goal. However,
integration faces numerous technical, political, and attitudinal barriers. ‘To a large extent,
policymakers and providers are just beginning to learn how to create a seamless financing
and delivery system for persons with disabilities. Indeed, the ideat model may not yet exist.

While comprehensive health care reform, including greatly expanded funding for
long-term care, would help the cause of integration, such initiatives are unlikely for the
foreseeable future. Despite these limitations, there are at least three broad initiatives that
‘would further the integration of acute and long-term care financing and delivery:

Expand Research and Demonstrations on Integration

‘Although progress has been made over the last decade, not much is known about how
to imegrate the financing and delivery of long-term care. Thus, a major priority for the
Health Care Financing Administration, foundations and philanthropic organizations should be
to fund research and demonstrations (including their evaluation) of new ways of integrating
acute and long-term care services.

Research and demonstrations should focus on three issues. First, high priority should
be given to analyzing ways of improving the Medicare reimbursement rate formula--the
Adjusted Average Per Capita Cost (AAPCC)--to better account for the costs of caring for the
disabled elderly population. Since efforts to revise the AAPCC have been ongoing for the
last 15 years without a great deal of success, accomplishing this task will not be easy.

Second, HCFA, foundations and philanthropic organizations should encourage
innovative projects that foster the integration of acute and long-term care. In evaluating
these initiatives (and they must be systematically evaluated to be useful), key questions
should include: What do acute care providers do differently in integrated systems than they
do in unintegeated systems? What do tong-term cate providers do differently in integrated
systems that they do not do in unintegrated systems? Do integrated systems cost less than
tunintegrated systems? Is quality of care better or worse in integrated than unintegrated
systems? Are outcomes better in imegrated systems than unintegrated systems?

Finally, research should continue on ways of "bundling" post-acute Medicare skilled
rmursing facility and home health payments with hospital DRG and other payments. With the
rest of the health care system moving rapidly toward managed care, it seems unlikely that the
elderly population will be able to resist capitation forever. However, for the near term,
older people have been reluctant to enroll in HMOs, forcing proponents of integration to look
at what might be done in the fee-for-service sector.

‘Support Geriatric Education

Most doctors as well as other health professionals know little about the health care
needs of the chronically disabled population and almost nothing about long-term care. While
there is dispute about the necessity of depending on board-certified geriatricians, there is
‘widespread consensus among those concerned with the elderly population that more
geriatticians and geriatric education would likely increase the sensitivity of health
professionals to the special needs of the chronically disabled. Although drawing large
numbers of persons into the field will require a major restructuring of the medical :
profession, additional federal financial support for training programs would help.



83

across settings and over time and recognize the interdependence
between Medicare and Medicaid. Policies governing acute care and
long-term care must be made more consistent. Spending Medicare
funds to prevent, delay or minimize disability can_ significantly
reduce the accumulation of long-term care costs under Medicaid.
Spending Medicaid funds to reduce adverse medical conditions can
reduce acute care expenditures under Medicare.

Third, we must move beyond demonstrations. We can ill afford
to conduct endless demonstrations and wait 5 to 10 years for eval-
uation results. How can we ask an organization to fundamentally
change standard operating procedures for a subset of patients rep-
resenting less than 5 percent of the system’s overall costs? How can
we convince sponsors to make a substantial investment if they
cannot apply demonstration learnings to their ongoing business?

In conclusion, I simply want to make three recommendations.
First, the NCCC urges the Subcommittee to grant permanent waiv-
er authority to the Social HMO I and II sites and establish PACE
as a permanent Medicare Program. Second, we recommend ena-
bling other mainstream provider networks to establish variations
on integration and managed care financing for chronically impaired
people under permanent waiver of identified requlations that im-
pede effective integration. And third, we recommend that authority
and financial responsibility for Medicare and Medicaid be invested.
either with the Federal or state government. In the interim, all un-
necessary inconsistencies in the administration of Medicare and
Medicaid must be eliminated.

Mr. Chair, we are in a major crisis, as you well know. Medicare
and Medicaid costs are out of control. We have to move demonstra-
tion out of the greenhouse and into the real world. We must take
the learning we have accrued and get on with the business of
containing costs through better care. This requires a fundamental
reengineering of how we finance, administer and deliver care for
the chronically impaired elderly.

Thank you, Mr. Chair and Members of the Committee.

[The prepared statement follows:]


5

eryone in America could participate in a Social HMO or a PACE-
type program. I think we could pass an extension of these
programs on the suspension calendar.

We do not legislate in vacuums, and I would be interested in
hearing Dr. Vladeck talk to us about the realities of Medicare
changes that would remove guarantees for low-income seniors or
Medicaid and weaken nursing home quality if the Social HMOs or
PACEs can make up for that. But we have a program proposed
that will turn Medicare into a program where providers are able
to charge seniors extra for the basic Medicare benefits. What good
does it do them? Can Social HMOs and PACEs make up for the
harm that is being done to the Medicaid and Medicare Programs
with a few demonstration projects?

My guess is that the net result of the actions of this Committee
this year will be harmful to seniors. I wish that indeed, programs
like On Lok, which is about to expand, I understand, into my dis-
trict will continue. It seems somewhat disingenuous, however, and
I hope that Dr. Vladeck can explain to us that on the one hand,
we can help with a few modest programs like On Lok, yet we make
huge cuts in the increase in revenues needed to run a Medicare
Program. It is even more difficult when we destroy a Medicaid
Program and nursing home quality standards, which are so vital
to the health of seniors.

Thank you, Mr. Chairman.

Chairman THOMAS. Well, we almost made it to you, Bruce, in a
bipartisan way. Nice to have you with us. I look forward to your
testimony.

STATEMENT OF HON. BRUCE C. VLADECK, ADMINISTRATOR,
HEALTH CARE FINANCING ADMINISTRATION

Mr. VLADECK. Thank you very much, Mr. Chairman, Mr. Stark,
Members of the Subcommittee. I am really particularly pleased to
be here to discuss the development of new models of comprehensive
care for the frail elderly. It is an issue that has been close to my
heart for many years and one in which I have been professionally
involved for many years. In fact, I am pleased to count myself
among the earlier admirers of On Lok, having first visited the pro:
gram in 1977 and having helped arrange some of their first
national foundation funding.

I want to talk today about the program that we have built on yop
of the On Lok example, the PACE program or Program of All-
Inclusive Care for the Elderly and the social health maintenance
organization projects or SHMOs, as well as some of the other
things that we are either doing or are in development. We are put-
ting in place building blocks for high-quality, locally-sensitive,
customer-oriented, community-based services for those in need of
long term care and for better integrating acute and long-term care
in Medicare and Medicaid financing.

Before talking specifically about PACE and SHMOs, however, let
me just very quickly point out that we are in the midst of a trans-
formation of our long-term care system that has been going on for
more than a decade now, increasingly reflecting the preference of
clients and their families to receive services at home whenever pos-
sible. And while the distribution of services is probably still more


1

‘We would assert that the tax-status of a company does not indicate the standard of care it
provides. Like non-profits, for-profits have an incentive to provide quality care to maintain
their Membership bases. Interestingly, a recent study found that for-profit HMOs generally
spend more of each premium dollar on actual health care services than do non-profits.
Oxford's efforts at providing excellent care have resulted in high ratings in customer
service satisfaction surveys, and having recently been cited as having the country’s lowest
‘number of Member complaints upheld by HCFA per thousand members.

‘Track records for quality and member satisfaction can be used as a measurement of the
standard that management uses to run its company. These representations of quality of care
will much more accurate than whether an organization in for-profit or non-profit. Oxford's
‘commitment to quality is evidenced in the extensive Quality Management programs it has in
place. The goals of Oxford's Quality Management Program are to improve and/or maintain
high quality patient services through ongoing monitoring and assessment of: provider
compliance with the delivery of care in accordance with recommended clinical treatment
guidelines; Member satisfaction with Oxford's services and health care services; provider
satisfaction with Oxford's services; mechanisms to ensure that Oxford’s cost containment
programs do not adversely affect the quality of care provided to the Membership;
educational needs for Oxford's providers and Members to facilitate their involvement in
quality improvement activities.

Medicare HMOs have unique core competencies that will be very important to the success
of broadened managed long term care efforts. Below are several other attributes that for-
profit Medicare HMOs can bring to a demonstration of capitated long term care.

‘Education and Outreach

While we cannot speak for all for-profit Medicare risk contractors, many have
demonstrated a real commitment to the care of older adults, which has even taken them
beyond the realm of covered benefits.

Through our Outreach department for example, Oxford connects members with needed
social services, such as transportation, meals on wheels, adult protective services, and
custodial home care. in addition, Oxford implements a Health Promotion Series that
provides a series of health education lectures and training programs on topics such as
healthy eating, diabetes, arthritis, exercise, and prostate health. Oxford also publishes a bi-
monthly health and wellness newsletter specifically for our Medicare Members. Other


81

Riley, G., Rabey, E., and Kasper, J., 1989. "Biased Selection and Regression Toward the
Mean in Three Medicare HMO Demonstrations: A Survival Analysis of Enrollees and
Disenrotlees." Medical Care 27(4):337-351.

Ris

in, A. and Wiener, J.. with Hanley, R. and Spence, D., 1988.
/2 Washington, DC: The Brookings Institution.

Rowland, D. et al., 1995. Medicai
‘Washington, DC: Kaiser Commission on the Future of Medicaid,

Schlesinger, M. and Mechanic., 1993. "Challenges For Managed Competition From Chronic
Mness." Health Affairs Supplement :123-137.

‘Shaughnessy, P., 1994. “Home Health Care Outcomes Under Capitated and Fee-for-Service
Payment.” Health Care Financing Review 16(1):187-222.

U.S. Department of Heath and Human Services, Office of the Inspector General, 1995.
Ris (OEI-06-91-00739) Washington, DC.

U.S. General Accounting Office, 1994. Medicare: Changes o HMO Rate Seiting Method are
‘Needed to Reduce Program Costs. Prepared by the Health, Education, and Human Resources
Division, General Accounting Office. Washington, DC.

Weisser, W, 1994. "Effectiveness of thet readmission Screening Instrument and Level of
2 Exaluaion ofthe Arizona Health Care Coat

Francisco, CA’ Laguna Research Awocitions, 1998.

Wiener, J. and Illston, L., 1994. “Health Care Reform in the 1990s: Where Does Long-
‘Term Care Fit In?” Gerontologist 34(3) 402-408.

Yelin, E., Shean, M. and Epstein, W., 1986. “Health Outcomes for a Chronic Disease in
Prepaid Group Practice and Fee for Service Settings: The Case of Rheumatoid Arthritis."
Medical Care 24(3):236-247.

‘Zawadski, R. and Eng, C., 1988. “Case Management in Capitated Long-Term Care.” Health
Care Financing Review Annual Supplement :75-81.


107

Because of the unique needs of this population, health care for the elderly requires integration
‘of ambulstory, acute chronic, home care, prescription, and support services. Appropriate
geriatric care also involves the following:

(Care Management. Care management functions are critical in managing the complex health
care needs of the elderly population. Under the SHMO program a case manager will screen
assess, intervene and monitor the medical, psychological and social risk factors of members
that are potentially at risk. The desired outcomes of case management would be decrease in
hospital, and nursing home admissions, improved quality of life and disease specific outcomes.

Screening mechanisms that result in early detection. A high incidence of functional loss has been
found among the aged and those with chronic disease (Jette and Branch, 1981). Research
shows that functional decline in the elderly is reversible (Branch, 1984), and that improvement
is more likely when loss is recent and not severe (Crimmins and Saito, 1993). Although
functional dependency has been shown to predict increased care needs (Williams, et at, 1987),
impairments often go undetected and untreated (Besdine, 1988, Lachs, 1990, Applegate, 1990).
Routine screening can ensure that these and other geriatric care issues are

appropriately.

Intervention, Identification of functional loss and other geriatric problems is futile unless
intervention is planned. For an elderly patient, che most appropriate intervention may, at
times, be supportive services, or coordination of care by two or more providers. For those
‘most at risk, ongoing involvement of the care provider is essential. Limitations in current
coverage prevent routine availability of such services and coordination activities.

Integration. Service delivery to the elderly remains fragmented, Typically, each care delivery
site i focused on volume and resource use under its own roof. An integrated system with
total risk for the care of elderly enrollees will only succeed if it coordinates care across all
delivery sives while taking the patients\future care requirements into account (Wolford, et al,
1993), which the SHMO will do.

Health Maintenance. Only by extending improved geriatric care approaches to all enrollees,
including those withour perceptible frailties, can this approach yield the greatest long-range
results, Evidence suggest that the primary prevention can significantly reduce functional
decline (Mor, 1989). Early identification and appropriate geriatric care will play a role in
improving health status for the population enrolled, slowing decline, reducing the need to
‘enter a hospital or use an emergency room, and improving outcomes.

‘The SHMO will provide for initial and routine patient screening and care coordination.
Monitoring of the at-risk patient will be increased. Expanded benefits will allow for all-
important follow-through when additional services are needed.

‘The structure and financing of the SHMO is the only model on the horizon today that make
these care delivery goals attainable.

FINANCING

Under the TEFRA Risk agreement with HCFA Fallon accepts full responsibility for health
care costs under both Medicare Part A (hospital) and Part B (physician). HCFA pays Fallon a
‘capitated amount equal to 95% of the average area costs per Medicare beneficiary. Under the
Social HMO model services are also financed on a prepaid capitated basis. However, the plans
receive 100% of che average area cost per Medicare beneficiary. The additional 5% of the
AAPCC is used for financing the additional expanded benefit package. Under the capitated
payment system, managed care organizations have the flexibility under the Social HMO.
program to tailor benefits to the unique needs of each beneficiary.


92

First, demonstrations are implemented in an artificial environment, freezing in place certain research designs and
biting modifications to these protocols as learning oceurs. ‘The evolving dynamics in health care require a

limited oI ses which serve between 170 tod 30 members

Size creates several problems. It impedes rapid learning since so few sites are testing and refining concepts and
‘minimizes the cost savings potential and efficiencies that only can be gained through economies of scale. It also
creates internal challenges to organizations and discourages providers from fully embracing the goals of the
‘program. It limits providers’ ability to penetrate the market and test the competitive advantage of this model over
‘others. Consider the difficulty of convincing physicians and other clinicians in a large health care system to use
‘one set of provocols for regular HMO patients that comprise over 95% of the systems’ patient load and a different

, Consider
convincing the chief financial officer wo enter a risk-aharing arrangement for a population that is at risk of
consunng sgicamly higher tan average resources when thi sk wl be spread across ese than five pecan
of the entire patient population,

‘Third, demonstration status can discourage providers, payors and state governments from establishing programs.
‘Demonstrations require considerable time and investment of resources, yet the “pay-off” and return on investment
is uncertain unless sponsors receive some assurances that they will have the opportunity to mainstream the programs
in which they are investing. PACE sites need to make a significant investmeat before even applying for Federal
waivers since they must become operational under state-based Medicaid capitation systems first. Even after
demonstrations are operational, deroonstration status continues to absorb significant amounts of administrative,
financial and clinical resources since sites must continuously return to the Congress and Administration for
‘extensions of waiver authority to remain operational. Valuable time is taken away from day-to-day operations,
research and patient care while sites are collecting data and building a case for their ongoing existence.

Demonstration status also has discouraged consumers from enrolling in programs due to the uncertainty of the
health plan's future. HMOs already have difficulty atracting seniors unless the senior’s physician already is part
of the health plan. Seniors are more reticent to "leave" their physicians behind than the younger population.
‘Adding 1 second significant barrier ~ the prospect of having to change plans and providers in the future if the
‘demonstration is not continued — exacerbates the marketing problem. This can be especially problematic for senior
citizens and chronically impaired persons whose “insurability” may be marginal to begin with due to the high risk
of needing extensive bealth care services.

‘The NCCC does not intent to suggest that selected concepts should not be tested under controlled conditions. Yet,
‘unless the Federal government breathes more flexibility into mainstream operations with incentives for developing
‘new and innovative approaches, the health care industry will not successfully respond to emerging demands as we
‘enter the 21st Century. For these and other reasons, NCCC strongly urges the Committee to establish a permanent
provider category under Medicare and Medicaid which promotes the establishment of integrated provider networks.

VI. NCCC RECOMMENDATIONS

‘NCCC recommends that Congress take the following actions to help promote the integration of primary, acute and
long-term care services as a strategy for increasing consumers" access to needed health care services, improving
health care outcomes, and reducing health care expenditures.

A. Comprehensive Initiatives

EXPANSION OF PROVIDER-BASED NETWORKS: Establish authority for provider based networks as a new
‘managed care option available to Medicare and Medicaid beneficiaries. Networks would be subject to a uniform
tof requirments governing ainsi, payment and oversight policies, Neworks would be required to
demonstrate sled t inepration ad based financing crcl would ud on the experience ofthe
Social HMO and PACE projects in areas such as establishing risk-adjustmeat payment methods

ADMINISTRATIVE REFORM: Direct the Secretary 1 conoid staninrativeequremens fo organs
providing to a defined oo through an i ‘All Medicare and Medicaid
teres provided bya federal alfa proviler newark would be subjoa tos unform se of salnsaive
‘reporting procedures, performance standards and payment methods.



60

Mr. Stark. How about you, Dr. McCann? What percentage of
your budget?

Dr. McCann. Very similar.

Mr. Stark. About 70 percent?

Dr. McCann. Yes.

Mr. Stark. I am not sure as much what will happen in New
York as I worry about California, but if there was a 30-percent re-
duction in Medicaid, 20 or 30 percent, somewhere in that area, on
a block grant basis, and assuming that that were spread evenly,
which is not necessarily a fair assumption, but what would you
guys do with your two programs?

's. Hansen?

Ms. HANSEN. For California, our rate is adjusted already at 15
percent below Medicaid average cost for that population. So al-
ready, there has been a 15-percent reduction. I think that all of us
operating in the delivery systems are very keenly aware of that,
and frankly, we continue to look for ways to have efficient delivery
without compromising care. It still is one of those things that we
realize is going to be a cut point where obviously, it will adversely

rect.

Mr. Stark. I guess what I am asking, though, is if you had a 30-
percent reduction in 70 percent of your volume, that means you
have got about a 20-percent overall budget cut.

Ms. HANSEN. Right.

Mr. STaRK. Can you operate with that?

Ms. HANSEN. I think that would severely curtail, certainly, our
ability to provide services. And many of us are looking at how we
can encourage a better mix of populations to service more of the
private-pay population also to be a part of this. .

Mr. StarRK. Doctor?

Dr. McCann. Our rate in New York is set at 90 percent of the
average Medicaid nursing home rate, and we also have not had a
rate increase for 3 years. So another 30 percent cut would really
be a problem for us.

Mr. STarK. Ms. Hansen, the idea of bringing in private pay is
what we used to call cost-shifting. In other words, what you would
like to do then is if you could get higher paying patients, they
would, in theory subsidize the lower income patients, which is fine.
That is, in effect, what you are hoping to do to offset any proposed
cut in Medical; is that right?

Ms. HANSEN. Well, historically, what we have done is charge the
private pay the same as the Medicaid. But I think also increasing
the number of enrollees, frankly, the size——

Mr. Stark. If Medicaid went down, and private pay stayed the
same, then if you increased the number of private pay, you could
conceivably cover some of that reduction. Is what you are sayi: ie?

Ms. HANSEN. There would be, I think, possibly some ability to do
that, but there would still be the issue of compromised ability to
provide services if the cuts ended up being extremely severe, no
matter what.

Mr. Stark. Mr. Ervin, one of the criticisms—I gather it is generic
and not of your particular plan—is that physicians are not given
greater time per patient in a SHMO when it is arguable that those
patients need more time because of their condition. Did you adjust


56

the time came, the cast was removed. Then, I used a special shoe
and stocking until everything was healed. I did not have to spend
a penny.

That was just the beginning. Just a few weeks after the cast
came off, I broke my hip. One afternoon, I was walking along the
sidewalk to see my neighbor, and a young dog came running out
of his house and knocked me down. I knew something was wrong,
because I could not walk. I really needed my health insurance this
time. Elderplan was terrific. I received all of the health care and
services that I needed. The doctors and hospital staff were excel-
lent. They could not have taken better care of me if I had paid
hundreds of dollars in premiums every month.

When I went home, an aide came to help me during the day for
about 2 weeks. Later, when I was ready, I got a walker and then
a cane. A physical therapist came to my house to show me how to
move in the right way. All of this was arranged and paid for by
Elderplan. Elderplan has meant a lot to my family, too. My chil-
dren feel that I was well taken care of. If it had not been for the
help I received at home when I broke my hip, my daughter would
have had to take off from work. There would not have been any
choices for us. I have peace of mind and a financial safety net
because Elderplan took care of everything.

Elderplan has been very good to my brother-in-law and sister-in-
law, who have been members for years. I see how other people are
taken care of when they have heart surgery and other problems,
so I know how much a good health plan like Elderplan can do. Now
that I am pretty much back to my full activities, I like spending
time with my family, and I scour my kitchen every Friday no mat-
ter what. Many of the things that keep me busy are connected to
Elderplan. Elderplan sponsors quite a few programs about staying
healthy. For example, I am in the walking club organized by
Elderplan. Twelve of us walk together for about an hour once a
week. Also, I am part of the Elderplan volunteer program called
Member-to-Member. I usually spend 1 day a week in the office, un-
less I am taking care of my great-grandchildren. I go to health edu-
cation programs that Elderplan has for members and the commu-
nity at no cost to us. I have taken part in meetings, fitness and
one on improving your memory, and for the past 2 years, I have
been a subscriber representative to the Elderplan Board of
Directors, which meets four times a year.

TI can tell you that it gave me a great feeling at the meeting 2
weeks ago that we approved adding more benerits to Elderplan so
Medicare beneficiaries like me will have many more choices and
more control over their health care. Members suggested making
changes, and Elderplan listened. One of the biggest changes will be
having a budget of $100 a year for every member to use for trips
to the doctor or other care. Right now, members who have a medi-
cal need can get free transportation from Elderplan. There will be
more choices when it comes to selecting eyeglasses, hearing aids
and dentures, and women who belong to Elderplan will be able to
see their gynecologist and have their annual mammograms without
getting referrals in advance from their primary care physicians.
These improvements will be terrific.


18

Chairman THOMAS. One last comment. Again, I am going back
to Dr. Wiener’s study, because he does cite so many other studies
that have been offered. And what caught my attention on page 3,
having read some of the case profiles and the way in which they
were handled, in a very humane way, he says: “Within the Social
HMOs, at least some disabled groups had higher mortality rates
than persons receiving fee-for-service care (Manton, et al., 1993).”

Based upon the way in which there was almost a nurturing hos-
pice concept to this program and choices that were focused by loved
ones and relatives, that is not necessarily a negative statement.
You have to look, I think, at the individual situation, because of-
tentimes, strictly, mortality rate divided by dollars does not nec-
essarily produce a quality profile, and what I like about this pro-
gram is that although we are obviously focusing on the cost of the
program, and the quantity aspect is something that is important,
I think overall, most people would agree that all things being
equal, the quality of these kinds of programs is significant.

Mr. VLADECK. I think it is particularly important, Mr. Chairman,
to recognize that whatever the sort of conventional wisdom or
stereotypes may be that, in fact, effective case management really
empowers individual patients and their families, just as having to
deal with a fragmented system can restrict choices. In fact, good
programs of this sort like the PACE programs give the patients
much greater control over the kinds of services that they receive
than the so-called “unrestricted,” and confusing array of benefits
that might be available otherwise.

Chairman Tuomas. Does the gentleman from California wish to
inquire?

Mr. Stark. Thank you, Mr. Chairman.

Bruce, maybe you could clear up some definitional stuff here. I
would preface this by saying that I think these programs are good,
and they are certainly good for the beneficiaries. But the question
of cost and which programs save and how much they save, we are
not clear on. Let me see if I understand this. In the PACE pro-
grams, they are partly paid out of Medicaid and partly Medicare
funded. Generally, most of the savings would come out of the Med-
icaid side, because there are lower long-term care costs. There is
probably not a lot of savings in Medicare.

On the SHMO, however, it is mostly paid by Medicare and in-
cludes limited long-term care. In the SHMOs, we have seen noth-
ing in the testimony here to say that they really save money. My
guess is that the reason they do not save money is that they do
not have a big nursing home potential cost to save from. Have I
got that?

Mr. VLADECK. You know, it is one of the problems we have in all
of the capitated programs under Medicare, since, in a sense, sav-
ings are invested in benefits.

Mr. STARK. OK.

Mr. VLADECK. And that is one of the reasons that it is so com-
plicated to draw a conclusion. It is clear that Medicare is not sav-
ing money in the way in which it pays SHMOs. The question is,
are beneficiaries getting more than they would, and the answer is
probably, they are.


47

continued geometric growth of the over 65 population in general, and the over 85 population
in parclar, wll every ax public and private sector resources, The over 85 population,
‘which account for the highest utilization rates for services associated with multiple chronic
STuablng conditions, wll crease by 150% between 1990 and 2030, ‘A number of
demographic trends impede the ability of family members to provide adequate support for
their aging parents such asthe decrease in family size andthe diminished supply of labor to
provide support functions; the increase in the number of women entering the work force;
adult children’s conflicting loyalties between aging parents and their own children; and
greater mobility of the working population,

‘The Social HMO has helped thousands of older persons and their families resolve these
dilemmas by providing comprehensive coordination of all health and related services. We
are particularly proud that this program has kept thousands of older persons out of nursing
homes through community-based services designed to maximize their functional abilities and
independence. Since the Social HMO’s inception, we collectively have served approximately
‘50,000 individuals, roughly 12% of whom were classified as "nursing home certifiable."
Between 90 to 95% of these members have avoided institutionalization at a cost savings of
literally millions of dollars to the Federal and state governments. Below are a few “success”
stories associated with the Social HMO program.

Case Study 1

Romilda is an Elderptan member who experienced difficulties in getting to the doctors’ office
for follow-up treatment after undergoing total knee replacement surgery. To accommodate
her needs, Romilda’s physician volunteered to make house calls and Elderplan's home health
nurse and physical therapist worked with her in her home until she regained use of the new
knee. Following rehabilitation, Elderplan continued to coordinate Romilda’s transportation to
medical appointments and provide in-home personal care services 12 hours per week. This
combination of services prevented her from entering a nursing home and helped her to
‘maintain her independence,

Case Study 2

Gladys lived an extremely active life until age 86 when she was diagnosed with cancer.
‘Although she initially recovered from cancer treatment, she became increasingly frail and
forgetful and eventually was unable to continue living alone. Her granddaughter Lynn was
‘considering leaving her job to care for Gladys when she discovered Kaiser Permanente’s
Social HMO. Kaiser initially provided adult day care services for Gladys twice weekly,
provided homemaker services and installed an electronic response system, paying for 90% of
related costs. Eventually, expanded care services were changed to adult day care five days
pet week at a foster home near Lynn's house and respite care to relieve Lynn of caretaking
responsibilities periodically. Gladys was able to remain independent with Kaiser's support
until she passed away, never being forced to leave Lynn's home and Lynn was able to
maintain her employment.

Case Study 3

‘At age 73, Floyd became the primary caregiver for a wife who developed Alzheimer’s
Disease and a mother who was left half paralyzed by a stoke. Floyd was on the verge of
emotional and physical burn out and severe financial distress in helping to pay for his wife
and mother's care when he discovered the Social HMO and SCAN. The plan paid $625 per
‘month towards a 24 hour per day, seven day per week live-in assistant for his mother, and
also provided for medial equipment such as a whee! chait and railings for her bed. SCAN
also paid for a large portion of adult day care services for his wife where she received care
from 8 Am to 5 PM on weekdays by professional caregivers trained in the care of
Alzheimer's patients, ‘The support provided by SCAN prevented Floyd from having to
institutionalize both his wife and mother.

B. Cost Savings Potential

‘Social HMO services are financed on a prepaid capitated basis. Benefits may be paid for in
three ways: (1) Medicare only; (2) Medicare and private premiums; or (3) Medicare and


51

many become fully independent following rehabilitation. Further, the Social HMOs have
identified several factors which predict whether a patient is likely to remain nursing home
certifiable and eligible for long-term care services over the long-run, of to regain functional
ability and discontinue long-term care service utilization. For example, predictors of moving
from the NHC category include recent hospitalization, female gender, heart conditions and
recent fracture of injury. Predictors of remaining NHC include higher age, becoming NHC
soon after enrollment, having higher numbers of ADL impairments and higher income. The
Social HMOs continuously monitor the health status of those who are at risk of becoming
NHC or who are assessed as NHC to assure appropriate interventions. For those who are at
risk, preventive measures are implemented to reduce the likelihood of progressive disability
For those who are certified as NHC, quarterly reassessments are performed to evaluate the
effectiveness of the treatment regimens. Once an individual has regained functional
independence, the long-term care benefit is discontinued and these resources can be directed
to individuals in the system in need of these services.

Social HMOs include the type of effective geriatric assessment system which enables
providers to (1) identify those at risk for disability and costly long-term care services; (2)
appropriate interventions before the disabilities progress beyond the point of
rehabilitation; and (3) establish a monitoring system for reassessing individuals’ ongoing
needs for services. A study published last year in
revealed that such assessments can delay the development of disability and reduce permanent
nursing home stays among elderly persons living at home, ‘This study examined the impact
of an annual in-home comprehensive geriatric assessments and follow-up for individuals 75
and older. After three years of intervention, 22 percent of the survivors in the control group
required assistance in performing the basic activities of daily living while only 12% of the
survivors in the intervention group required such assistance. In addition, there were only
‘one-sixth as many nursing home days for the intervention group. About 10 percent of those
in the control group were permanently admitted to a nursing home compared to 4% of the
intervention group. The study suggests that the prevention of decline in functional status was
at least partially responsible for the reduction in nursing home admissions.

Although ‘The New England Journal study did not include an analysis of the cost-savings
potential of the geriatric assessment intervention program, certain assumptions can be made
from the data provided. For example, during the second and third years of the study, there
were significantly more physician visits among the intervention group than the control group.
‘The cost of intervention for each year of disability-free life gained was about $6,000. This is
approximately one sixth of the average cost of a year in a nursing home,

IV. SHMO CONSORTIUM RECOMMENDATIONS

[As 1 indicated at the outset of my testimony, the waiver authority under which the Social
HMOs operate will expire at the end of next year if no further action is taken. On behalf of
the existing sites and members, we urgently request your intervention in granting permanent
waiver authority to existing sites and making this valuable program available to other
sponsors and subscribers. While the waiver authority is not due to expire until 1997,
immediate action is imperative to protect the almost 20,000 senior citizens currently
receiving Social HMO benefits. If the authority is not granted this year, the existing sites
will have no choice but to begin to plan phasing down of operations in order to provide for
an orderly transition from the Social HMO to an alternate health plan.

Immediate action also is needed to protect the integrity of the Social HMO TI sites whose
waiver authority also is due to expire in December of 1997, As you know, six additional
sites are scheduled to begin operations this year under authority granted by OBRA 1990.
Both HCFA and the sites have invested considerable time and resources in developing the
framework for the next generation of this model. Without the extension, these sites would
‘be fully operational for one year at most. T think you would agree that a one year
demonstration would not provide HCFA a reliable basis for evaluation sites’ abilities to
achieve the second generation demonstration goals. We believe the organizational and
financial commitment required warrants a minimum demonstration petiod of three to five
years.



80

Leutz, W., Greenberg, J., and Abrahams, R., 1985.
ety: i i i . Lexington, MA:
Lexington/Heath.

Leutz, W., Greenlick, M., and Capitman, J., 1994. "Integrating Acute and Long-Term
Care." Health Affairs 13(4):59-74.

Leutz, W., et al., 1995, “Letter to the Editor: Medical Services in Social HMOs: A Reply
to Harrington et af.,” Gerontologist 35(1):6-8.

Manton, K., et al., 1993. "Social/Health Maintenance Organization and Fee-for-Service
Health Outcomes Over Time.” Health Care Financing Review 15(2):173-202.

Manton, K., et al., 1994. "A Method for Adjusting Payments to Managed Care Plans Using
Multivariate Patterns of Health and Functioning: The Experience of Social/Health
Maintenance Organizations.” Medical Care 32(3):277-297.

McCall, N. and Korb, J., 1994. "Combining Acute and Long-Term Care in a Capitated
Medicaid Program: The Arizona Long-Term Care System.” San Francisco, CA: Laguna
Research Associates.

McCall, N., et al., 1993. "Evaluations of Arizona's Health Care Cost Containment System
Demonstration--Second Outcome Report.” San Francisco, CA: Laguna Research
Associates.

McCall, N., Korb, J., and Bauer, E., 1994. “Evaluation of Arizona's Health Care Cost
Containment System Demonstration--Third Outcome Report.” San Francisco, CA: Laguna
Research Associates.

McMillan, A., 1993. "Trends in Medicare Health Maintenance Organization Enrollment:
1986-93." Health Care Financing Review 15(1):135-146.

National Chronic Care Consortium, 1991. "Fact Sheet.” Bloomington, MN: National
‘Chronic Care Consortium.

National Chronic Care Consortium, 1993. "Health Care Reform: Barriers to Integration.”
Working Paper, Bloomington, MN: National Chronic Care Consortium.

Newcomer, R., et al., 1995. "A Rerpooss to Representatives from the Socal HMOt
Regarding Program Evaluation.” Gerontologist 35(3):292-294.

Newcomer, R., Weinstock, P.and Harrington, C., 1989."Comparison of the Consumer
‘Satisfaction of Medicare Beneficiaries in Social HMO and Fee for Service.” Minneapolis,
MN: Gerontological Society of America Annual Meeting

Northrup, F., 1994, "Arizona's Integrated Acute and LTC Program.” LTC News &
Comment 4(11):5.

On Lok, Inc.., 1993a. "Medicaid Rate Setting for PACE." PACE: Progress Report on the
Replication of the On Lok Model. San Francisco: On Lok, Inc...

‘On Lok, Inc.., 1993b. “PACE: Who is Served and What Services are Used?" PACE:
Brogress Report on the Replication of the On Lok Mode, ‘San Francisco: On Lok, inc..

(On Lok, Inc.., 1995. “PACE Fact Book: Information about the Program of All-inclusive
Care for the Elderly." San Francisco: On Lok, Inc...


13

‘medical transportation, adult day health care, respite care, and case management in a community
setting.

‘The S/HMOs program provides more limited long-term care benefits than PACE. S/HMO have a
yearly dollar cap for the loag-term care benefit, whereas PACE does not have such a cap.
Financing is through prepaid capitation, by pooling funds from Medicare, Medicaid, and member
premiums and copayments. The level of the beneficiary premium payments vary by site, Benefits
tod cptaton payments vary by ste; STIMOs negate independently with rerpecive ates to

In 1985, S/HIMO projects became operational at the following four sites:
~ Kaiser Permanente Northwest established Medicare Plus Il in Portland, Oregon,
- Group Health and Ebenezer Society established Seniors Plus in Minneapolis-St. Paul,
Minnesota;

= Metropolitan Jewish Geriatric Center established Elderplan in Brooklyn, New York; and
- Senior Health Action Network established SCAN Health Plan in Long Beach, California,

However, in January 1995, the Minneapolis site withdrew its participation because it believed the
‘S/HMO was too costly to administer. Currently, nearly 20,000 Medicare beneficiaries are

enrolled in the three remaining demonstration sites. Overall, the Medicare beneficiaries enrolled
in S/HMOs were healthier than the average beneficiary.

In 1996, HCFA prepared a status report, now pending final approval, on the implementation and
evaluation of the S/HMO demonstrations. This report found that the S/HMO projects had lower
levels of disenrollment than Medicare’s risk contract HMOs. Healthy S/HMO enrollees also
expressed overall satisfaction with their participation in the program.

Frail S/HMO enrollees were compared to frail fee-for-service enrollees, based on access to care,
interpersonal relationships with their physician, cost and benefits of care, quality or competence of
care, and an overall measure of satisfaction. Evidence that the S/HMOs were less costly than fee-
for-service were mixed; only some sites demonstrated savings. Also, relative to fee-for-service,
‘no improvements in mortality or active life expectancy were demonstrated. Moreover, frail
‘S/HMO enrollees were more satisfied than their fee-for-service counterparts in only one category,
cost and benefits of care.


55

Chairman THomas. Thank you, Mr. Ervin.

We have saved the best until last. Although we have heard some
second-hand examples of case studies, we now have Ms. Rosalie
DiPietro, who is a subscriber to Elderplan, and she is going to give
us a firsthand statement about the program.

Ms. DiPietro.

STATEMENT OF ROSALIE DIPIETRO, SUBSCRIBER, MEMBER
SERVICES, ELDERPLAN, INC., BROOKLYN, NEW YORK

Ms. DIPIETRO. Good morning. Thank you for inviting me to par-
ticipate in today’s hearing. I appreciate that you want to hear di-
rectly from a consumer about what this Social HMO means for
Medicare beneficiaries. I am very concerned at the possibility that
I could lose my health insurance coverage through Elderplan and
have to find a whole new plan. This is why I agreed to come to
Washington today.

From my personal experience, I think the Social HMO is excel-
lent. I have had very good health care when I needed it and no pa-
perwork. Most important, I have peace of mind about my doctors,

ospital care and being able to manage my expenses, because I
know that I will not be faced with deductibles or large copayments.

T have lived in Brooklyn, New York, all of my life. I own my own
home, which I share with my daughter and her husband. I have
six grandchildren and two great-grandchildren. I have been a
widow for 43 years. I went to work after my husband died because
I wanted to give my three young children a better living, what my
husband would have wanted for them. I was employed at the bank
for 30 years, and I held a second job in the evening for 20 years
because I wanted to be sure that my grandchildren would have the

st.

After working hard for many years, I retired at the age of 62. At
the time, I had health insurance from my employer. I used it for
several years, but I was not satisfied. There were many copay-
ments, and I never knew how much I would have to spend if I
became ill. How could I manage my expenses this way?

I decided to enroll in Elderplan in 1988. That was 8 years ago,
and I have been very satisfied. I know what my health care will
cost me, and I do not have to worry about anything. I keep up my
Medicare part A and B, and I do not mind small copayments I pay
for some services. For example, today, I am using glasses that I got
from Elderplan. They are not fancy. They do the job, and for me,
this is what I want.

For most of the time that I have belonged to Elderplan, I was
very healthy. I went to the doctor once a year for a checkup, had
my annual mammogram, and that was about it. And this fall, I
really needed Elderplan. And if I had not received the right medi-
cal care and help while I was recuperating, I might not have been
able to come here today to be part of this Congressional hearing.

My problems began 1 day last September when | was carrying
a basket of laundry downstairs to the basement to do the wash. I
fell and hurt my foot. At first, I just thought it was bruised. When
the swelling did not go down, I called my doctor. He sent me for
x rays and showed me a break. I was taken to the orthopedist im-
mediately. I went home with my foot in a cast for 6 weeks. When


ADVISORY

FROM THE COMMITTEE ON WAYS AND MEANS

SUBCOMMITTEE ON HEALTH
~ FOR IMMEDIATE RELEASE CONTACT: (202) 225-3943
April 9, 1996
No, HL-17

Thomas Announces Hearing On
Long-Term Care Options

Congressman Bill Thomas (R-CA), Chairman of the Subcommittee on Health of the
Committee on Ways and Means, today announced that the Subcommittee will hold a hearing on
long-term care options. The hearing will take place on Thursday, April 18, 1996, in the main
Committee hearing room, 1100 Longworth House Office Building, beginning st 10:00 a.m.

Oral testimony at this hearing will be heard from invited witnesses only. However, any
individual ot organization not scheduled for an oral appearance may submit a written statement
for consideration by the Committee or for inclusion in the printed record of the hearing.

BACKGROUND:
Legislation was passed in 1983 authorizing the Health Care Financing Administration

(HCFA) to establish the first demonstration of the Program of All-Inclusive Care for the Elderly
(PACE). This demonstration program was initially developed by On-Lok, Inc., a community-

care services, including primary and specialty medical care, adult day health care, home care,
physical and occupational therapies, and inpatient nursing home, if necessary. Currently,
On-Lok and 10 replication programs serve 2,200 frail, elderly enrollees, and 27 other States have
expressed interest in setting up programs. Congress has expanded and extended the program
three times since its inception. In 1994, total Medicare and Medicaid reimbursements to PACE
programs were $23 million and $51 million, respectively.

‘The Social Health Maintenance Organization (SHMO) is a public-private health care
‘model that integrates acute care and long-term care services for senior citizens. These SHMO's
pool premiums from Medicare, Medicaid, and members to create prepaid, managed health and
long-term care systems that are competitive in the Medicare supplement market. These
organizations combine primary care services with expanded coverage for community-based long-
term care designed to keep functionally impaired older people living at home as long as possible.

HCFA originally selected four organizations as the original demonstration sites in 1984,
and they began operating in 1985. More than 50,000 seniors have been served by the program.
Congress has extended the demonstration program three times with the latest action extending
the program until 1997.

EOCUS OF THE HEARING:
‘The hearing will focus on these two integrated acute and long-term care models and

explore how these two approaches can be expanded to increase choices for Medicare
beneficiaries.

(MORE)


12

STATEMENT OF JOSHUA M. WIENER, PH.D.,
SENIOR FELLOW,
THE BROOKINGS INSTITUTION

MANAGED CARE AND LONG-TERM CARE:
‘THE INTEGRATION OF FINANCING AND SERVICES

Persons with disabilities currently receive care in a splintered and uncoordinated
Financing and delivery system (Evashwick, 1987, National Chronic Care Consortium, 1991).
Financing for acute care is largely the province of Medicare and the federal government,
while long-term care is dominated by Medicaid and state governments. Because of the
bifurcation of financial responsibilities, there is a strong incentive for the federal government
to shift costs to the states and vice versa. At the very least, there is indifference about
initiatives that would save money for the other level of government

In terms of service delivery, fragmentation exists both within and between the acute
and long-term care systems, A major consequence of this fragmentation may be that total
costs are higher than they would be in an integrated system (Finch et al., 1992). For
example, some elderly patients may remain unnecessarily in acute care hospitals because

appropriate nursing home or home care services are not immediately available, appropriate
follow-up physician care cannot be arranged, or financing is not available.

Because of the growing awareness of the inadequacies of the current system, there is
increasing policy interest in finding ways to bring the acute and long-term care sectors
together into a single integrated system, Almost all of these initiatives depend on managed
care. Under these models, capitated organizations have financial incentives 10 avoid both the
functional decline that can result from unmet needs and the unnecessary costs associated with
providing services in needlessly expensive settings. At least in theory, this coordinated
approach would produce acute care savings because lower-cost outpatient and home-based
services could be substituted for more costly inpatient services when appropriate (Rivlin and
Wiener, with Hanley and Spence, 1988; National Chronic Care Consortium, 1991; Leutz,
Greenlick, and Capitman, 1994), These acute care savings, in wn, could be used to fund
more comprehensive long-term care benefits or could be captured by third-parties as savings.

DEMONSTRATIONS AND OTHER INITIATIVES

‘A substantial number of demonstration projects are underway to test various
approaches to integrating acute and long-term care services. The best known of these
demonstrations are the Social Health Maintenance Organizations (Social HMOs), On Lok and
its Program of All-inclusive Care for the Elderly (PACE) replications, and the Arizona
Long-Term Care System (ALTCS) program. Several other initiatives are under way which
either seek to enroll Medicaid eligibles with disabilities in health maintenance organizations
for their acute care services or for both their acute and fong-term care services (Wiener and
‘Skaggs, 1995). Although not directly involved in long-term care, conventional HMOs
participating in the Medicare program are required to provide the full range of benefits,
including home health and skilled nursing facility services.

lth Mai ‘

Under cules established by the Tax Equity and Fiscal Responsibility Act of 1982,
Medicare beneficiaries may enroll in HMOs (McMillan, 1993). Congress is currently
debating various changes 1 these rules. Medicare beneficiaries who enroll in HMOs give up
their free choice of providers and agree to use the providers approved by the HMO. These
organizations provide or arrange for Medicare-covered services in exchange for a capitated
payment which based on 95 percent of the estimated costs of serving an enrollee in the fee~
for-service system.

‘Social Health Maintenance Organizations (Social HMOs or S/HMOs)

Social HMOs extend the traditional HMO concept by adding a modest amount of
long-term care benefits ( Leutz, Greenlick, and Capitman, 1994: Harrington and Newcomer,
199; Greenberg et al., 1988; Rivlin and Wiener, 1988; and, Leutz, Greenberg, and
Abrahams, 1985). A coordinated case management system authorizes long-term care benefits

for those who meet the established eligibility criteria. Social HMOs are intended to serve a
cross-section of the elderly population, including both functionally impaired and unimpaired



27

tered by the State Medicaid Program. And each state has a some-
what different combination of income and assets and medical or
clinical need by which they define that threshold, and they are
state specific in the PACE Program,

Mr. McCrery. But basically, these folks entering the PACE
Program are low-income folks?

ir. VLADECK. Well, they may not have been low-income
previously, but generally ——

Mr. McCrery. They are either low-income or low-asset?

Mr. VLADECK. They establish eligibility for long-term care. They
are not particularly affluent folks, I believe because the more afflu-
ent potential users of long-term care service probably are purchas-
ing some mix of other services privately before they get to that.

Mr. McCrery. But for a SHMO, anybody can step up and pay
the premium and enroll.

r. VLADECK. That is correct. And the great, overwhelming ma-
jority of SHMO enrollees are not Medicaid-eligible.

Mr. McCrery. Thank you.

Chairman THOMAS. Just let me follow on that point to pick up
the jab that the gentleman from Washington placed. I appreciate
your unwillingness to respond in the way that he wanted you to
respond, because I do think that it is an unfair statement.

ly concern is that when you take the definitional differences be-
tween the PACE program, which will make sense if you have an
identified population and fou focus your needs on that identified
population, my understanding is—and we will find out more from
the PACE people—that the cost increases per year are significantly
lower than the average Medicare increase. In fact, they are taking
care of an identified at-need population, on average, at less of a
cost than Medicare in general, which tells me they are doing some-
thing good with the program.

But the one that seems to be even more expandable would be the
SHMO, because all it does is take an HMO and say if you allow
us to ignore certain rules that others have to follow: The 50/50 mix;
we get 100 percent rather than the 95 percent with an adjustment.
We will add a long-term component to paid prescription and vision,
which seems to be a key component structure, and that we will,
therefore, offer our services in this area.

One of the things that our colleagues in the minority tried to do
was pull out of the AAPCC even for the coordinated care programs,
the GME costs. And what we have done, of course, is set up a sepa-
rate trust fund to get out of trying to pull it out of Medicare, which
I think is a far preferable way of dealing with the question of
GME, so that you would preserve it at 100 percent of the AAPCC.

I guess my concerns are, are we not getting the message that
maybe some of the rules that we have for ordinary Medicare
Programs, HMOs and others, probably should be removed like the
50/50 mix and others rather than just providing them for these
people who say they are going to take an integrated long-term care
approach? Because if we do that, then I think you are going to see
even more innovation in the kinds of programs that you offer, and
that if you let the market have some influence on it, there will be
some that gravitate toward the SHMO model. Others will have
modified adjustments to it and then will get that real-world experi-


70

Chairman THomas. Thank you, Dr. Leutz.
Dr. Wiener.

STATEMENT OF JOSHUA M. WIENER, PH.D., SENIOR FELLOW,
ECONOMIC STUDIES PROGRAM, BROOKINGS INSTITUTION

Mr. WIENER. Thank you, Mr. Chairman.

Over the last few years, there has been a new interest in the
integration of acute and long-term care services and financing. This
derives from the observation that persons with disabilities do not
come with just a need for acute care or just a need for long-term
care, but they come with a need for both sets of services. Yet, we
have a situation where the financing system is fragmented; where
the delivery system is fragmented; and where the system as a
whole is more costly than it likely needs to be.

There has been a hope that by integrating acute and long-term
care services we will be able to > provide both better quality care and
to save some money as well. ile there are a variety of models
for the integration of acute and long-term care services, most of
them depend c on the application of managed care principles, includ-
ing capitation.

We have a wide variety of models of integration, some of which
have been discussed here today. Medicare HMOs, while not serving
long-term care generally, do provide skilled nursing facility care
and home health. We have Social HMOs and the On Lok/PACE
program. A program not mentioned so far today is the Arizona

ong-Term Care System, and a variety of other state demonstra-
tions are underway as well.

As Congress considers what to do with the integration of acute
and long-term care services, there are a variety of policy consider-
ations that need to be taken into account. The first is do managed
care organizations understand low-income elderly populations? Do
they understand long-term care? To date, managed care organiza-
tions have little experience with the elderly and virtually no experi-
ence with the low-income elderly, the younger disabled population
or with long-term care. Clearly, this is an area where they could
learn, but they are not there yet.

Second, is managed care good for long-term care? Advocates for
long-term care are not unanimous in their belief that this is the di-
rection that we ought to go. In a capitated system dominated by
doctors, some people worry that the acute care sector will end up
with the lion’s share of the resources, and that they will, in fact,
end up stealing from the long-term care budget in order to finance
acute care. There is also a worry that in a system dominated by
doctors that the care will be medicalized; you will have a medical
rather than a social model. There is also a worry that the current
movement for consumer-directed care will be subverted by the
move toward managed care. After all, many would argue that the
essence of managed care is to shift power away from the individual
client and their chosen provider to other third parties: The HMO,
the insurance company, or some other like source.

Another question is what model of integration should be pro-
moted. We have a wide variety of models in terms of the deliver
system. Under most of the Social HMOs, we have a “hand-o!
model that tries to ease the transitions across the acute and long-


63

The other point that is unique about the Social HMO is that it
is a program that serves all Medicare beneficiaries. It is not just
a program focused on those with chronic disabilities and long-term
disabilities. We have found that that is an important point, because
many of the people who become disabled, like the member of
Elderplan who spoke this morning, are disabled for a short term.
What the Social HMO can do is pick up those people with short-
term disabilities and help them to recover. And those individuals
are not appropriately served in a PACE model, which separates
people with permanent disabilities and focuses on their care.

The point about research is that we have learned a great deal
about integrating acute and long-term care, and J think the work
that we have done really confirms the importance of tying long-
term care benefits to a Medicare set of benefits in a managed care
model. The case management units in the SHMO programs, for ex-
ample, receive two-thirds of their referrals of people who are newly
disabled from the acute care system—from hospital discharge plan-
ners, from physicians’ offices, home health agencies, nursing
homes. We have found that one-third of the members who are dis-
charged from hospitals are found to be frail within 2 months of
their discharge, and again, they are picked up through the internal
referral system.

We have found, when looking at the utilization of Medicare
skilled benefits, the home health and nursing home benefits, and
the Social HMO long-term care benefits that are available on the
basis of disability, that there is a one-third overlap in eligibility for
and use of those two benefits. That is, people are receiving those
two types of benefits at the same time, and what the Social HMO
does is make decisions on which benefits are used and how those
services are coordinated into internal management decisions.

Another thing we have learned is that there are some savings in
this model. There was a study done at Kaiser Permanente that
compared the Medicaid costs for regular HMO members and Social
HMO members who were not on Medicaid at the start of the study
and found that they were significantly lower, $132 per member
over the course of the study, for the Social HMO members. They
used fewer nursing home days and had later Medicaid spend-downs
and fewer Medicaid spend-downs.

There is still much more to learn in this project. More could be
learned about the current sites through additional research about
the long-term patterns of disability and relationships between serv-
ice utilization and disability. The new Social HMO sites are testing
a geriatric model and a chronic disease management model. Not
mentioned yet today is that under this authority, there are end-
stage renal disease managed care organizations being tested. An
RFP went out last month for them, and this is an opportunity to
learn how to bring managed care to this population.

_ _ So, I would make two recommendations. I agree with many of
the others who have testified here that there is ample cause and
good mechanisms to make this a part of the Medicare Program, but
absent are the waivers for the current sites, and the new sites
should be extended to complete the test of the model.

(The prepared statement follows:]


20

because whether it saves money or not, it certainly improves care.
I have not quite focused on how many more services are available.
But the breadth of services available make a lot of sense, and one
knows that in people’s lives, this makes a big difference. It also
makes far better use of our Medicare and Medicaid dollars, and is
the only avenue through which we can integrate them.

I would be interested in your office working with us on language
in the bill that would make clear that these can become a part of
HMOs that offer services to seniors, and it ought to be part of a
package that the Medicare Select plans can offer as well through
the additional benefit approach. It ought to be part of the supple-
mental insurance benefit that is available to seniors, because some
of those supplemental insurance benefits are now coming in at zero
premiums in order to enable the managed care plans to compete
with the HMOs. And they are part of the package of benefits they
are beginning to offer, and particularly as hospital and nursing
home and day care facilities integrate. So, I think that we want to
be sure that we do not write this too narrowly, because the whole
sector is changing so rapidly. We want to be sure that this kind
of integrated care benefit, this kind of case management approach,
which is probably the very best approach, as we have more and
more people moving into the frail elderly category, can be some-
thing that all HMOs can offer, that all managed care plans can
offer if they want to. So, I would like to work with you and make
sure that the legislation is broad enough to not only allow that
development but also encourage that development.

Mr. VLADECK. Well, I understand that, and I agree with that. I
think it is important to maintain the distinction between a financ-
ing mechanism on the one hand and a delivery system on the
other, and that is why I said that I think the future legislation rel-
ative to SHMOs needs to be integrated with any legislation we
eventually agree on about Medicare managed care. On the PACE
side, I think we are all eager to find mechanisms through which
folks who are not eligible for Medicaid by virtue of income, but who
have the same degree of care needs as other PACE clients, could
also receive services from PACE programs through a combination
of Medicare and private payments, whether they are insured or
not.

When you get into the relationships, the capitated plans, some
of the economics and the mechanics of that get to be quite com-

licated. But I think if we can keep some clarity in the distinction

tween delivery systems on the one hand and the mix of financing
sources on the other hand, we can work our way through that.

Mrs. JOHNSON. Now, does your proposal include enabling the

states to merge Medicaid and Medicare dollars for this kind of
care?
Mr. VLADECK. Well, we feel very strongly that we ought to en-
courage the expansion of provider types that are funded through
some kind of joint Medicare and Medicaid funding. In our discus-
sions with the states, including the New England states, we have
continued to oppose the notion of permitting states to function, in
effect, as intermediaries or as controllers of Medicare dollars.

Mrs. JOHNSON. But what I hear the facilities trying to get away
from is moving people from this group to that group and all of the


37

Organizations Delivering Services under Medicaid Capitation by the End of 1996:

NEW MEXICO
‘SESTHRS OF CHARITY HEALTH CARR SYSTEM /ST. JOSEPHS
Haut Sesre

NEW YORK
ppv SEwionCane
Troy

‘Lonerro’s INDerENDENT LIVING SaRViCES
Syracuse

‘OHIO
‘Brrneson Hoserrat
Cincinnati

VIRGINIA
‘SENTARA LIFE CARE CORPORATION
Norfolk

Organizations Exploring Feasibility of PACE Development:

ARIZONA
‘Mascara COUNTY HEALTH CARB AGENCY

CALIFORNIA
Sr foam Haan sisroe

[Lares / Danan Pasincan HoserrAt
on Angeles

‘Verpuco His Hoserr AL
Glendale

CONNECTICUT
‘Masonic Hoa AND Hoserr AL,
Wallingford

DELAWARE
Hau Sys
FLORIDA
Plompa.
‘Orlando
GEORGIA
‘CANDUR HEALTH Sys
Savannah,

St. Josmew's Hosea
Atlante

Wosur' Inc.
Atlanta

KENTUCKY
(CHRTIAN CHURCH Hones oF KHNTUCKY, INC./
‘SANDERS BROWN CENTER ON AGING
Lexington

MARYLAND.
‘DIMINEGONS HEALTHCARE SYSTEM
Landover

LavINDALA Hisnew GRRIATRIC CENTER AND HOSPITAL
Baltimore

‘MASSACHUSETTS
‘St, Lukes /CHARLTON HoserrAL
Fall River

MISSOURI
Haare
Steph

HOSTAL,

NEBRASKA
‘Auscant Heat
Omaha

NEW JERSEY
‘BARGHN PDs Hosea,

Paramus

(Conmnaunrry- KIMBALL, HEALTH CARR SYSTEM
Toms River

Inc.

Cum

‘Sour New Jersey VIsTING NURSE SYSTIO
Rurnemede

‘ST. PRANCES MEDICAL CanTER
Trenton

Banganan Rose INstrTUTE/ University Hose ats,
HAAUTHSysTeEM

PENNSYLVANIA
| APPILATID SERVICES.
Mare

Prrseunc Mency HeaLri Sysrem.

Pittsburgh

ST. AGNES MEDICAL. CenTER

Philadelphia

Unavassrry oF PENNSYLVANIA ScHOKH. OF NURSING:

Philadelphis

VIRGINIA
{nova Haar Sysrim/PAIRPAX COUNTY HIFALTIL
DeraTsaant

Fairfax

WASHINGTON
[BRANCECAN HEALTH SrSTBM-CARE CENTER ATTACOMA
Tacoma

WEST VIRGINIA
"RALEIGH COUNTY COMMBSION ON AGING
‘Becky


57

Now, I never like to tell people what to do. I can only say what
T like. I am very happy with Elderplan and very satisfied with the
way I have been treated. I definitely believe that Elderplan should
continue, because a lot of people will be in trouble without
Elderplan and other Social HMOs.

Chairman Tuomas. Thank you very much, Ms. DiPietro.

Does the gentlewoman from Connecticut wish to inquire?

Mrs. JOHNSON. I thank the panel for your testimony. It was very
interesting.

Ms. DiPietro, what premium do you pay——

Ms. DIPIETRO. Nothing.

Mrs. JOHNSON {continuing}: Per month?

Ms. DiPiETRO. Nothing; Medicare—they take my A and B, and
that is it.

Mrs. JOHNSON. I see.

And can anyone else on the panel, maybe Dr. McCann, can you
tell me what someone not eligible for Medicaid would pay in
premium for the Elderplan program?

Ms. DiPIETRO. It is zero premium.

Ms. RAPHAEL. Yes, it is a zero premium health plan.

Mrs. JOHNSON. Pardon?

Ms. RAPHAEL. It is a zero premium health plan. Members need
to maintain Medicare A and B. They do not pay an additional
Elderplan premium.

Mrs. JOHNSON. It is a zero premium health plan, and you get a
capitated reimbursement from Medicare of 100 percent of the
Medicare capitated amount?

Ms. HANSEN. Our capitated amount from Medicare, targeting the
frail elderly population that is already certified to be in a nursing
home. I think Dr. Vladeck mentioned 2.39 of 95 percent of the
AAPCC. That is the Medicare side.

On the Medicaid side, if someone is Medicaid-eligible, the state
would pay anywhere from 5 percent to 15 percent, generally, lower
than its Medicaid rate for a traditional fee-for-service system ex-
penditures for this same population. From a standpoint of the
consumer, if he or she is covered by both Medicare and Medicaid,
there is no premium. If a person is middle income, they would pay
whatever the same share the Medicaid person would have paid.
And there are beginning experiments with long-term care insurers
who are willing to start looking at paying some of that premium
for someone who will be middle income.

Mr. Ervin. For the Social HMOs, by the way, the premium at
Kaiser is $156 a member month, and at the other two, Elderplan
and SCAN, it is zero.

Mrs. JOHNSON. If the Elderplan’s cost is zero, are you saying it
is zero for those who also do not meet the Medicaid qualifications?

Mr. Ervin. That is right.

Mrs. JOHNSON. And the reimbursement is 100 percent of the
Medicare HMO rate?

Mr. Ervin. Yes, each Social HMO receives 100 percent of the
AAPCC.

Mrs. JOHNSON. That is very interesting. If the law should expire,
what would prevent you from continuing in the form of an HMO,
offering your services to Medicare recipients for a zero premium?


23

months or so. So, we need a statutory basis to expand either or
both programs beyond the point at which they are now based.

Mr. HOUGHTON. So, you feel that you could. explain to people like
myself, who have not been intimately involved in this process, that
not only is the program good, but there have been significant in-
depth reviews to prove your point?

r. VLADECK. I think on the PACE issue, there have been sig-
nificant, in-depth reviews of the quality of services being provided
and of customer satisfaction with those services. There are some is-
sues that still are being very actively studied, including some of the
economic issues. But given the pace at which implementation of
statutory change works, we believe that even if the Congress were
to enact Senator Dole’s bill tomorrow, we would have the evalua-
tion results in time. The evaluation results are not going to say yes
or no to PACE. They are going to teach us more about standards
for PACE programs, about what the essential characteristics are,
and about payment levels. We would still have time to incorporate
that into the process of expanding the program. The SHMOs have
been sort of “studied to death.”

Mr. HouGutTon. Thank you.

Thank you, Mr. Chairman.

. Chairman THOMAS. Does the gentleman from Nevada wish to
inquire?

ir. ENSIGN. Thank you, Mr. Chairman.

Dr. Vladeck, I want to talk a little bit about a program in my
state which you have currently awarded one of the demonstrations
in the ‘SHMO IIs that is supposed to start this summer, but first,
let me just brag a little bit about it. I was pretty proud of it. Sierra
Health Plan of Nevada is a very innovative company in Southern
Nevada. It is basically HPN-SHMO II provided by Sierra Health
Services. They were in my office yesterday, and it sounds to me
like there are some dramatic improvements in SHMO II or SHMO
I. One of the concerns that they raised to me was simply that the
Medicaid and Medicare waivers be ready on time. Do you think
that they will be ready by July 1, when they are scheduled to start
up?

eM. VLADECK. I checked yesterday, sir, and as of close of business
yesterday, we are right on schedule for that. Again, the Medicaid
waivers require working with the state as well as with our folks,
and we have had a very good relationship with the state on this
one.

Mr. ENSIGN. OK.

Mr. VLADECK. So as far as I know, we are exactly on track for
that.

Mr. EnsIcN. OK; could you explain some of the concepts? Every-
where you go, long-term care with seniors across the board is al-
ways one of their biggest concerns. You know, they are the people
who have to go through all of their assets before they can get on
Medicaid. Certainly, the amendment that I offered to the recent
health care reform bill that, in fact, Barbara Kennelly had com-
mented that she has been trying to get passed for the last 12 years,
that deals more with people ‘vith money, whereas the SHMOs seem.
to be addressing more the end of the spectrum where the people
have fewer assets.


90

prospective subscribers to attend the adult day care program the expected four to five times weekly, and the
importance of family support to provide coverage outside of the day care setting. Greater exploration of housing
‘options such as assisted living and supportive senior housing arrangements could help eliminate these barriers.

is portant wo bight problem experienced bythe Socal HMO with rsp wo conta brween
‘marketing and risk-management. Social HMOs have had to invest precious resources resolving marketing issues
that could have been targeted more effectively on systems development. Social HMOs have found it difficult
compete with the TEFRA plans in their area due to the higher costs associated with the long-term care benefit.
‘Since they can’t be price-competitive, they must highlight the long-term care benefit as a justification for their
higher costs and to demonstrate superiority over their TEFRA counterparts. Yet, by highlighting this benefit,
Social HMOs risk substantial adverse selection since they will anract those who most need this benefit. If they
rinimize or “de-marker” this benefit o preveot adverse selection, they undermine their own ability to compete with
TEFRA tisk contracts based on price. Almost all of the Social HMOs experienced difficulty meeting their
‘enrollment targets early on which led to higher than projected administrative costs per capita and lower revenues.

‘The marketing/risk management conflict has affected Social HMO sponsors’ ability to get the degree of “buy-in”
‘across the entire system which is critical to developing a fully integrated system of care. Social HMOs do not have
sufficient market share to leverage providers to change their practice patterns. For example, some programs have
‘experienced resistance from physicians in requiring that a separate set of clinical protocols be employed fora subset.
of patients comprising less than S% of the systems’ total patient population (i.e., Social HMO subscribers).

‘These marketing challenges have diminished the Social HMOs ability to effectively integrate the provision of
‘Primary, acute and long-term care services to date, Two of the three existing sites have eliminated the private
premium originally charged in order to be more competitive with TEFRA HMOs. The elimination of the Medicare
premium may increase the Social HMOs" competitive position with seniors, particularly if it is clarified that these
entities no longer are subject to an enrollment cap,

NCCC recommends that Congress enact legislation which makes permaneat the waiver authority granted to existing
Social HMO demonstrations and enables other provider networks to establish like programs, We also strongly
‘recommend that legislative authority be established to provide for the establishment of additional Social HMO and
PACE programs. However, its critical that this authority be sufficiently broad to enable provider-based networks
to continue evolving these important models as opposed to simply expanding the same models under existing
protocols.

‘Minnesota Long Term Care Options Program

‘The Minnesota Long-Term Care Options Program (LTCOP) was developed to facilitate the integration of primary,
acute and long-term care services for persons over age 65 who are dually eligible for Medicare and Medicaid
Denefits, After two years of intensive efforts, the state received a unique package of waivers which will enable
them to combine the purchase of both Medicare and Medicaid services under a single contract and permit the state
to contract with smaller entities which previously were prevented from contracting with Medicare on a risk basis.

‘A major goal of this demonstration is to eliminate the extensive duplication of effort and conflicting financial
incentives which typically characterize programs for the dually eligible.

‘The LTCOP program will combine services and funding from several sources, including Modicare, the prepaid
‘medicaid managed care program (PMAP) and the Elderly Waiver program, Minnesota already has been enrolling
elderly medicaid beneficiaries in managed care programs for a number of years, but PMAP does not cover
extended long-term care benefits. PMAP does cover hospitalization, physician visits, rehabilitation therapies, home
‘care services, medical supplies and equipment, deatal, prescription drugs and Medicare copayments and
deductibles. Under the LTCOP program, enrollees also will be entitled to all Medicare Part A and B benefits,
howe and community-based services covered under the Elderly Waiver program, and the 180 days of nursing
facility care for those who enroll while living in the community. Additional nursing home expenditures will be
funded under the traditional nursing home benefit, outside of the managed health care capitation rate.

‘The LTCOP program differs from the Social HMO and PACE programs ia several ways. Firs, it will initially
be implemented in seven counties with a view toward state-wide expansion over time. Unlike the Social HMO and
PACE, the number of participating sites is not restricted under law 40 the number of beneficiaries served could
be substantially bigher. Second, pursuant to Minnesota's 1993 health care reform legislation, services will be
itiveed primary through tegrated service erworks (SN) and communy lntgraed service naworks (CISNS).

‘These organizations will be responsible for providing the full range of primary, acute and long-term care services
for a pre-determined, capitated premium. To qualify as a LTCOP contractor, providers will be required to meet
a higher *standard* of integration such as developing integrated information systems which assure the flow of
pertinent clinical and logistical information across points of service from hospitals to home health care agencies.



44

railings for her bed. Thus, she was able to stay out of an
institution.

SCAN also provided for a large portion of adult day care services
for his wife, where she received care from 8 to 5 on weekdays in
a specialized program for Alzheimer patients. In addition, SCAN’s
no-premium program supplies the Van Winkles with an unlimited
pharmacy benefit, among other non-Medicare covered benefits and
services. There are hundreds of similar stories from Elderplan in
Brooklyn, New York; Kaiser Permanente’s program in Portland,
Oregon. Mr. Chairman, this is a program well worth continuing.

As we work to expand our services, in SCAN’s case throughout
southern California, we face expiration of the program 20 months
from now. We respectfully ask that you consider Congressional ac-
tion which will ensure continuation of the program. Please consider
directing the Secretary of Health and Human Services to develop
regulations which grant permanent waiver authority for existing
sites and which provide a mechanism for other entities to apply for
Federal qualification as a Social HMO. Upon promulgation of the
regulations, existing sites would be granted permanent waiver au-
thority if they met the requirements set forth in the legislation. If
the Secretary does not promulgate regulations by December 31,
1998, the existing sites would automatically be granted permanent
status.

Having submitted more substantive written testimony, I will stop
now. I would be happy to take any questions from the Subcommit-
tee.

[The prepared statement follows:]

(The SCAN Health Plan: Analysis of Cost-Saving Potential for
the California Medi-Cal Program is being held in the Committee’s
Hes.


85

‘Americans afflicted with chronic disease and disability will require that we extend the concepts of integration

beyond the consolidation of assets and authority to the integration of care, information and systems, Chronic

conditions such as heart disease, stroke, arthritis, and Alzheimer's Disease represent the highes-cost and fastest

‘rowing expenditure categories in the health care system, Approximately 80% of all deaths and 90% of all

morbidity is related to chronie disease. ‘The proportion of health care dollars devoted to chronic illness will

cont to tale fet the nent cea with he gig of he population ice cron dss dlpropanonaly
ly.

‘Cost containment and quality of life for persons with serious and persistent chronic conditions are both significantly
depeadent upon the full array of primary, acute, transitional and long-term care providers working together to
‘prevent, delay or minimize disability progression and its associated costs. Hospitals, nursing homes, physicians
and community-based long-term care providers are becoming increasing interdependent in serving a common
chronically-impaired population. Effective management of chronic illoess requires an imterdisciplinary approach
which recognizes the taultimensional and progressive nature of chronic disease and disability. It requires that
we move beyond costs within isolated health care sectors such at hospitals and nursing homes and
establish administrative, clinical and financial incentives for managing aggregate costs across time and settings. It
requires that we empower the individual and their family caregivers to more fully and effectively optimize their
‘own health and well being.

‘While the managed care approach is intended to reduce costs by carefully directing patients to the most appropriate
and lowest cost targets, current regulations substantially impede providers” ability to do so. Care for the same
‘person frequently is provided by multiple organizations with linle or no incentive to work together to meet common

as patients move acrass health care settings and/or payment sources (j.e.. Medicare and Medicaid). Fully
integrated service networks manage care across all setings in the service of a common care plan which seeks to
‘optimize patient outcomes through collective action, Administrative, financial and information systems must be
integrated to support a common approach to care for people with chronic conditions. For integration to occur

‘When new capacities exist for serving this population, new approaches to deregulation can be applied.

Il, BARRIERS TO INTEGRATION
‘The challenge of constraining Medicare and Medicaid costs requires more than tinkering at the margins. It requires

‘pursing homes) instead of fong-term savings across the system. While significant attention has been devoted to
‘controlling short-term costs within individual provider settings, such as hospitals and nursing bomes, scant aztention
thas been paid to reducing aggregate costs for chronic condition across time, place and profession.

Second, we must consolidate and restructure administrative systems to produce health care services more
efficiently. Policies governing acute and longterm care programs must be made more consistent through strategies
such as standardized goals, objectives, service definitions, standards and reponting requirements for programs
serving the chronically, Since most roves serve oth the Maicare and Medial popula, the
‘establishment of compatible regulatory requirements would substantially increase the efficiency of provider
operations.

‘A. Administrative Polleies

Health care administrative policies and procedures are based primarily on the acute care model with its episodic

payment policies and evaluation methods differ across program categories such as Medicare and Medicaid.
Requirements regarding patieat assessments, care planning, data collection and record keeping are separately
defined by clinics, homes and lty-basod service settings resulting in high costs and care
fragmentation,

‘The administration of health care financing also must be standardized across providers and payors. Administration
should be shifted from cost accounting systems focused on different payors and providers to a system which
integrates financing administration for the network of providers offering services to common patients. All network
Providers serving common population should be given incentives to collect a standard set of core data on client
characteristics, heath status, service use, costs and quality outcomes. While different providers and payors require
information that is unique to their own settings, itis critical that integrated delivery systems define information the
same way among providers where information is common to all. For example, assessment protocols for measuring



62

sexy area for people to want to go into when the other choices were
ophthalmology and orthopedic surgery. But certainly, the people
that we do attract tend to be very like-thinking and really find a
program like this very conducive to the way they like to practice
medicine.

Mr. CHRISTENSEN. Thanks, Doctor.

Dr. McCann. You are welcome.

Chairman THOMAS. We may find out that necessity is the mother
of sensibility in terms of the kind of occupation that will be before
us.

I want to thank the panel very much. The Committee will stand
in recess until we get this vote in, probably about 10 to 15 minutes,
and we will be back for the second panel. Thank you very much
once again.

[Recess.]

Chairman THOMAS. The Subcommittee will reconvene, and we
have a panel consisting of Dr. Leutz, associate research professor,
Heller School, Brandeis University; Dr. Wiener, senior fellow at the
Brookings; and Richard Bringewatt, president and chief executive
officer for the National Chronic Care Consortium in Bloomington,
Minnesota, with a slightly different profile than the other who has
been presented.

Dr. Leutz, if you will proceed and inform the Subcommittee in
any way you see fit. Any written testimony that you have will be
made a part of the record.

STATEMENT OF WALTER LEUTZ, PH.D., ASSOCIATE RESEARCH
PROFESSOR, INSTITUTE FOR HEALTH POLICY, FLORENCE
HELLER GRADUATE SCHOOL, BRANDEIS UNIVERSITY,
WALTHAM, MASSACHUSETTS

Mr. Leutz. Thank you, Mr. Chairman and Members of the Com-
mittee for this chance to talk today about the Social HMO. I have
worked with this project for 15 years, so I have a real interest and
a close knowledge of it. I am currently the chair of the Social HMO
Consortium, which is an association of the sites and Brandeis
University to do public policy and research about the project, but
I speak today for myself from a research and policy perspective.

T could summarize my written testimony around two points. First
a policy that the Social HMO is the only health care model that
links Medicare with a privately financed long-term care benefit; I
will elaborate on that. The second is a research point. A great deal
has been learned from this project about how to integrate acute
and long-term care. But there are still plenty of opportunities for
learning.

On the financing point, there is a private risk-pooling mechanism
that has not really been emphasized in the testimony. Most
Medicare beneficiaries are neither rich nor poor. The poor have
some access to long-term care benefits through Medicaid and pro-
grams like the PACE program, and people who are wealthy can ei-
ther self-insure for long-term care or buy an expensive long-term
care insurance policy. But the vast majority of Medicare bene-
ficiaries really do not have those two options, and this program is
an option for them to buy some protection against the costs of long-
term care.


86

functional and cognitive status should be the same whether collected by a nurse or social worker in a mursing home
‘or bome care setting. In addition, financial management systems must begin linking cost data with outcomes data
‘across providers and payors for purposes of assessing the cost-effectiveness of various treatment protocols and
‘establishing outcome measures for evaluating performance.

B, Financing Policies

‘Our curreot health care financing system is replete with disincentives to cost-effective service delivery. Most cost-
containment strategies, including those involving capitated, managed care financing, focus on short-term cost
‘svigs win exsing provider soucures with spars conc nd ak rangement. There i lie ot no

fot providers to collaborate in cost-savings across the continuum of care. Even managed care
cguntions, ‘such as HMOs, engage in a certain amount of cost-shifting within the system. For example, many
HMOs limit thei financial risk by passing it on to the providers with whom they contract on a fee-for-service or
discounted cost contract basis. In contracts, under managed care plans, all to often individual providers work
under separate contracts and work within their own senings to maximize billing opportunities.

Instead of identifying strategies to suppress anawal costs for specific health care sectors (¢.g., hospitals, nursing
hhomes, etc.) through artificial means such as spending caps and routine cost limits, we should develop solutions
that ellminate expenditures by preventing, delaying or minimizing the progression of chronic illness. Cost
avoidance will generate far greater savings over the long-run than cost reductions.

For example, Medicaid policies probibiting reimbursement of physician visits to nursing homes more than once
every 30 days result in cost-shifting to the Medicare program and actually may increase Medicaid costs over the
long-run. Whea nursing bome patients need to be transferred to hospitals to receive medical care, both programs
incur administrative costs related to discharges and admission/te-admission in addition to the costs of medical care
‘delivered in the hospital. Likewise, it may be more cost-effective in the long-rua to increase Medicare acute care
spending for certain services that could prevent, delay or minimize chronic disease and disabilities as a strategy
for avoiding or reducing Medicaid long-term care expenditures in the long-run.

Health care financing poticies must be modified to be less prescriptive of process and more focused on outcomes.
Financial incentives should be established to encourage providers to collectively contain costs, prevent disability
progression and emphasize consumes satisfaction across time, place and profession. Provider based systems sbould
be established where provider networks are paid under shared risk arrangements for achieving common cost and
outcome targets. Authority, responsibilty, and accountability for the ongoing management of care should be
delegated to provider-based networks of care rather than micro-managed by health plans functioning as third party
payors.

C. —_ Barriers to Serving the Dually Etigible

Etforts to control costs for elderly beneficiaries receiving benefits under both Medicare and Medicaid long have
‘been confounded by the duplicative and conflicting regulations governing each of these programs. Differences in
rogram requiremeots not only require providers and payors to maintain parallel administrative systems at an
‘exorbitant cost, but the differences in clinial and financial rules actually ereate conflicting incentives which make
it all but impossible to establish an efficient financing system. Below is a summary of the key differences between
Medicare and Medicaid rutes and examples of the conflice that often arise and administrative inefficiencies inherent
in developing service programs for the dually eligible population.

‘Membership Requirements

(One of the most significant barriers to integration consistently cited by providers, purchasers and payors alike are
‘membership requirements that Medicare and Medicaid risk contracts include both commercial and publicly financed
residents. Medicare restricts enrollment of public beneficiaries to no more than 5O% of the plan total and Medicaid
restricts this number to 00 more than 75%. The remainder of beneficiaries must be enrolled from the commercially
‘insured population. This requirement for commercial enrollees originally was implemented to assure quality of
‘care for Medicare and Medicaid beneficiaries. Public officials believed that the commercial sector would demand
‘igh standards which, in turn, would protect those financed under public programs.

‘This requirement raises several important issues for consumers, providers, payors and state agencies. First, NCCC
believes that the 50/50 rule is an inappropriate mechanism for assuring that Medicare and Medicaid beneficiaries
receive appropriate care. This strategy shifts the burden for quality assurance from the Federal and state

to the commercially insured who are expected to advocate on behalf of the elderly and poor. Clearly,
the Medicare and Medicaid programs have sufficient quality controls to provide HCFA the necessary tools for
monitoring. Moreover, in many cases, there is now sufficient managed care penetration in the commercial
population oli the SOD burden fom provers with speci interest in serving the low-income and elderly
populations.

Sond, it forces provider o divert thee primary anenon from serving the elderly to serving the population x
large. In addition to developing specialized programs of care and marketing programs for the elderly, providers
aust also develop clinical and marketing programs for the general population. From the state's perspective, it



121

From PAPERWORK to PEOPLEWORK

Governments have inundated the system with paperwork. Nurses spend more time
on paperwork then on providing patient care. There is no clear evidence that any of
this paperwork has improved client well-being or outcomes. Unnecessary and
wasteful paperwork must be abolished.

From ASSUMPTIONS to FACTS.

Client care is often based on assumptions rather than facts. Caregivers must
challenge assumptions, and discard those which are not supported by evidence. Care
planning must be based on factual expectations as evidenced by research and valid
information, not on antiquated beliefs or customs.

From CONTROL to TRUST

The inherent desire for governments to control has created a fragmented system
which impedes progress, encourages fraud and abuse, and has done little to protect
the client. The MICP emphasizes trust rather than control to accomplish its objectiv
Participating providers are trusted to provide high quality care at reasonable prices,
and not to game the system. Any provider who proves unworthy of this trust will be
barred from participation in the program.

From UNAWARENESS to KNOWLEDGE

The most intelligent person is the one who understands that there is always more to
learn, A continual search for new knowledge is a fundamental element of a good
system. Members of a good system are never satisfied with what they now know,
but are forever seeking to learn more. The MICP seeks to be a learning system,
Participants within the system are continually updating their knowledge based on new
and innovative approaches to providing care to the clients.

From the STATUS QUO to INNOVATION

Providers and caregivers in a dynamic healthcare system are never satisfied with the
current state of affairs. Instead, they are continually searching for better ways to do
what they do, and for better outcomes for their clients.

From PROFIT FIRST to PEOPLE FIRST

A business enterprise cannot survive without profitability. However, long-term
profitability and long-term survival depend on meeting customers’ needs. If a
customer's needs are properly addressed, profit will follow. Providers who seek to
reduce or withhold care in the interest of increased profits will not be tolerated.



124

Care Coordination

A designated care coordinator will be responsible for coordinating and monitoring all
care--skilled and unskilled--provided to a client. The care coordinator works with the
patient, the primary care physician, specialists, nurses, the family, and other care
givers to assure that the client's needs--whether acute, sub-acute, or long-term--are
being properly addressed.

The care coordinator begins the care process by investigating the client's
circumstances, i.e., medications, physician directives, home environment, family
support, transportation needs, and any other aspect of the patient's situation which
are pertinent to developing a care plan for the client.

Care Plan

Based on each client's assessment, the care coordinator develops a care plan which
details all of the services needed by the client to improve or stabilize function and
health and, whenever possible, to sustain independence.

The care coordinator reviews the care plan with a Care Team (geriatrician, advanced
practice nurse, pharmacist, etc.) and with the client’s primary care physician to gain
concurrence with the level and frequency of services planned. The Care Team assists
the care coordinator in developing a schedule of expected outcomes against which
actual outcomes are compared. The schedule of expected outcomes allows the care
coordinator to monitor the progress of the client and to modify the care plan when
actual outcomes do not meet expectations.

Once the care plan and the schedule of outcomes is finalized, it is presented to the
client and the family for acceptance and implementation.

Monitoring of Progress

Following implementation of the care plan, the care coordinator regularly monitors the
client's condition and adjusts the services being provided if outcomes do not meet
expectations. The care coordinator receives feedback from all care givers regarding
services provided, and keeps the primary care physician and other care givers fully
informed of the client's progress. In this manner, the care coordinator, the client, the
doctor, the family, and others providing care become a knowledgeable team working
together to provide the best care to the client.

Early Detection Procedures

Integrated care is not only directed at coordinating all services needed by the client,
it also seeks to identify and correct emerging conditions which, if not addressed, may
become serious. A person who is not eating properly or who forgets or neglects to


31

is not atypical whatsoever to many of the PACE enrollees. I would
like to focus on the outcomes that have been key. One of the ques-
tions is where does the money savings really come from? In fact,
it is really the hospital utilization, the Medicare funding that has
really been able to help finance some of the long-term care services.
What is significant is the fact that the hospital utilization for this
very frail population whose average age is in the eighties with nine
medical problems actually is less than the all 65-and-over, enabling
tremendous savings.

The rate setting done by Medicare as well as the states also as-
sure a cost savings, and then, that does not speak to the humane
and community aspects of helping support families to continue on.
Finally, the quality of care issue is always one that needs to be
raised and must be raised. We are under the jurisdiction of HCFA
and all of our respective state requirements, and in 1993, we were
reviewed as a group by the Community Health Accreditation
Program and received excellent survey results in terms of quality
of care as well as coordination of services. We are most fortunate
at this point to be able to get the grant from the Robert Wood
Johnson Foundation that will allow us to develop performance
standards as well as an accreditation process in this program.

We have been able to receive a great deal of bipartisan support
over the years, mainly, I think, because it achieves the agenda of
both parties in one sense, one for access and the other one for cost
savings. And the 1995 PACE Provider Act introduced by Senators
Dole and Inouye will actually allow us to increase the number of
PACE providers as well as allow those providers who have per-
formed well to become permanent providers for the future. Other-
wise, they will be in demonstration for perpetuity.

It is urgent to expand the program not only because of the need
and because of the quick movement of Medicaid and Medicare man-
aged care, but it is important to see that this really does focus on
quality of care. And finally, I would just like to say that this whole
plan is not at all inconsistent with what the states are asking for—
the flexibility. This program is not being legislated or asked to be
legislated in a manner that would require states to do. It is strictly
voluntary, and that it be one of the options for states. So, I hope
that you would find the merit in supporting provisions of Senate
bill 990.

Thank you.

{The prepared statement and attachments follow:]


7

As opposed to PACE, the long-term care benefits in the SHMO
programs are generally capped at some dollar maximum and are
somewhat more limited in scope. We have had extensive evalua-
tions of the first generation of SHMOs. I think they show very high
levels of customer satisfaction, good to excellent levels of quality of
care and somewhat equivocal results on cost savings having to do
with differences between the SHMOs themselves and over time in
the course of the life cycle of any particular SHMO.

In response to the evaluation of the first generation, Congress
authorized an extension and established a second generation,
which we refer to as SHMO II. We have awarded grants to six or-
ganizations to develop SHMO II, delivery systems. The major dif-
ference with SHMO I in that regard will be a significantly higher
emphasis on geriatric medicine and geriatric case management as
the heart of the integration of the acute and long-term care
services package.

We are aware of Senator Dole’s bill. In fact, the President’s bal-
anced budget recommendations for this year contain very similar
legislative provisions. There are some differences between what the
President has supported and what Senator Dole has proposed, and
we think all of them are quite resoluble. Ms. Hansen will speak
about some of the specifics of the proposed legislation in her testi-
mony, and we would very much support the enactment of legisla-
tion this year to expand and make permanent the PACE benefit as
a benefit in the Medicare Program.

We would also support continued extension of the SHMO dem-
onstrations, both the first and second generation projects, which
are now set to expire at the end of 1996. But frankly, the broader
expansion of the SHMO needs to be connected to and coordinated
with other changes that are going on in Medicare and managed
care more generally. We believe that if we had the kind of risk ad-
justers in which we are investing so much time and energy, and
some of the other new developments in terms of the choices Medi-
care beneficiaries have and the way in which supplemental benefits
are priced, much of what is now provided through SHMO dem-
onstrations could be provided through existing risk contract stat-
utes, as modified according to some of the President’s proposal. It
is not clear to us which is the better way to go in that regard.

So, since the existing SHMOs are doing a good job and have
happy customers, and we are just starting with the second genera-
tion, we would support extension of the demonstration authority
pending broader congressional action on changes in Medicare man-
aged care legislation.

In my written testimony—and in the interests of time, I will not
go through it—we identify another 8 or 10 initiatives that we are
taking to deal with this integration of acute and long-term care
under Medicare and Medicaid. I am happy to answer questions
about any of them or about any of this testimony. But let me say,
just by way of summary, that while it has taken quite awhile, we
detect considerable progress in understanding how to provide high-
er quality, more satisfactory services to the frailest of our bene-
ficiaries in a way that, at worst, is no more expensive than the ex-
isting benefit structure. We are committed to continuing to expand
our demonstration and research efforts, but we believe we know


46

financing, duplication of administrative requirements across settings and programs, and
‘conflicting policy directives. ‘These problems are especially pernicious for providers serving
the dually eligible population since duplication and fragmentation exists not only across
health care settings but between the Medicare and Medicaid programs. Through the
‘consolidation of acute and long-term care service structures and the integration of public and
private sector funding streams, the Social HMO designers intended to achieve five key goals:

© producing Medicare and Medicaid cost-savings — which could be used to
increase service capacity in a budget neutral fashion -- through operational
efficiencies, the provision of more appropriate levels of care and the
downward substitution of lower-cost services;

‘© integrating the full range of acute and community-based long-term care
services and providers to expand the continuum, more closely parallelling the.
needs of our aging Medicare population;

© consolidating services and professionals to enhance coordination of services
and to generate norms of practice in caring for the frail elderly which would
be applied uniformly across the spectrum of providers/settings;

© enrolling a cross-section of well and frail elderly to create an insurance risk
ool for spreading the costs of care and reducing the burden on any one
individual; and

© pooling funding sources for the dually eligible to eliminate barriers to effective
clinical decision making -- such as the 3 day prior hospitalization requirement
fot Medicare SNF eligibility — and allow providers to allocate resources based
n individual enrollee needs.

‘The Social HMO sites have effectively implemented many of these goals to date. The
remainder of my testimony will enumerate our successes in the areas of consumer
satisfaction, cost-savings potential, and health systems benefits.

HI. BENEFITS OF THE SOCIAL HMO

A. Consumer Benefits

Close to 60% of the 85 plus population are disabled and likely to need some type of support
or assistance with activities of daily living. For those living in the community, nearly 90%
receive assistance from relatives and friends. The majority of unpaid caregivers are women
relatives, typically wives, daughters or daught Jaw. Family support systems are often
weak or non-existent, however, leaving those in need of assistance with daily living activities
with no one to tum to for assistance. The frail elderly living alone, which account for
almost 30% of the over 65 population, and higher for those 85 plus, are particularly
‘vulnerable for insttutionalization since often they don’t have access to adequate informal
support. Where family caregivers are available, they experience exhaustion from their
enormous responsibilities and desperately need respite to be able to continue.

‘The burden of providing continuous care for an elderly relative can take a tremendous
physical, emotional and financial toll on informal caregivers. Three significant problems.
faced by informal caregivers include the fragmentation of our current health and long-term
care systems, the absence of financial support for long-term care services and the paucity of
assistance available to negotiate the complex web of services frequently needed by a person
‘with multiple disabling conditions. Further, despite older consumers’ strongly stated
preferences to remain in the community and receive care at home, and because our current
reimbursement system is biased toward institutional services, older consumers frequently are
forced to enter nursing homes in order to receive care. ‘This payment bias needlessly
increases overall health systems costs.

raphic trends suggest that these and other challenges facing health care consumers,
providers and policymakers will continue to escalate as we enter the 2ist century. ‘The


6

heavily oriented toward an institutional side than many bene
ficiaries and advocates would like, in fact, most of the growth ir
services over the last decade has been on the community-basec
side.

We are running an average daily census now of a quarter of <

million frail elderly people in Medicaid home- and community
based waiver programs. The Medicare home health benefit is nov
providing increasingly long-term care services to more than 2 mil
ion beneficiaries a year. For those benefits, the issues of integra
tion continue to be significant, but we are building a base in term:
of a community services infrastructure that will be important as we
move forward in the development of more comprehensive service:
in the future.

HCF4A’s relationship to the PACE program goes back to 1979
when we first funded On Lok as the model program for providing
health, nutritional and recreational case management services t
frail elderly adults based upon an adult day care program. On Lol
has always been committed to the integration of both financing anc
of acute and long-term care services, and we have been in the busi
ness of supporting On Lok, first through grant funds, and throug!
waivers of different program requirements ever since.

Now, the PACE program was designed to replicate the On Lol
model to specifically target frail elderly persons who are eligible fo:
nursing home care by reason of the degree of their medical and so
cial needs, but who prefer to remain in the community. It is a fully
capitated program in which all covered services are providec
through a single organization or a single provider of care, including
not only the long-term care services and inpatient hospitalizatior
but physician services, therapies, prescription drugs and equipmen
as well. And while the PACE programs seek to discourage the ust
of nursing home care, when their enrollees need nursing hom«
care, PACE also pays for that service.

We currently have about 2,700 enrollees in these programs, it
On Lok and 10 additional PACE sites. We have as many as 45 01
50 additional organizations in the process of developing such sites
Basically, we pay them the Medicare capitation rate, established a
2.39 times the basic AAPCC in the community for Medicaid. PACE
then negotiates capitation rates with each of the states in which i
operates, and we have a series of waivers of our HMO require
ments, to permit them to operate in such a capitated environment

We have not completed our formal evaluation yet, but we have
done a number of studies, both of quality of care and of custome:
satisfaction with the PACE programs, and both are quite high. We
continue to work on some of the issues of appropriate financing
mechanisms and longer term requirements. We have been in the
business of SHMOs since 1984, when Congress mandated a test o
this notion. Again, the idea was that one could save money and im
prove services by providing both the full range of Medicare acute

enefits and long-term care benefits through a single, capitated or
ganization. SHMOs, as opposed to the PACE program, seek to en.
roll a cross section of elderly Medicare beneficiaries in their com
munities, and while they have relationships with the Medicaic
Program, they also have a significantly higher proportion of pa-
tients who are paying additional premiums from private resources


40

You can think capitated, but being capitated, I believe, really
provides incentives to give a person what they need when they
need it. We have a very low turnover of staff, including our per-
sonal care aides. Now, aides in our community generally turn over
in nursing homes; 20 percent to 40 percent will turn over in a year.
We have a turnover that is somewhere around 10 to 15 percent.
This is because our aides participate in this multidisciplinary team.
And again, it makes so much sense but is never done. The people
who deliver the most hands-on care are frequently the last people
who are normally asked how to improve care. We found out that
by integrating them into our teams, not only do we bring them to
the highest level of their function, but they work well, and they
stay with us.

hank you.
[The prepared statement follows:]


120

The program gathers and shares client information through electronic and supportive
networking. Decisions are based on the collective intelligence concerning each client's
condition and needs rather than on isolated observations or individual opinions which
can vary from one provider to another.

Emerging knowledge about new care techniques, especially for the frail elderly, is
compiled by medical specialists and disseminated throughout the system. Care for the
elderly is clearly founded on proven geriatric principles.

CHALLENGES AND OPPORTUNITIES

Several challenges must be addressed in order to gain maximum benefit from the
program:

+ Regulations which impede innovation and result in reduced care and higher costs
must be revised.

+ Providers who resist risk-sharing must be persuaded to shift old paradigms.

+ The system must provide meaningful outcome and financial data which prove the
efficacy of the program.

Physicians must become comfortable with a team approach to client care, with
‘emphasis on the integration of acute, chronic and preventive care rather than solely
on acute care.

+ Communications systems must be established which provide physicians and other
caregivers with up-to-the-minute information on individual client status.

DESIGNED CHANGES WITHIN THE MICP

From RULES to GUIDELINES

Rules create boundaries which inhibit innovation. Rules can be used to defend
unacceptable performance. Guidelines, however, provide general expectations which
allow caregivers to innovate in order to achieve desired outcomes. Guidelines, unlike
rules, cannot be used as excuses for failure.

From COMPETITION to COLLABORATION

Competition, although the foundation of the business system, leads to winner:
losers. In health care, the losers are often the clients. Integrated care emphasizes
collaboration, not competition. Collaboration occurs when different parties no longer
protect their own turf, but come together to ere something ent from and
better than what existed before.



19

Mr. Stark. Medicaid is saving on the PACE side, because argu-
ably, they prevent or postpone admissions to long-term care
facilities.

Mr. VLADECK. I think that is fair, yes.

Mr. StaRK. The SHMO does not have that opportunity to save.
It does not get credit for it.

Mr. VLADECK. It does not get credit for it. It may well have it
to a greater extent than we have been able to measure, because
most of the folks who are served by SHMOs, or who are at risk for
Medicaid-covered nursing home care, are not Medicaid beneficiaries
at the time they are enrolled in the SHMOs.

Mr. Stark. OK; I think I have got it. Thank you very much.

Chairman THoMAS. Does the gentlewoman from Connecticut
wish to inquire?

Mrs. JOHNSON. Thank you.

Good morning, Mr. Vladeck.

Mr. VLADECK. Good morning.

Mrs. JOHNSON. I am not quite sure that I understand your rec-
ommendation in regard to PACE. Are you recommending that only
the programs that are in place now be permanent or that the pro-
gram be made permanent and that new sites be eligible? And
would you consider both for profit as well as nonprofit applications?

Mr. VLADECK. Mrs. Johnson, no. We believe that the PACE pro-
gram should be made a permanent benefit in the Medicare Pro-
gram. There has been some discussion among the sort of PACE-
related community as to whether there should continue to be a
limit or a ceiling on the total number of PACE sites or whether it
should just become available to any qualified applicant. And my in-
stinct is that that is a traditional issue, that long-term, we ought
to have PACE programs in every community in the United States,
and in bigger communities, we ought to have multiple PACE
programs.

We have no experience with PACE program operators other than
not-for-profit community-based organizations. And one of the
things that Mr. Thomas alluded to and that I personally think is
quite important as a contributor to the success of PACE programs
has been how rooted they are in their specific communities and
specific community organizations, and so forth. So, I do not have
a prejudgment on the legal structure of ownership, but I do have
some sense that we want to try to keep these as very much commu-
nity-based, grassroots-based kinds of organizations, and there are
a variety of ways one could seek to achieve that through legisla-
tion.

Mrs. JOHNSON. I asked the question because what I see happen-
ing out there in the real world, particularly since we have not been
able to pass any policy changes, is an incredible change in the orga-
nization of medical services so that there are now hospitals that
are developing relationships with long-term care facilities, with
home-care capability as well as physicians, and they are going to
be capable of an integrated care approach that has the same vision
and is based on the same beliefs and assumptions as both the
PACE and the SHMO programs. And I think it is imperative that
we write the law as we make this permanent so that it can be inte-
grated into the changes that are going on as rapidly as possible,


14

DEVELOPMENT OF S/HMO 11

In 1990, Congress authorized an extension of the demonstrations and established the second
generation of the S/HMO demonstrations, known as S/HMO Il. One purpose of S/HMO Il is to
test the effects of linking chronic care case management services and acute care providers. The
primary components of the S/HMO II projects include:

1. An expanded case management system, with acute and long-term care linkages;
2. A long-term care benefit package; and
3. A risk-adjusted payment methodology.

S/HMO II will continue to provide many of the expanded benefits offered in S/HMO I. We also
expect S/HMO II projects to address some additional goals. S/HMO Il is designed to refine the
financing methodologies and the benefit design of S/HMOs. The criteria used to target long-term
care benefits will also be refined. S/HIMO II will arget enrollment to special populations such as
minorities, beneficiaries eligible for both Medicare and Medicaid, and residents living in rural
‘reas. In 1993, Congress mandated that one of the S/HMO II projects examine the feasibility of
serving beneficiaries with end-stage renal disease (ESRD).

IMPLEMENTATION OF S/HMO
In January 1995, HCFA awarded developmental grants to the following six S/HMO II project
sites:

1, CAC-United HealthCare Plans of Florida in Coral Gables, Florida;
2. Contra Costa Health Plan, in Martinez California;

3. Fallon Community Health Plan in Worcester, Massachusetts;

4, Health Pian of Nevada, Inc. in Las Vegas, Nevada,

5. Richland Memorial Hospital in Columbia, South Carolina; and

6. Rocky Mountain HMO in Grand Junction, Colorado.

‘We expect the Nevada and Florida sites to begin implementing the S/HMO I programs in the
summer of 1996, The remaining four sites should begin operation by January 1997.

‘The second generation of S/HMOs are building upon what we learned from the first generation.
However, we need to learn more about the capitation payment structure and providing integrated
services to the acute and long-term population. To assure that the S/HMO program is cost
effective, we recommend that both generations of the S/HMO projects be extended until
December 31, 2000, but not expanded. Authorization for both the first and second generation


WAYS AND MEANS SUBCOMMITTEE ON HEALTH
PAGE TWO

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of the hearing should submit at least six (6) copies of their statement, with their address and date
of hearing noted, by the close of business, Thursday, May 2, 1996, to Phillip D. Moseley, Chief

_ of Staff, Committee on Ways and Means, U.S. House of Representatives, 1102 Longworth
House Office Building, Washington, D.C. 20515. If those filing written statements wish to have
their statements distributed to the press and interested public at the hearing, they may deliver
200 additional copies for this purpose to the Subcommittee on Health office, room 1136
Longworth House Office Building, at least one hour before the hearing begins.

FQRMATTING REQUIREMENTS:

cela sate rent ring om weston we mee a er
i apene a raquat etcetera te aie. Aa rect nt
“Sepuuss woh bee fusaion elvan bers mca be Coane fer te of omen

1. Al tatements und any secompanytng exh nr rating wrest be 7p a sag epson on legals paper und way net exe a
‘uta ot 18 pas tenting anachaents.

2 "Condes otha docemantssxbeod sexi waar wl at be sept fr prtating.Kntand, sib maar sw be
arene ad quoted o paraphrased. Ai cid malarial uot meting thoes spocteaions Wl be malstzive me Cnmee fe fer review
nme bythe Comite,

2 ___Awtsses appearing ata poi Dearing or sobting «statment fc the roe os pubic baring. o abating ween
‘ammonia x rpense to poisbed request far summits by Che Common, amet nde on hs watomest or eaeseson Bt a eens,
‘eros, x orpuszaion on whose eka the wineen appecre.

Sees toe me every ech cee cos. phen ener vey in ie
[Spee et wal et wend oo ee

‘Tae above restrictions nd Mnitatons appy ny to mara blag sabe or ptaing. tatement and exis er spleen] materia!
‘shmtiidouiy fr atretion tte Members, the promt ud Ce ube ring he ooues oa publ hearing my be wed in ether frm

Note: All Committee advisories and news releases are now available over the Internet at
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eater


110

Overview

Oxford's Medicare Advantage program began in 1992, and currently has over 80,000
members in New York, New Jersey and Connecticut, Oxford's Medicare program is one
of the fastest growing in the country, with more than 5,000 new beneficiaries enrolling
each month. Oxford has been enrolling Medicaid Members since 1992, and we currently
have over 130,000 Members in New York, New Jersey, Connecticut and Pennsylvania.

Support for Capitated Long Term Care

Oxford is very encouraged that the Ways and Means Committee is addressing the
continuing need for managed long term care, and is very supportive of $.990. In our
experience, the fragmentation of funding for long term care and acute care services inhibits
our ability to effectively manage the care of the frail elderly. Needless to say, care follows
funding, so that fragmented funding results in fragmented care. The classic example of this
is the incentive for emergency room admissions from nursing homes. Clearly, if one party
were responsible for both the long term as well as the acute services, emergency room
admissions would be less frequent and more appropriate, making everybody, most
importantly, the member happier. We see great potential in being able to truly manage the
entire continuum of care for a frail elderly Member.

We have been truly impressed with the achievements of the PACE sites around the country.
We have followed their progress, and their success has solidified our belief in the value of
comprehensive care.

Participation of For-Profit Medicare HMOs

While Oxford is very supportive of S.990, we are concerned about the language in Section
2 of the bill that states that waivers will be granted “to public or non-profit community-
based organizations.” Our understanding is that this language would preclude for-profit
corporations such as Oxford from receiving waivers to provide comprehensive care
through the PACE model.


69

Leutz, W.N., Greenberg} N., Abrahams, R., Prottas, J., Diamond, L.M., &
Gruenberg, L. (1985). Changing health care for_an aginj lanniny
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Nonnenkamp, L. (1996). Testim: the Ways and Means Committee,
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Oakland, CA: Berkeley Planning Associates. Report to the Health Care Financing
Administration under Grant #500-85-0042.


24

And the whole idea of SHMO II versus PACE would seem that
it is much more of a complete program and not just a day care type
of a program. Basically, you are talking about building ramps for
homes that need a ramp. It involves taking a complete look at the
elderly health care wise, mental health care status, the whole
thing, to keep them as healthy as possible, because the bottom line
is that obviously, that is better for the elderly, and the win-win sit-
uation is that the company is going to save money on it in the long
run.

Mr. VLADECK. I think that some of the folks from PACE might
be concerned about the characterization. I think the PACE pro-
grams are very complete in the range of services that they provide
as well. They provide them to a more limited population, however.

Mr. ENSIGN. Right; it is more the frail population.

Mr. VLADECK. A more targeted population.

Mr. ENSIGN. This is more of trying to keep people from becoming
as——

Mr. VLADECK. We are enthusiastic about SHMO II and the evo-
lution of some of the original SHMO plans, and again, I think
Health Plan of Nevada is a very good example of this. One of the
things we have talked about with this Committee on prior occa-
sions is that as you have HMOs or other managed care organiza-
tions which have developed their organizations treating primarily
a conventional, commercially insured population which begin to en-
roll large numbers of Medicare beneficiaries, the needs of those
beneficiaries, the kinds of services they require, and the kinds of
physicians you need to provide them with the range of services
they need, are very different from that particularly of the typical,
commercially insured population. This is particularly true in an
area like southern Nevada, which has such a rapidly growing
young population driving so much of the growth on the private side
of the HMO market. Medicare beneficiaries do not use very much
in the way of deliveries or pediatricians, as the simplest example
of that.

So, our concern has been that as on the fee-for-service side, the
providers of care to all Medicare beneficiaries, not just those who

ave already been labeled as long-term care clients, should develop
the expertise and the skills and the relationship with different
kinds of providers. This should be the case whether they are home
care providers or community nutrition agencies that are necessary
to provide real, high-quality continuing care to the elderly that are
less of an issue in routine practice with other populations.

As you do that, the boundaries between what is good “acute care”
and what is good “long-term care” start to dissolve altogether, we
believe. But how to make that spectrum or that integration of is-
sues where you cannot draw very hard lines is difficult, when you
have two public programs with very rigid lines about what they
pay for and what they do not, and who they cover and who they
do not. This is really the challenge here, and that is the heart of
the continued experimentation around these issues.

Mr. ENsIGN. And that is where the heart of the savings would
come from, because sometimes, there is no incentive to do prevent-
ative care. If the other program is paying for it, there is not nec-
essarily the incentive. But if you have the complete coordinated


10

providers do not have appropriate incentives to invest resources that could save Medicaid money.

Integrating acute and long-term care involves coordinating and integrating the Medicare and
Medicaid benefits. Integration and coordination should address both financing and service
delivery. Integration of financing involves the pooling of funding from Medicare and Medicaid
into a single funding stream, Current managed care models attempt to integrate services using
capitated payments to providers, which gives managed care organizations flexibility to tailor
benefits to the distinct needs of each beneficiary, However, integration of funding sources alone
does not ensure integration of services. Today, various managed care plans coordinate the
delivery of acute and long-term care services to differing degrees. Some plans simply facilitate
patient transitions between the acute and long-term care settings. Others, such as the PACE
demonstration, employ a multidisciplinary team of professionals who work together to manage
both medical and social services across the acute and long-term care settings.

The goa! of the PACE and the S/HMOs projects is to reduce fragmentation of services, contain
costs, and effectively integrate acute and long-term care into a single, seamless system. Funds are
combined into common pool from which providers pay health care expenses. In S/HMOs,
providers receive funds mostly from Medicare, although they also receive some Medicaid and
private insurance funds, In PACE, providers receive funding from Medicare, Medicaid, and
private insurance.

OVERVIEW OF PACE

In 1979, HCFA funded a three-year grant to On Lok, a program based in San Francisco,
California, which provides health, nutritional, and recreational services to frail older adults in a
day-care setting, On Lok also integrates the provision and financing of medical and long-term
care services. Since the initial grant award, HCFA has supported On Lok through waivers for the
past 16 years, On Lok is unique because it accepts only those ill enough to be eligible for nursing
home care. Medicare and Medicaid pay all of the costs of care, and participants are assigned to
an interdisciplinary team that meets regularly to assess their needs and assure that they receive the
full range of needed services. This might include anything from housing to medical supplies to #
microwave oven for someone who can no longer use a gas oven safely.

PACE is an outgrowth of On Lok. It was authorized by Congress in the Omnibus Budget
Reconciliation Act of 1986. PACE was established partly as a result of the success of the On Lok
program, but the PACE program is separate from On Lok. Each of the current ten nationwide
PACE sites is reviewed at least annually. PACE sites continue to operate under the Secretary's
discretionary authority.

PACE specifcaly gets fil elderly persons elle for ssing home cre, but who ae ving in
the community. PACE seeks to help individuals continue to live at home and not in a nursing
home facility. PACE integrates social and medical services through adult day health care. It uses

‘8 multidisciplinary team approach, with care provided by physicians, nurses, social workers,


29

Mr. VLADECK. I am trying to reconstruct this. Those are using
CBO baseline estimates on growth in medical costs and growth in
Medicaid enrollees.

Mrs. JOHNSON. And those are without reform, correct?

Mr. VLADECK. Well, those are the baseline.

Mrs. JOHNSON. Right; so current CBO estimates are based on the
current growth rate in Medicare, which is 10 percent; the current
growth rate in Medicaid, which is 12 percent. And without reform,
those rates of growth are likely to continue, and the money would
run out. With reform, bringing rates of growth down to 7 percent
or so in both of those programs would, of course, extend the
adequacy of the money. Is that not so?

Mr. VLADECK. Mrs. Johnson, I believe—and I may stand cor-
rected—but I believe on a per capita basis, the current Medicaid
baseline both from CBO and from OMB is below 7 percent over the
next 6 or 7 years on a per capita basis.
hts. JOHNSON. I would be interested in some documentation on
that.

Mr. VLADECK. We will provide that.

{The information was not available at the time of printing.)

Mrs. JOHNSON. Thank you.

Chairman Tuomas. Thank you very much, Dr. Vladeck.

Mr. VLADECK. Thank you.

Chairman Tuomas. I look forward to working with you on
legislation.

Mr. VLADECK. It will be an interesting change of pace,

Chairman THOMAS. Next panel, please: Jennie Chin Hansen, ex-
ecutive director of On Lok, Inc., San Francisco; Dr. Robert M.
McCann, medical director, geriatrics and Independent Living for
Seniors, Rochester General Hospital; Sam L. Ervin, president and
chief executive officer of SCAN Health Plan/Long Beach; and
Rosalie DiPietro, who is a subscriber to Elderplan in Brooklyn,
New York.

Having read the testimony, I think it will make more sense for
the witnesses to present their testimony in the order that I will call
you rather than the order that you are sitting. So Ms. Hansen, if
you will address us, any written testimony you may have will be
made a part of the record, and you have 5 minutes or so to inform
us what you think we need to know about your program. And I
would caution to all of you that these microphones are very
unidirectional, so you need to have it right in front of you.

Thank you very much.

STATEMENT OF JENNIE CHIN HANSEN, EXECUTIVE
DIRECTOR, ON LOK, INC., SAN FRANCISCO, CALIFORNIA.

Ms. HANSEN. Thank you, Mr. Chairman as well as Members of
the Subcommittee. I am accompanied by Judy Baskins, who is the
president of the National PACE Association right behind me, who
is also the project director of Palmetto Senior Care, which is the
PACE project in Columbia, South Carolina. I am also accompanied
by Dr. Chris VanReenen, who sits behind me, and is the executive
director of the National PACE Association. And beside me, of
course, you will be hearing from Dr. Bob McCann, who is the medi-


98

of money available to the state might be substantially less. But you
would still have the problem on the Medicare side.

Mrs. JOHNSON. Now, in terms of the Medicaid issue, my impres-
sion is that there has been a demonstration project that has dem-
onstrated that you can reduce the rate of growth of long-term care
costs by more effectively targeting your reimbursement rate just
the way we have been talking about, I think it is in New Jersey,
but I am not sure. One of the states was able to merge their
Medicaid and Medicare moneys.

Mr. WIENER. Arizona.

Mrs. JOHNSON. Was it Arizona?

Mr. Wiener. Well, I think Arizona is a very interesting case. But
if you look very carefully, you will see that they get most of their
savings by serving fewer people than would be served under a tra-
ditional program. The per-member, per-month cost in Arizona com-
pared to a traditional program is basically the same. So they do get
significant savings, but they come from serving fewer people.

Mrs. JOHNSON. Mr. Bringewatt?

Mr. BRINGEWATT. Yes; if I could make a couple of points. One,
first of all, just in looking at the Medicare Select program by itself,
in terms of the moneys that are available for long-term care, I
think it is important for us to keep in mind that the dollars there
really relate to acute care benefits and not long-term care benefits.
And so, it is helpful to free a system up to spend those moneys,
but it does not necessarily mean that there will be long-term care
that comes as a result of that.

Mrs. JOHNSON. You misunderstood me.

Mr. BRINGEWATT. OK.

Mrs. JOHNSON. My assumption is that the managed care plan
would offer a Medigap insurance policy that would add on these
benefits and would charge a premium for that. But their savings,
the benefit for them, would be that the Medicare participant would
then participate in their managed care plan, which would be a good
deal for them on the acute care side, and they would use this to
encourage people to be in their managed care plan. And what the
person would get back for it is an integrated care system which is
broader than anything that Medicare offers. So, I am not suggest-
ing that they would not be offering the same benefits. In fact, what
interests me is that they would have the power to offer those same
benefits, and they would have to charge some additional premium.

For a Medicaid disabled person who was not Medicaid-eligible,
this would provide them with access. And I get the idea that the
premium probably would be modest.

Mr. BRINGEWATT. I think—and maybe Mr. Leutz can speak to
this—but in some ways, what you are describing would be a vari-
ation on the Social HMO program. You could offer an additional
long-term care benefits that could be developed through an addi-
tional premium.

Mrs. JOHNSON. Right. My question is—and you can also think
about this and get back to me—is there any reason why the Social
HMO model could not be offered through the private sector,
through managed care plans offering a Medigap policy to add on
all of the other benefits of the Social HMO?


91

NCCC believes the use of the ISN and CISN models will result in much greater mainstreaming of this program
‘even during the demonstration phase.

‘Third, although itis targeted toward the dually eligible program like PACE, enrolles do oot have to be nursing
home certifiable to qualify for LTCOP. Well-elderly also will be enrolled and, like the Social HMO providers,
‘will have the opportunity to take precautions against chronic illness either before the onset of disabilities or earlier
in the process. This has tremendous cost-savings poteatial. Fourth, tbe LTCOP program has further refined the
‘isk-adjustment process used by the Social HMO and PACE programs by developing four different payment levels
that account for different levels of disability. For example, for community-dwelling subscribers who are not
‘mursing home certifiable, plans will be paid 95% of the non-institutional Medicare AAPCC, the non-institutional
PMAP rate and a nursing facility add-on to account for up to 180 days of mursing home care. For individuals
receiving nursing home care for at least six months who return to the community for at least one year, plans will
‘eceive Medicare payments based on the PACE risk adjustor (.e., 2.39 times 95% of the AAPCC); the institutional
PMAP rate; and twice the average monthly Elderly Waiver Payment. Unlike TEFRA HMOs which only reimburse
hhigher amounts for the institutionalize, this payment methodology creates significant financial incentives to care
for a severely chronically i) population,

‘The fourth difference between PACE and Social HMO programs and LTCOP may be among the most significant
from the states" perspective because it significantly simplifies program administration, diminishes opportunities for
cost-shifting between Medicare and Medicaid, and provides an opportunity for states to implement a fully
coordinated state-wide long-term care strategy as distinct frou the current county-by-county approach. The LTCOP
is the first state-based managed care program for the dually eligible elderly which enables the state to consolidate
the administration and oversight of both programs under a single umbrella. It includes several unique features.
‘The state will negotiate a single contract with HMOs and CISNs for capitated risk-based Medicare and Medicaid
services under an agreement with HCFA, instead of multiple contracts for various providers under each program.
1s addition, there will be a single, instead of dual, enrollment process for the dually eligible. The state will
Incorporate qual asturane functions foc Matic servis inns exiting PMAP (Medicaid) managod cre
‘quality assurance process instead of being required to establish a separate system. Finally, the overall

‘care of each enrollee will be coordinated by a case manager who will have access to all of a health plan's medical
information and health resources.

‘The LTCOP program clearly bas the potential to demonstrate the impact of a more fully coordinated system of care
‘on cost and quality. To date, no formal mechanism has existed for documenting the costs of parallel administrative
‘and oversight requirements for Medicare, Medicaid and state-based long-term care programs. Further, LTCOP
will help assess the impact of more fully integrated systems on quality of care and health care outcomes.
Improvements in these areas could have tremendous implications for consumer satisfaction and cost-containment.
Like the other demonstrations, however, LTCOP has 2 few limitations worth noting. First, the waivers do not
allow health plans to require subscribers to receive Medicare services from health plan providers within the
capitation payment. Subscribers are free to continue receiving Medicare services outside the plan. This makes
it difficult for the health plan to assure coordination between plan providers and Medicare providers which can lead
to inefficiencies. Demonstration guidelines, however, would not require plans to cover the copayments and
deductibles for Medicare services provided outside the plan since enrollees are locked-in for Medicaid services.
‘This provides a strong incentive for enrollees to obtain their Medicare benefits within the managed cate systen.

‘A second limitation of the LTCOP program is that it only serves the dually eligible which prevents Medicare-only
‘patients from accessing the many advantages offered by this coordinated system of care. Given that the dually
eligible represent the greatest challenges, both in terms of regulatory barriers to integration and the high costs of
care, NCCC believes that this population is an appropriate place to start. The lessons learned under this programa
will be more easily translatable to the Medicare population since services are funded primarily from one source.

V. THE CASE FOR MOVING BEYOND DEMONSTRATION STATUS

Demonstrations provide valuable opportunity for testing concepts in a controlled environment prior 10
on wide-scale basis. NCCC believes, however, that sufficient experimentation with the
integration of primary, acute and longterm care services bas occurred to warrant moving beyond demonstration
‘models and toward mainstream programs that could be implemented on a wide-spread basis within a clear
tequlory framework to atsreoogoing culty nd cost consol. Theo are a munber of limits related 1
demonstration programs that impede the development of integrated programs for the elderly and chronically
impaired. The rapid growth of the elderly population, the advancement of chronic conditions as the fastest-growing.
‘segment of the health care market, and the acceleration of costs associated with these two trends argue strongly
for moving beyond «demonstration mal, A number of rou linaton ofthe demonstration ode! pete


uN

nutritionists, occupational and speech therapists, and health and transportation workers, Through
Preventative and rehabilitative services, participants’ chronic conditions can be stabilized and
medical complications prevented. Community living is usually the overwhelming choice of
participants. However, should nursing home placement become necessary, PACE also provides
that service. PACE enrollees receive all heaith services through PACE, including physician
services, hospitalization, therapies, pharmaceuticals, and equipment.

Currently, there are approximately 2,700 enrollees who participate in the ten PACE sites and On

Lok. As many as 48 additional organizations are in various stages of developing PACE sites.
The ten operating PACE sites are in the following locations.

~ East Boston, Massachusetts;
~ Portland, Oregon;

- Columbia, South Carolina,
~ Milwaukee, Wisconsin;

+ Denver, Colorado;
~ El Paso, Texas;

‘An additional noteworthy characteristic of PACE is the way in which it has responded to the
diversity of populations in need of services. The ethnic and racial distribution of beneficiaries
served reflects the comaunities from which PACE draws its participants, From January 1993
through December 1993, of the beneficiaries served in the PACE program:

PACE providers receive a fixed monthly fee for each participant. This fee is set to account for the
frailty of PACE enrollees, but it does not vary based on the degree of frailty or the services used
by the individual participant. PACE providers receive most of their financial support from
Medicaid and are paid on a capitation basis. The Medicaid capitation rate is determined by the
rate-setting methodology of the state in which PACE operates.

Modicare, Medicaid and private insurance funds are pooled to achieve maximum efficiency and
flexbility in the use of resources. The Adjusted Average Per Capita Cost (AAPCC) methodology


97

main a demonstration program. And I think what we are talking
about is trying to break out of that.

The limits on the breakout in terms of what you can and cannot
do are obviously something we could discuss as we move forward.
I want to thank the panel very much, and especially for your writ-
ten testimony. You never get to present as much material as you
have in your written testimony, but it is very helpful to us, because
this is an area, I think, that the Subcommittee will continue to
want to increase our knowledge curve on.

Does the gentlewoman from Connecticut wish to inquire?

Mrs. JOHNSON. I do not know whether you have the experience
to answer this question or not, but managed care plans have had
some experience in Medicare, particularly in those areas where
Medicare Select was allowed. They currently have the legal right
to offer Medigap policies. The terms of the Medigap policies are
that you participate in the managed care system. It would have the
effect of their receiving. the Medicare premium for payment for
participation in the Medicare managed care plan.

Now, under a Medigap policy offered by Medicare Select plans,
in other words, if any managed care plan wants to offer a Medigay
policy covering exactly the services you want, it would have the ef-
fect of a capitated payment, plus whatever additional costs they
thought they had to charge for the Medigap policy, and they would
not be covered by the 50/50 rule for, I think, any of the impedi-
ments that block your development.

Now, is that true or untrue?

Mr. Leutz. Well, one impediment that has not been mentioned
in terms of the payment system that a Social HMO gets, and it is
also fundamental to the PACE plan, is a disability-based AAPCC.
The payment is based upon Medicare fee-for-service equivalent, but
within that is a different underwriting factor that pays higher for
community residents who meet nursing home eligibility criteria.

Mrs. JOHNSON. So, in other words, if we wanted that develop-
ment to move forward in the private sector, we would have to offer
not just the Medicare premium but the higher disability-based
premium?

Mr. WiENeER. I think the key point is that under current law or
practice, if you have a very severely disabled person, and they go
to a nursing home, that is great for the HMO, because they get a
significantly higher payment. If they keep that very same person
out in the community, they get a dramatically lower reimburse-
ment rate. What you have for the SHMOs and for On Lok/PACE
is an ability to get that higher reimbursement while that person
is in the community.

Mrs. JOHNSON. But if, under a Medicaid block grant structure,
there would be no impediment to a state setting a rate for Medicaid
eligible disabled for a Medigap premium, for a plan that would
offer a managed care Medigap premium plan that would offer ev-
erything you are offering and for that Medicaid eligible disabled a
higher premium. That would leave the Medicare-eligible disabled
at a disadvantage, correct?

Mr. WIENER. There would be no impediment except the one that
Representative Stark alluded to—which is that the gross amount


102

savings, and you would not get large savings by expanding the
Program.

Mr. McCrery. Yes. I agree with you that the trust fund is not
being particularly affected one way or another by these demonstra-
tions, but looking no larger than that, it seems to me that you do
have potentially some Medicaid savings. But it really gets down to
the question of does this method of providing care for elderly and
disabled folks, provide us any net savings, and I will go so far as
to say the private system or the public system, because we have
heard conflicting testimony about preventive care and managed
care, and whether, in the end, it provides us any savings at all. It
may provide for a better quality of life in the last few months or
something like that, but if you are talking dollars and cents, it does
not really provide us any savings.

Any thoughts on that?

Mr. Leutz. I think that for many Social HMO members, there
are some real potential savings. If it allows a member who comes
in under private pay, for example, to remain at home and not have
to enter a nursing home, which they would have had to pay for out
of pocket, then that is a savings to them. Now, I cannot quantify
those savings, but that is one type of savings that could occur to
beneficiaries.

Mr. WIENER. I think the demonstrations clearly show that capi-
tation works here as well as elsewhere. Whether you get substan-
tial additional savings by integrating acute and long-term care, I
think the jury is still out on that. But capitation does produce sav-
ings, by creating a system that allows substitution and by really
turning the financial incentives on their head.

Mr. BRINGEWATT. An important issue in addressing cost savings,
I think, is asking “savings relative to what,” because we tend to
look at cost savings in relation to specific provider types or kind of
care as opposed to looking at cost savings relative to addressing a
particular problem over an extended period of time. And at this
point, we really do not know what the cost of care is for a number
of conditions, because we do not collect or monitor care or cost of
care in relation to problems. We monitor and manage cost in rela-
tion to providers. And until we make that shift in looking at cost
in relation to problems from looking at cost in relation to providers,
we are not going to have the kind of cumulative cost savings we
need. A critical step in getting there is mainstreaming this kind of
private sector approach that enables different provider networks to
move dollars into different provider arrangements that, from a cu-
mulative perspective, demonstrates cost savings so that they are
not locked into managing costs within narrow, unrelated provider
silos.

Mr. McCrery. Thank you.

Chairman THomas. I want to thank the panel, and I think we
need to constantly remind ourselves that the yardstick that we use
for saving is the fee-for-service model, and there are a number of
changes that are going to be occurring in that area, and if we could
plow back “savings” into more benefits within a continual slowing
of the growth of what has been a 10.5-percent increase area, then
I think you do get on a comparative basis cost savings and, I think,


118

@j§ ROCKY MOUNTAIN HMO

April 17, 1996

Philip D. Moseley, Chief of Staff
Committee on Ways and Means
U.S, House of Representatives
1402 Longworth House Office Bldg.
Washington, D.C. 20515

Dear Mr. Moseley
RE: LONG TERM CARE OPTIONS (HEARING APRIL 18, 1996)

It is our understanding that the Subcommittee on Health of the Committee on Ways
and Means will conduct a hearing on Long-Term Care Options on April 18, 1996.
White the focus of the hearing will be the PACE and SHMO programs, this seemed like
a good opportunity to make the Committee aware of a unique Long-Term Care Pilot
Project that Rocky Mountain HMO is conducting in Colorado.

Rocky Mountain HMO, the Colorado Department of Health Care Policy and Finance,
and the Mesa County Department of Social Services are developing a pilot project to
integrate Medicaid acute and long-term care services in a health maintenance
organization. The project is funded by a Robert Wood Johnson Foundation grant and
will be conducted in a county in rural western Colorado. Rocky Mountain HMO will
provide Medicaid acute and long-term care services under a capitated contract with
the Department of Health Care Policy and Finance. The project is currently in the
development phase with an anticipated start this fall.

By way of background, Rocky Mountain HMO is a nonprofit HMO that has provided
services for Medicaid, Medicare, and private members for over 22 years. While our
original membership was primarily in western Colorado, more recent expansions
include urban areas and a statewide delivery network. Rocky Mountain HMO was
selected as a SHMO in 1995.

Enclosed are some materials describing the Rocky Mountan HMO Medicaid Integrated
Care Program. We believe this is a truely innovative project with significant potential
benefit. We would certainly be willing to discuss this project in more detail with you
or other appropriate staff or Committee members. Please don’t hesitate to contact me
at 1-800-843-0719 or (970) 244-7966.

Sincerely,
Michael J. CZ
Executive Director

MJW:kim
Enclosures
¢: Rep. Scott McInnis

12775 Crossroads BPO. Box 10600, Grand ancien, Coaraco 81502-5500 + (970) 240.7760 + Tol Fre: B00-0430719. » Fix: (70) 264.7000


65

‘Although health status screening is an important way to find members who need LTC,
integration with medical care is even more important. Two-thirds of the referrals to case
managers come from the acute care system (Altman, etal, 1993). Nearly one-third of the
members leaving the hospital are frail enough to meet community LTC eligibility criteria
within 60 days of discharge (Leutz, Greenlick, & Capitman, 1994). More than one-third of
‘members who are cligible for Medicare home health are also eligible for and receiving
community LTC at the same time (Karon, Capitman, & Leutz, 1990).

These data show the close relationships of acute care and LTC. These relationships provide
‘opportunities to reduce Medicare spending by substituting more appropriate and affordable
‘community LTC, The integrated delivery system also raises providers’ consciousness about
addressing chronic illness and disability (Abrahams, Macko, 8 Grais, 1992). Finally, in
contrast to PACE, which connects with community referral sources to find frail members, the
Social HMO has internal referral systems. This allows Social HMOs to help with short-term
disabilities and transitions across settings of care for a much broader group of beneficiaries.

ma a rice (FFS) exp
rrr ere svenge et capita cons (AAPCO) gives sponsors che incentive 0 caer
community LTC (as well 2s prescription drugs, eyeglasses, and hearing aids) and makes it more
affordable for beneficiaries to choose this high-option plan (Leutz, & Hallfors, 1993; Leutz, et
al., 1985). The Social HMO payment formula has special rate cells that pay higher for
members with disabilities who reside in the community and correspondingly less for other
community residents (Gruenberg, Silva, & Leutz, 1993). ‘This protects sponsors against the
extra costs of enrolling more than fair their share of beneficiaries with disabilities, and it
protects Medicare against favorable selection,

Paying 100% of AAPCC may look like a cost compared to the 95% paid to TEFRA risk
plans, but itis not a cost compared to FFS. If the underlying growth rate in Medicare
expenditures are controlled, 0 are Social HMO expenditures. It does not make sense to
require every Medicare program option to save money if there are other good reasons to
support that program. TEFRA HMOs have not offered LTC benefits like those found in
Social HMOs, and they are not likely to without the protections of disability-based payment
formulas and relatively higher payment rates.

HCFA evaluation studies

‘The Health Care Financing Administration (HCFA) supported an outside evaluation of the
Social HMO Demonstration over the period 1985-1989. Regretably, due to

problems with the basic approach to the final evaluation studies, there are no definitive
conclusions on Social HMO impacts on Medicare costs and member health outcomes
compared to FFS (Leutz, & Greenlick, 1995). Major findings from earlier studies included:

1. No selection bias: Social HMO sites enrolled memberships similar to Medicare beneficiaries
in their communities in terms of disability and health status, in part due to a case mix quota
system (HCFA, 1988; Newcomer, Harrington, & Friedlob, 1990b).

2. Choice: Beneficiaries joined the Social HMO because of its richer benefits for drugs,
community long-term care, dental care, and eyeglasses (Newcomer, Harrington, & Friedlob,
1990a).

3. Salisfaction: Social HMO members were generally just as satisfied as beneficiaries in FFS or
other HMOs (Newcomer, Preston, & Harrington, 1991).

: The Social HMO strengthened the informal support system of Social
HMO member compared to beneficaries it FPS (Yor, 1991)


71

term care sectors. The On Lok/PACE model tends to be more of a
geriatric model that builds on team providers, geriatricians, and
aides who really try to change the way in which both the long-term
care providers and the acute care providers do business.

Another question is how will quality and access be assured? It
is well-known that the fee-for-service system tends to produce over-
utilization, but under capitated systems, there is always the danger
of underutilization. The question is when does efficiency fade into
underservice, and how will either the managed care organization,
the state Medicaid agency, or the Health Care Financing Adminis-
tration know? The reality is that no one has the personnel, the
data systems or the technology to monitor those questions very
well.

Another question is how should these managed care organiza-
tions be paid? We have had a considerable amount of discussion
about the problems with the AAPCC not adequately adjusting for
risk. Between 1980 and 1984, I worked for the Health Care Financ-
ing Administration, and one of the first meetings I attended in
1980 was on how to improve the AAPCC. Sixteen years later, the
AAPCC is exactly the same.

Who gets the savings? A lot of the expanded benefits that are
provided by both the PACE program and the SHMO are funded by
savings from the acute care sector paid by the Medicare reimburse-
ment. Eventually, Medicare will claim those savings as part of
budget deficit reduction. So the question is, will there be money left
over for these expanded benefits?

How much freedom of action will states have? Currently, states
have a significant amount of flexibility in managed care but not
that much. Certainly, in terms of the dual-eligible population,
states do not have the flexibility in dealing with the Medicare
Program.

So, in conclusion, one of the great triumphs of the 20th century
has been the great conquest of acute illnesses. We now have the
rise of chronic illnesses, which is very important. And the question
before us is, how to extend managed care and how to deal with
those chronic illnesses so that we can adequately serve them.

Thank you.

[The prepared statement follows:]


16

Chairman THoMas. Thank you very much, Mr. Vladeck. What I
heard was in essence, you support S. 990 as a piece of legislation
that directly mirrors the President’s budget proposal. Is that it
basically?

Mr. VLADECK. We would support it, Mr. Chairman. We would
support it on its own terms, with concerns about a couple of specific
provisions, which we believe could be resolved relatively
straightforwardly.

Chairman THomMaSs. Let me say it this way. We do not have the
perfect model. We have several that appear to work. You have de-
cided that, perhaps, the administration would support making
these permanent. What is it about supporting these and in making
them permanent that would allow for other options? Where is the
growth factor in what we might be creating in a permanent
structure here?

Mr. VLADECK. In terms of the implications of making them both
permanent? Well again, here, it is important to distinguish be-
tween PACE and the SHMOs. In terms of PACE, all of the existing
programs have appeared to max out in terms of service delivery ca-
pacity, in the range of 300 or so beneficiaries. And even those that
have been in business the longest time, given the stringency of the
eligibility criteria tend to level off at a steady state in that range.
One could envision, therefore, one or more PACE programs in
every community in the United States, which would still be ad-
dressing only a fraction of our beneficiaries and perhaps only a
fraction of those who are otherwise eligible for long-term care.

We have a long way to go, given the size of the programs, before
we make any very consequential dent in the total need in the
population.

Chairman THOMAS. Well, in the PACE program, it clearly creates
a defined universe which it intends to serve. One of the difficulties
with these kinds of hearings is that there will be testimony down
the line that I would like you to react to.

Mr. VLADECK. Sure.

Chairman THOMAS. So, I am going to do some of the cross-
questioning. Dr. Wiener talks about the fact that if these programs
are going to be made permanent, that one of the things we ought
to do is to remove the targeted aspect of the programs. That makes
some sense, I think, on the Social HMOs.

Mr. VLADECK. ain, that is why I said, Mr. Chairman, that I
think we ought to look at making Social HMOs permanent in the
context of broader legislation on Medicare and managed care.
Clearly, to the extent that we are talking about a specific package
of long-term care benefits to which one could attach a premium or
an adjusted community-rate calculation, then much of what is
being done by SHMOs at the moment is currently available: they
are plans our current risk contractors could do under current law.

The two major differences are that the SHMOs get 100 rather
than 95 percent of the AAPCC, and have somewhat greater discre-
tion over enrollment processes, both of which, we believe, could be
addressed through more sophisticated risk adjustment mecha-
nisms, which we are going to begin to test in the next number of
months.


99

Mr. LEuTz. Well, the one reason we talked about before was this
disability-based payment to protect them on the Medicare side. But
on the Medicaid side, in fact-——

Mrs. JOHNSON. Excuse me; on the Medicare side.

Mr. LEuTz. Yes?

Mrs. JOHNSON. The disabled might simply have a higher pre-
mium for the Medigap insurance.

Mr. Leutz. Well, they would get a higher Medicare payment to
protect against the——

Mrs. JOHNSON. Well that would help, because it would function
like a capitated payment.

Mr. LEutz. Yes, it would be—oh, I see, so you are talking about
an indemnity insurer at this point.

Mrs. JOHNSON. No, the way the government relates to a managed
care plan, the premium goes to the managed care plan.

hairman THOMAS. Let me try it.

Mrs. JOHNSON. Yes.

Chairman THOMAS. Instead of getting 100 percent of the AAPCC,
what we actually did in the Republican plan was to give all of the
managed care 100 percent as an inducement to increase the oppor-
tunities. Instead of taking that 100 percent and the waiver from
the 50/50 rule and the other requirements for your average Medic-
aid patient and then putting the long-term care component within
the dollar savings that you get because of managed care, including
prescription and vision, she is suggesting that you take your man-
aged care program and have a Medigap policy available to those
who can pay it which would add a long-term care component to the
HMO plan.

Mr. LeuTz. That seems to me essentially what the Social HMO
models that are out there do right now.

Mrs. JOHNSON. You have the right to do that under current law.

Chairman THOMAS. So, it would be a self selecting SHMO by the
individual in terms of the package that they Ric up from the
HMO. Not everyone in the HMO would be in a SHMO, only those
who have picked up the Medigap aspect of the long-term care,
making it a SHMO for them.

Mrs. JOHNSON. See, that is exactly what I am saying. Now, it
means that the managed care plan could offer this, cultivate that,
develop. But you would not have to be tied by the 50/50 rule; you
would not be limited by the waiver; you would not be a demonstra-
tion. You would just simply be an insurance plan. But you would
fake the benefit of what we have learned in SHMOs and even

ACE.

Now, with PACE, you would need the state to guarantee you the
disability level payment. But this is one of the things I want you
to think about is how do we replicate this in the private market,
because the private market is way ahead of us, and no matter how
fast we legislate, they are probably going to be doing this in 6
months or a year, and we ought to think about how they are going
to do it and whether we like the way they are going to do it.

Mr. LeutTz. Just if I could—as I read what the private market
has been doing under Medicare anyway, the tendency has been to
offer in most markets less benefits and not richer benefits, that the
fear is that plans will attract the sicker people; in this case, if you


21

administrative complexities involved in that as well as the prob-
lems for the individual associated with that. And where there have
been those demonstration projects of merging those funds, they
have been very fruitful. This seems to me an ideal moment at
which also to deal with reducing the amount of administrative
costs associated with this kind of care by dealing with the pooling
of the resources the Federal Government provides.

Mr. VLADECK. Well, that is what we are doing. And as you know,
we are in discussion with a number of states about new ways of
doing this, and we believe you can pool funds and should pool
funds at the level of the beneficiary or at the level of the provider.
There is some question as to the mechanics through which that is
done, but we are moving ahead on a number of experiments in that
general vein.

Mrs. JOHNSON. Thank you.

Chairman THoMaSs. Does the gentleman from Maryland wish to
inquire?

Mr. CarpIN. Thank you, Mr. Chairman.

Dr. Vladeck, let me thank you for your leadership in this area
of expanding opportunities for our Medicare and Medicaid recipi-
ents for long-term care needs. The PACE program is a winner, and
I hope that we can find some way to make that permanent and
available to all of our seniors. I would like to move forward on that.

The alternative to a senior not having PACE if they are a
Medicare beneficiary, is that there are very limited services avail-
able, and, therefore, the beneficiary needs to use his or her own re-
sources. The beneficiary will probably spend down into Medicaid
and then go into long-term nursing care, which is going to end up
being more costly and not as beneficial to the beneficiary. So the
PACE program, it seems to me, is one in which I would hope that
we could handle separately and do something to expand the avail-
ability of this service to our seniors, because it is good for them,
and it is good for the taxpayers of this country.

If I could just get you to respond a little bit on the SHMO pro-
gram, because I am not sure I totally appreciate the adequacy of
that particular benefit to our seniors. That plan requires seniors to
go into an HMO to get limited long-term care coverage, which may
or may not be adequate to the need of the senior, as far as the sen-
ior’s long-term care concerns. In your statement, you indicate that
the overall Medicare beneficiaries enrolled in SHMOs were
healthier than the average beneficiary. My question is are you re-
ferring to the fact that the care that they are receiving in the
SHMOs has brought up their health care status? Or is the type of
selection of a person who is going to go into an HMO generally
healthier than the average, and therefore, we are not accomplish-
ing the diversity that we had hoped to in the SHMO program?

Mr. VLADECK. Mr. Cardin, I think in all fairness, it must be
noted that the original designers of the SHMO concept really start-
ed from the notion that if you had a broad enough pool and a broad
enough base of Medicare beneficiaries, and you used resources for
all of your beneficiaries efficiently with some modest additional
funding and good clinical and administrative management of the
cases, you could, in a sense, insure against additional long-term


50

reduce the explosion of costs to the Federal and state governments and consumers for long-
term care services must begin with the establishment of strong linkages between the acute
and long-term care service sectors.

Social HMOs, which operate under TEFRA risk contracts, offer Medicare beneficiaries a
voluntary choice. Those selecting the Social HMO option receive an enhanced package of
Medicare services. In addition to all Medicare Part A and B services, coverage includes
pharmacy benefits, hearing aides, eyeglasses, and up to $1,000 per month and home and
‘community-based long-term care services. ‘This enhanced package of services received by
enrollees are provided in a budget neutral fashion. ‘The home and community-based services
benefits are critical to helping subscribers avoid institutionalization and maximizing thei
independent functioning. Among the services offered are the following:

‘Case Mamagement: Geriatric resource managers review each senior's medical needs and
determine the long-term benefit package best suited to the individual. Progress is monitored
‘on a regular, ongoing basis. Individuals who become "nursing home certifiable" (NHC) and,
therefore, eligible for the community-based long-term care benefit, receive quarterly
assessments to determine their ongoing need for long-term care services.

Personal Care Assistance: Personal care aides attend to many basic health needs related to
activities of daily living (ADLs) such as bathing, toileting and dressing, to help seniors
remain in the community and as independent as possible. These services are made available
around-the-clock, if necessary.

Homemaker Services: These services include coverage of home chores such as laundry,
cleaning, cooking and shopping, to further enhance an individual's ability to remain
independent and in their own homes,

Respite care: This benefit is intended to help relieve the burden of caregivers -- generally
spouses and family members --who provide an average of 92 hours a week of their time for
their fragile loved ones. Respite care may involve adult day care, overnight or weekend
says at hospitals or nursing homes or other relief.

‘Transportation for Medical Visits: Wheel chait, van and taxi services are provided to
seniots to help assure access to health care services, such as physician office visits.

‘Adult Day Care: This service provides for a professionally staffed facility where seniors
‘can remain safe and participate in social and medical activities during business hours,
evenings or weekends,

Nursing Home Care: ‘The Social HMO benefit provides for short-term nursing home stays
‘of 14-30 days per spell of iliness for additional rehabilitation or respite care which supports a
home care plan.

Personal Emergency Response Systems: The Social HMO provides members a wireless
electronic monitor which is wom around the neck and can be activated in the case of an
emergency such as a fall. Members and their families gain a sense of security provided by
this around-the-clock medical and emergency assistance benefit.

‘The Social HMO demonstrations have revealed a number of important linkages between these
two systems and opportunities for cost-savings potential. One of the most important linkages
relates to the identification of potentially disabling conditions and the development of
treatment regimens to prevent or delay disabilities. Data from the Social HMO reveal that
60 to 70 percent of referrals to community-based LTC services come from the acute care
system, including hospital discharge planners, utilization review staff, physician offices, etc.
In many cases, individuals being referred only need short-term or mid-term rehabilitation
service, not long-term custodial care. It is critical that acute and long-term care providers
work together to identify patients’ needs and develop appropriate treatment protocols and
monitoring systems.

Social HMO data reveal that Jess than half of their enrolles assessed as nursing home
cettifiable (NHC) at any time remain consistently in this category for more than one year and


95

Mr. WIENER. Well, certainly for the SHMOs, there are private
payments as well.

Chairman Tuomas. I am looking primarily on the government
side in terms of expenses that we would accept. I understand the
private payments. Are you with me? Do you understand what I am
taliking about?

Mr. WIENER. I am not entirely sure.

Chairman THomas. Does anybody understand what I am talking
about? Take a shot at it.

Mr. BRINGEWATT. Well, let me try here. Obviously, Medicare and
Medicaid represent the lion’s share of dollars relating to people
who have chronic diseases and disabilities on the acute and the
long-term care side. However, there are other public programs that
also provide care to the same population. They include social serv-
ice block grant programs under Title 20; they include the Older
Americans Act programs; and they include the Veterans Adminis-
tration, where there is a significant dollar amount relating to
similar populations.

Chairman Tuomas. And, I might add, all the legislation we have
not yet passed to deal with long term care, which will certainly cost
significant amounts of money, and especially when you can begin
talking about programs that focus on defined groups, as PACE has
done with the frail elderly, but as programs will do with end-stage
renal disease and others which will give us a packaged program
that if we examine all of the costs that would otherwise have been
expended rather than just the Medicare and Medicaid 100 percent
dollar amount, then, in fact, we would find savings larger than we
think and more importantly programs that meet specific needs of
patients so that the quality aspect, which we cannot always quan-
tify, is nevertheless one that we believe strongly in.

Mr. WIENER. Mr. Chairman, I would certainly hope that we
would find those savings, but I do not think that you can guarantee
it. For example, if you have a nursing home-level person who is out
in the community and receiving SSI and food stamps, once they
enter the nursing home, basically they lose all of those SSI pay-
ments and food stamps, and it all shows up in the Medicaid budget.
If we succeed in keeping that person out in the community, then
we have to pay SSI; we have to pay food stamps; and whatever
their medical and long-term care costs are. So it may net out that
we save money, but it may net out that we do not.

Chairman THOMAS. And all I am saying is that we need to look
at the larger picture whenever we talk about the costs that are
necessary.

You also indicated, Dr. Wiener, that there was some concern
about who controls the programs that the doctors are involved in.
Is not one of the key aspects of both the SHMOs and certainly of
PACE the idea of this team component, which is more and more
emphasizing a kind of interdisciplinary geriatrics approach to deal-
ing with the issues, and, certainly, various models will have dif-
ferent folks in control. But would the marketplace not tend to take
care of that if you made permanent the concept, and instead of
making it a permanent waiver, simply allow HMOs a higher per-
centage of the costs or all of the costs if they would fold in these
costs? With programs that better met the needs of seniors through


33

care services, both in the community, and in hospitals and nursing
homes without any limits on dollars or duration of service.

PACE programs fully integrate the delivery of acute and
long-term care through interdisciplinary teams consisting of
physicians; nurses; social workers; physical; occupational and
fecreational therapists; dietitians; and home care workers.

e PACE programs are reimbursed on a capitated basis, at
rates that provide payers savings relative to their expenditures
in the traditional Medicare, Medicaid and private-pay systems.
These payments are pooled by the program, enabling us to provide
the most appropriate services in the most appropriate settings in
order to best meet the needs of our enrollees.

ee PACE programs assume total financial risk and
responsibility for all medical and long-term care without
limitation.

The typical PACE enrollee is an 83 year old widowed woman who
lives alone and suffers from several chronic and acute medical
conditions, and some degree of cognitive impairment. She requires
assistance with various activities of daily living such as bathing,
dressing and using the bathroom as well as help with other aspects
of her personal care, housekeeping, and managing her medications.
In the traditional system, frail older persons or their families or
friends must coordinate the delivery of multiple services from
multiple providers, leading to fragmentation and duplication of care.
In PACE, participants receive all their services through a single
agency that assumes total responsibility for providing all care. in
this way, integration, not merely coordination, becomes a realistic
objective.

To explain what | mean by integration, it is important to describe a
fundamental element of the PACE program. That is, the same people
who deliver care meet together on a regular basis to discuss and
develop an overall assessment and treatment plan for each enrollee.
This degree of coordination and management leads to an example of a
quick response to medical crisis, which, for example, so happens at
5:00 P.M. on a Friday afternoon. In the PACE system, the participant
would be able to be hospitalized, monitored and stabilized by the
PACE primary care physician and be discharged on Sunday -- yes,
Sunday! -- to a knowledgeable PACE community team and system of
services tailored to that person's specific needs at home, Such a
response is seldom possible in a traditional world for the frail
elderly.

Enrollees attend the PACE Center, on average, two to three times a
week. There they receive primary medical care, nursing and social
work services, rehabilitative and restorative therapies, personal
care, meals and an opportunity to participate in various activities.
Participants see their physician an average of twice a month and
more frequently if necessary. When enrollees do not come to the
Center, services are provided in their homes. An enrollee who
requires hospital or nursing home care remains in PACE and care
continues to be coordinated and monitored by PACE staff, thus



17

Chairman THOMAS. Are we not all awaiting more sophisticated
risk adjustment mechanisms so that AAPCC can be modified in the
regular Medicare Program as well?

tr. VLADECK. That is exactly what I am saying, Mr. Chairman.
So, it is not clear whether once we do those things, it will be
necessary to have special legislation for SHMOs. That is the point
I was seeking to e.

Chairman THOMAS. This is an unfair question, but I would like
you to at least spend some time on it anyway, because clearly,
what we have done here is remove a lot of the bureaucracy and the
preconditions to a lot of specific programs by virtue of the integra-
tion, and especi: across Medicare and Medicaid. But at the same
time, I think, we have taken an integrated approach in which we
take a multidisciplinary team with a focus on geriatrics and
produce a use of those facilities focused on the needs of the individ-
ual. In your estimation, what probably creates any savings? Is it
primarily the integration, or is it the knowledge of the team and
utilization of the services? Obviously, it is a combination of both,
but I am trying to focus on the question of integration as we move
toward new delivery systems, not just for defined elderly
populations but for populations in general.

ir. VLADECK. To a extent, Mr. Chairman, I would defer to
the practitioners on that issue. But my own instinct is that the key
rt of this is that we have loosely defined as the case management.
inction the notion of an individual professional or a team, whose
responsibility encompasses the full range of services for which the
individual may be eligible, who knows the individual well, and is
closely involved in the clinical service of that individual. One of the
interesting intellectual questions about how to generalize from
these models is how to define and replicate the model of good care
management. We get into issues of what the professional trainin;
and skills gught to be, and all other like issues. In the On Lok an
the best PACE programs, my impression is that is really the heart
of what they do.

Chairman THOMAS. Well, I also still have some concerns, espe-
cially probably knowing more about On Lok than the others, that
there may be some cultural tendencies within the recipient popu
lation that might lead toward at least initial receptance of this
kind of an approach more so than the population in general. But
as we get more into mai care, and people are more familiar
with it at the workplace site, as they move into an aging popu-
lation, they might be more receptive as well.

Mr. VLADECK. Mr. Chairman, one of the really interesting things
about these demonstrations is the range of cultures and popu-
lations that are being served in the PACE program and in the
SHMO program. Now, in many ways, the most interesting cultural
variable in all of these programs is the physician culture in the
communities in which they are operating and the change in the
traditional role of physicians relative to their relationships to other
professionals on team and to long-term care services. And I

ow they are not among the witnesses today, but I think in some
ways, the folks at Kaiser in Portland have had the most interesting
experience, given the history of the Permanente groups in terms of
the cultural changes among physicians.


61

the amount of time you are willing to pay a physician for various
procedures, or is that an unjust or unfair criticism?

Mr. Ervin. Congressman, I was not aware of that criticism.
Perhaps I missed it someplace. We contract with—each of the So-
cial HMOs is different. Kaiser has its group model; Elderplan con-
tracts with medical groups, and so does SCAN Health Plan. We
contract at the current time with about 15 different_ medical
groups, and we work with them to understand our benefits. They
set the policies and procedures by which their physicians operate,
and we monitor them.

Mr. Stark. So if they do not like what you are paying, they could
not bid on the job; is that in effect what——

Mr. ERVIN. That is correct. There is always a negotiation. And
that always takes into account the kinds of patients that we will
be sending them. And we work with them with our nursing staff,
our quality assurance staff. We actually end up advocating consid-
erably on behalf of our patients with medical groups as well as
with hospitals if we find that they are not spending the kind of
time and giving the care that is needed.

Mr. STARK. Fair enough.

Thank you, Mr. Chairman.

Chairman THOMAS. Does the gentleman from Nebraska wish to
inquire?

Mr. CHRISTENSEN. Thank you, Mr. Chairman.

Dr. McCann, earlier this week, we had a hearing on the GME,
Graduate Medical Education System, and I wanted to hear if you
had any ideas on how to restructure GME on geriatric care and
geriatric medicine.

Dr. McCann. I can tell you that in our particular site, we do a
lot of education. I am also on the faculty at the University of
Rochester as an assistant professor of medicine, and we have medi-
cal students coming through our program; we have medical resi-
dents who do block rotations through our program, and we also
have geriatric fellows who do a longitudinal experience through our
program. So, we believe it is extremely important to introduce peo-
ple to this type of care, to the most managed care that you can
really have and a totally capitated system and let them know that
you can practice great medicine in a system like this, just the kind
that you thought you were going to practice when you went into
medical school. I think it is extremely important, too, and certainly
one of my high priorities in terms of medical education in our
particular program.

Mr. CHRISTENSEN. One of the problems, though, that came out in
the testimony from Governor Lamm was that under the Graduate
Medical Education, we do not need the number of foreign medical
graduates who are currently coming into the system. Is there a
high concentration of foreign medical graduates in the geriatric
care area, or would you agree with Governor Lamm that we have
way too many in the system today?

Dr. McCann. I think that as far as people interested in workin;
in geriatrics, there is a paucity of people. And as far as intern:
medicine graduates or people who go on to do a fellowship in geri-
atrics, we are not even close to meeting the need as far as the
amount of geriatricians in our country. And it has not been a real


114

quality outcomes and cost effectiveness. The physician profiling software adjusts for
differences in casemix, severity, and comorbidity, and recognizes that primary care
providers have responsibility and accountability not just for the care they provide directly
but the care provided by specialists to whom they refer cases. The resulting data helps
determine expected costs and utilization, and enhances communication between Oxford and
‘our providers. Oxford’s systems are capable of providing utilization data based on
particular services and the amounts of the claims for those services. This can be used to
evaluate disease patterns and treatment pattems of enrollees.

Capital Investments.

As a for-profit health plan, Oxford has the financial means to make significant capital
investments in programs and services deemed necessary to implement an effective
‘comprehensive long term care program.

Oxford has already illustrated its commitment to using its financial resources to provide
services to its members by building two Health Centers in undeserved sections of New
York City. Both centers will provide primary care and will service our Medicare and
Medicaid Members. Each center will have gerontologist on site, in addition to podiatry,
radiology, dentistry, and other services. The center in South Bronx is expected to open in
‘May, and the center in East New York in Brooklyn is expected to open in July. The wo
centers will provide care for about 13,000 Oxford government programs Members, over
5,000 of whom are expected to be Medicare Advantage Members, who did not previously
have access to quality health care.

‘The financial flexibility that Oxford has to make this kind of investment is something that
non-profit organizations often lack. With this access to capital, Oxford could ensure that a
comprehensive long term care program would be adequately funded to provide all
necessary care needs.

Financial Reserves

For-profit HMOs usually have the financial wherewithal, expertise and experience to
adequately reserve against the risk of essentially providing tong term care insurance. In
contrast, non-profit organizations often have difficulty weathering unexpected costs.
According to a study of PACE programs in the Gerontologist, “the shaky financial base of
these independent organizations makes them barely able to sustain any delays in start-up,
much less to survive the costs of catastrophic cases early in their operation.” (Kane, pg.


116

WRITTEN COMMENT OF

‘THOMAS E. BROWN, JR.
ASSISTANT TO THE PRESIDENT
RICHLAND MEMORIAL HOSPITAL
FIVE RICHLAND MEDICAL PARK
COLUMBIA, $C 29203

FOR

HEARING ON LONG TERM CARE OPTIONS.
APRIL 18, 1996

Introduction

“My name is Tom Brown, and I am the Assistant to the President for Special Projects at
Richland memorial Hospital in Columbia, South Carolina One of the projects that | am
involved with at Richland Memorial is the Social HMO II demonstration Several years
ago I was instrumental in development of the hospital's PACE site.

Richland Memorial Hospital is unique in that itis currently the only health care provider or
health plan which participates in both the PACE and Social HMO II demonstrations

‘These two innovative programs will offer older South Carolina Medicare beneficiaries
choices for receiving their health and long term care and provide opportunities for
improving the method of organizing, financing and delivering their care.

Both of these demonstration programs require additional legislative authority to continue
to provide these new models of health care financing and delivery which are important to
the Medicare beneficiaries and federal and state policy makers

Common Program Elements

‘The Social HMO Il and PACE models integrate acute, medical and long term care service
delivery. Richland Memorial's PACE program, Palmetto SeniorCare (PSC), is a staff
model HMO and the program provides most services internally with limited external
contract providers. PSC staff assure that program participants’ care is delivered
effectively across all settings, ic. medical, acute and long term care. ‘The Social HMO It

n program will utilize an IPA model delivery system, supplemented by
protocols, guidelines and management information systems, to integrate the care and
services across all settings

‘An important policy issue for South Carolina policy makers is the applicability of the
PACE and Social HMO Il models to the Medicare/Medicaid older population ‘The
State's Medicaid agency, working with Richland Memorial, has developed strategies for
including the dually eligible population in these projects. This policy decision has enabled
the programs to offer more choices to beneficiaries and to meet a broader need for care
and services.

Providing managed care options in rural areas, which have low AAPCC’s, has been a
policy challenge for the policy makers and program administrators. Richland Memorial's
programs have demonstrated a willingness and ability to accommodate the models to serve
this population of rural Medicare beneficiaries.

Refinements of the Social HMO I! Demonstration

The Social HMO II demonstration has three significant research and policy interventions
‘which will enhance the Medicare HMO program. One improvemen: - the addition of long.
term care benefits to Medicare - was included in the Social HMO I demonstration and will
bbe refined in the Social HMO II demonstration The change in this aspect of the


4

Chairman THOMAS. The Subcommittee will come to order, please.
Today’s hearing highlights efforts under Medicare and Medicaid to
find ways to remedy problems resulting from divisions between
acute and long-term care. These innovative remedies work by
bringing these two sectors together in a single, integrated system.
While the best known of these demonstration projects are On Lok
and its program of all-inclusive care for the elderly called PACE
and the social health maintenance organizations, Social HMOs or
SHMOs, there are at least a dozen other initiatives underway or
in the planning stage.

This hearing will focus on the experiences of the PACE and the
Social HMO programs primarily. In addition, we will also hear tes-
timony on other creative alternatives that are being demonstrated
across the country. These integrated models of Medicare bene-
ficiaries’ additional options for receiving medical care under the
Medicare Program create a public/private partnership that offers
quality care at potentially lower costs for an increasingly frail
elderly population.

We should explore these integrated acute and long-term care
models to determine how they would fit into the Medicare Plus
structure included in legislation passed by the Congress and pro-
vide increased private-sector choices for our Medicare beneficiaries.

I had the pleasure of meeting Jennie Chin Hansen, executive di-
rector of On Lok, in my district office in Bakersfield earlier this
year. I was very impressed with the success On Lok has achieved
in caring for the frail elderly at home and in the community as an
alternative to nursing homes, and I in particular look forward to
her testimony today. I would just say parenthetically, we could
have held this as a field hearing in California and have gotten a
pretty good cross section of most of the programs that are going
today.
I might add that Senate Majority Leader Dole, who would be
with us this morning as our initial witness were he not at a press
conference over on the Senate side, is a strong advocate of the On
Lok and PACE programs and has introduced legislation, Senate
bill 990, to expand the program beyond the current 11 sites and to
make the demonstration program permanent within the Medicare
Program. This may be an area where the administration and
Congress can find some common ground.

It is also important to highlight the Social HMO program as an
additional option for Medicare beneficiaries. It is currently a small-
er program than PACE, with only three sites up and running.
However, such additional sites are in the planning stages.

As our population continues to age, we will need to pursue addi-
tional delivery and financial options for providing medical and per-
sonal care services at home and in the community, not only for cost
savings but for increasing the quality of life of our most vulnerable
Medicare population. Today, I am confident we will receive new in-
sights into the lessons learned and greater potential of these
private-sector options.

At this time, I yield to the gentleman from California, Mr. Stark,
Ranking Member.

Mr. Stark. Mr. Chairman, thank you for calling attention to
these alternative methods of care for American people. I wish ev-


93

PAYMENT REFORM: Direct the Secretary to develop incentives for risk-based, capitated financing for provider-
Dated networks which provides for the pooling of Medicare, Medicaid and private coverage including Medicare
supplemental policies, private LTC insurance policies or subscriber premiums. Payment reform should build upon
the risk-based payment methodology designated for Social HMOs and PACE programs. Incentives might include
health status adjustments, blended capitation/actuatial use rates, risk corridors, risk and outlier pool arrangements
and withhold and bonus arrangements.

CHRONIC CARE RESEARCH: Direct the Secretary to conduct research related to the costs of chronic illness

conditions that measures quality over time, not atthe point of discharge from each individual seting.
B. Targeted Initiatives

© Direct the Secretary to develop regulations which grant permanent waiver authority for existing
Social HMO T and II sites.

© Provide for the establishment of additional provider-based integrated delivery networks as an
‘expanded Medicare managed care option. Criteria should be sufficieatly broad to permit the
‘expansion of Social HMO and PACE sites as well as alternative integration strategies that continue
to evolve the Social HMO and PACE models under permanent waiver authority.

© Explore opportunities to further eahance integration capabilities through collaborative efforts
between provider networks and the newly established Veterans Integrated Service Network
initiative,

© Fliminate 50/50 rule requiring Medicare HMOs to earoll at least 50% of subscribers from the
‘commercially insured population.

© Establish a state-based dually eligible demonstration program to develop models for integrating
primary, acute and fong-term care services for the dually eligible which would permit states to
integrate quality assurance systems, enrollment procedures and other administrative, financing and
oversight requirements for the Medicare and Medicaid programs under a single umbrella,

© Provide either the Federal or state government with the financial responsibility and program
authority for the Medicare and Medicaid programs for the elderly and disabled as a strategy for
consolidating program administration, increasing operation efficiencies, and aligning financial
{incentives between programas


38

Chairman THoMas. Thank you very much, Ms. Hansen.
Dr. McCann.

STATEMENT OF ROBERT MCCANN, M.D., MEDICAL DIRECTOR,
INDEPENDENT LIVING FOR SENIORS, ROCHESTER GENERAL
HOSPITAL, ROCHESTER, NEW YORK

Dr. McCann. Mr. Chairman and Members of the Committee, it
is an honor for me to speak with you today. As Jennie said, I am
the medical director of the PACE site in Rochester, New York,
Independent Living for Seniors, and we currently serve just under
300 older persons in our community who are very frail.

Jennie has mentioned some of the principles of PACE, and what
I would like to do is talk about one of our participants in our pro-
gram to bring some of these principles to life for you. I have some
enlarged photographs of the person, whom we shall call “Mr. B,”
that you can pass around.

Mr. B was 93 years old when he was admitted to the hospital.
He had fallen several times, which led to bleeding inside of his
head. After the surgery, he never quite regained his previous cog-
nitive function. He became bedbound and noncommunicative, and
he was awaiting placement in a nursing home. I was consulted
after he had been in the hospital for 3 months. At that time, the
area nursing homes were filled nearly to capacity, and he was a
very low priority for admission, as his Medicaid had not been ap-
proved, so none of the nursing homes were rolling out the red
carpet for him.

At this point, our ILS team set to work with Mr. B to enroll him
in our PACE program. Our social worker met with his wife, who
also had health problems, and a very supported but exhausted
daughter. They were both extremely upset about his present state,
but they felt considerable anxiety about bringing him home and
handling him at home. So, we met many times with them, brought
them to our day center. Our social worker dealt with a lot of dif-
ferent issues and made them comfortable with the team that would
be caring for their dad.

Our physical therapists went to their house, did a few environ-
mental things like put a bed downstairs, because their bedroom
was upstairs; a commode by the bedside, some very simple things,
but some things that could make the difference between staying
home and going to a nursing home. It is the simple things often
that make the biggest difference, and they are some of the hardest
things to do sometimes.

He was discharged from the hospital to his home with a plan
that included an aide to get him ready to come to the center, and
you can see her getting him ready there in his home. She might
go there for one-half hour to 45 minutes a day. Now, if you tried
to get an aide in the traditional system to go to someone’s house,
the agencies in town would say 2 hours, 3 hours, or nothing. So
again, we have an incredible incentive to use the people who work
for our program most efficiently to give a person what they need
but not to make them more functionally dependent.

Our nurses and physical therapists worked with him at the day
center to help him yearn to walk again, and you can see him walk-
ing there independently with his walker. This was a man who, only


125

take prescribed medications may end up in the hospital. A person who is not being
helped with bathing or toileting may eventually require institutionalization. A person
who becomes weakened by inactivity may become prone to falls and fractures.
Integrated care seeks to prevent these critical episodes through early detection and
correction of the underlying problems.

The care coordinator solicits pertinent information from all care givers, as well as
directly from the client. Any change in the client's condition or circumstances which
could eventually result in a critical episode is addressed immediately. For example,
modifications may be made to the client’s home to improve safety. Meal planning and
preparation may be adjusted to improve nourishment. Exercise programs may be
started to help the client increase strength and decrease the risk of falling.

A Team Approach

The MICP builds a team of care givers--doctor, nurse, social worker, care coordinator,
other professionals, family members, and, of course, the client--all working together
to help the client maintain independence, stay functional, avoid hospitalization, and
prevent or delay the need for unwanted institutional commitment.

Through coordination of services, early attention to problems, monitoring of progress,
and sharing of information the team can achieve the results which are most desired
by the client.

Features of the Medicaid Integrated Care Program

~ Client's have easy access to an integrated continuum of care, including prevention,
acute care, specialized short-term care, transitional care, and long-term care
services.

+ Care planning is client specific and includes self-help assistance to enable clients
to optimize functional independence and well being.

+ Care is centrally managed and is fully coordinated with primary care physicians and
hieve and maintain continuity of care. Care givers work together to
ion of care and to fill gaps in required services.

+ Emphasis is placed on:
- Finding new methods to prevent hospital and nursing home admission.

- Strengthening the role of primary care physicians in managing the full array of
medical and social services.


100

offer disability-based services, more disabled people who are more
expensive. So the question is, why would they do that if they can
offer a stripped-down Medicare plan with minimum benefits and
get plenty of people’s money that way?

Mrs. JOHNSON. They cannot offer a stripped down Medicare plan.
They can only offer Medicare benefits. I mean, the Medicare
HMOs, that is all that is in the market now. The right of managed
care plans to be in the market is fairly recent, and so, those plans
are only now qualifying themselves. But as they develop their posi-
tion in the market, there is absolutely no reason why they cannot
offer a Social HMO as one of the Medigap policy benefits.

Mr. LeutTz. That is right; there is no reason why they cannot.

Mr. WIENER. I think that is right. I think what it boils down to
is the question that Walter raises, which medical underwriting, be-
cause nobody is going to offer a long-term care benefit if they can-
not do extensive medical underwriting. And at least in the HMO
program, that has not been allowed so far. I think that is one of
the key issues. But I think you are basically right that if plans
want to offer these kinds of benefits, they can now. It may not be
optimal in terms of the Medicare reimbursement, but they could
probably do it if they wanted to.

Mrs. JOHNSON. Thank you.

Chairman THOMAS. And just add the one other component to it,
in which you could, then, from a government point of view create
an incentive on the multiplier factor like we do with PACE for
those people who perhaps cannot find a product. All you have to
do is get a profile of those people, the disabled or others, and you
create multiplier factors based upon those individual patients so
that you get a mix of benefit to the HMO on the dollar amount.
That would be a more sophisticated AAPCC model far beyond that
so you can get people on the basis of what it costs to pick them
up and put them in the program, and the government pays on a
more specific basis of what the needs are. And then, I think you
will find a home for everybody who is out there.

The difficulty is, of course, the risk factor formula, which has
been eluding everybody for 15 years or more, and that is an area
along with data collection that we need to work on to be able to
have a sophisticated ability to say this is how much we need to
help this person in this program.

e gentleman from Louisiana.

Mr. McCrery. Thank you, Mr. Chairman. I appreciate the dis-
cussion we have just had, and I think there are tremendous prob-
lems associated with trying to do what the gentlelady suggests if
you are trying to have the government supply the wherewithal or
private plans to operate in that manner. It seems to me the admin-
istrative burden of individually figuring thousands and thousands
of conditions of individuals would be mindboggling.

But anyway, be that as it may, let me get back to some easier
questions for you. Dr. Wiener, you talked about the possibility that
in these comprehensive, continuum-of-care plans, the bias of the
medical community may intervene to allocate more of the resources
toward acute care and not to long-term care. Have you any
evidence in any of the plans that are out there now that that is
occurring, or is that just-——


41

ROBERT ‘STATEMENT OF
MCCANN, M.D., MEDICAL DIRECT!
INDEPENDENT LIVING FOR SENIORS, ROCHESTER, NY

Mr. Chairman and Members of the Committee:

It’s an honor for me to speak with you today. I am the medical director of the PACE
(Program of All-inclusive Care for the Elderly) site in Rochester, New York called
Independent Living for Seniors (ILS). We started our program in 1990 and presently
serve 300 frail elderly persons in our community. Jennie Chin Hansen has outlined
the principles of PACE, and I would like to spend a few minutes talking about how
these principles translate into compassionate, appropriate and cost-effective care for
our participants and how a truly multidisciplinary approach to care creates a
satisfying experience for families and for our employees.

‘The best way to bring the PACE philosophy to life for you is to discuss a participant
whom we have cared for in our program - Mr. B was 93 years old when he was
admitted to the hospital. He had fallen several times, leading to cerebral bleeding
that was surgically drained. After the surgery he never quite regained his previous
cognitive function, became bed-bound, non-communicative and was awaiting
placement in a nursing home. I was consulted after he had been in the hospital for
three months. At that time the area nursing homes were filled nearly to capacity;
and he was a low priority, as his Medicaid eligibility had not been approved at the
time. At this point our ILS team set to work and Mr. B enrolled in our PACE.

‘Our social worker met with Mr. B's wife (who also has health problems) and a very
supportive but exhausted daughter. Both were extremely upset about his present
condition but felt considerable anxiety about being able to handle him at home. Our
social worker had them visit ILS’ Center and meet with some of ILS’ team members
so that they felt more comfortable pursuing a plan to discharge Mr. B from the
hospital. Our physica! therapist assessed the patient and his home, making several
environmental recommendations. We arranged to have a hospital bed and
‘commode placed on the main floor of his home, as the bedrooms were up one flight
of stairs. Mr. B was discharged from the hospital to his home with a plan that
included an aide to get him ready to come to ILS’ Center seven days per week and
an aide to help him into bed each evening. Our nurses and physical therapists
worked with him daily at the Center to help him to learn to walk again and to
recondition his muscles that had become very weak from extended bedrest. I started
‘him on an antidepressant which led to an improvement in his appetite and some
improvement in his cognitive function.

‘Over the next few weeks he steadily improved to the point of walking
independently with his walker. We also supplied him with a hearing aid, which
improved his ability to talk with others. He continued to be incontinent of urine
which was managed with a regular schedule of toileting.

As an ILS enrollee, Mr. B did very well for about three years, becoming one of our
most sociable participants. His wife was extremely happy to have him at home
again. He engaged in many activities at the ILS Center and played checkers (usually
losing but making his checker-partner very happy!).

Duting these three years he experienced an episode of pneumonia that was treated
with intravenous antibiotics at the ILS Center along with enhanced help walking to
prevent deconditioning, and he did very well. A few months later he developed a
bowel obstruction from colon cancer, causing considerable pain. We admitted him
for surgery to have the obstruction relieved and discharged him from the hospital to
home for comfort care. After two weeks he was moved into our transitional
housing apartment for around-the-clock care, as his wife was not comfortable with
him dying at home. He died comfortably with his wife and daughter present.