U.S. GOVERNMENT PRINTING OFFICE

58–338 CC WASHINGTON : 1999

COORDINATED CARE OPTIONS FOR SENIORS

HEARING

BEFORE THE

SUBCOMMITTEE ON HEALTH

OF THE

COMMITTEE ON WAYS AND MEANS

HOUSE OF REPRESENTATIVES

ONE HUNDRED FIFTH CONGRESS

FIRST SESSION

APRIL 29, 1997

Serial 105–75

Printed for the use of the Committee on Ways and Means

(

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COMMITTEE ON WAYS AND MEANS

BILL ARCHER, Texas, Chairman

PHILIP M. CRANE, Illinois

BILL THOMAS, California

E. CLAY SHAW, JR., Florida

NANCY L. JOHNSON, Connecticut

JIM BUNNING, Kentucky

AMO HOUGHTON, New York

WALLY HERGER, California

JIM MCCRERY, Louisiana

DAVE CAMP, Michigan

JIM RAMSTAD, Minnesota

JIM NUSSLE, Iowa

SAM JOHNSON, Texas

JENNIFER DUNN, Washington

MAC COLLINS, Georgia

ROB PORTMAN, Ohio

PHILIP S. ENGLISH, Pennsylvania

JOHN ENSIGN, Nevada

JON CHRISTENSEN, Nebraska

WES WATKINS, Oklahoma

J.D. HAYWORTH, Arizona

JERRY WELLER, Illinois

KENNY HULSHOF, Missouri

CHARLES B. RANGEL, New York

FORTNEY PETE STARK, California

ROBERT T. MATSUI, California

BARBARA B. KENNELLY, Connecticut

WILLIAM J. COYNE, Pennsylvania

SANDER M. LEVIN, Michigan

BENJAMIN L. CARDIN, Maryland

JIM MCDERMOTT, Washington

GERALD D. KLECZKA, Wisconsin

JOHN LEWIS, Georgia

RICHARD E. NEAL, Massachusetts

MICHAEL R. MCNULTY, New York

WILLIAM J. JEFFERSON, Louisiana

JOHN S. TANNER, Tennessee

XAVIER BECERRA, California

KAREN L. THURMAN, Florida

A.L. SINGLETON, Chief of Staff

JANICE MAYS, Minority Chief Counsel

SUBCOMMITTEE ON HEALTH

BILL THOMAS, California, Chairman

NANCY L. JOHNSON, Connecticut

JIM MCCRERY, Louisiana

JOHN ENSIGN, Nevada

JON CHRISTENSEN, Nebraska

PHILIP M. CRANE, Illinois

AMO HOUGHTON, New York

SAM JOHNSON, Texas

FORTNEY PETE STARK, California

BENJAMIN L. CARDIN, Maryland

GERALD D. KLECZKA, Wisconsin

JOHN LEWIS, Georgia

XAVIER BECERRA, California

Pursuant to clause 2(e)(4) of Rule XI of the Rules of the House, public hearing records

of the Committee on Ways and Means are also published in electronic form. The printed

hearing record remains the official version. Because electronic submissions are used to

prepare both printed and electronic versions of the hearing record, the process of converting

between various electronic formats may introduce unintentional errors or omissions. Such occurrences are inherent in the current publication process and should diminish as the process

is further refined.

iii

C O N T E N T S

Page

Advisory of April 22, 1997, announcing the hearing ............................................ 2

WITNESSES

LifePlans, Inc., and Institute for Health Policy, Brandeis University, Stanley

S. Wallack ............................................................................................................. 19

Meiners, Mark R., University of Maryland Center on Aging ............................... 5

Metropolitan Jewish Health System, and Elderplan, Eli Feldman ..................... 53

Municipal Health Services Program: Cities of Cincinnati, OH; Baltimore,

MD; Milwaukee, WI; and San Jose, CA; and Cincinnati Department of

Health, Malcolm Adcock ...................................................................................... 76

National Chronic Care Consortium, Richard Bringewatt .................................... 65

National PACE Association, and Palmetto Senior Care Program, Richland

Memorial Hospital, Judith Pinner Baskins ....................................................... 41

SUBMISSIONS FOR THE RECORD

Genesis Health Ventures, Inc., Kennett Square, PA, Bruce D. Thevenot, statement ...................................................................................................................... 97

National Kidney Foundation, New York, NY, statement ..................................... 100

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COORDINATED CARE OPTIONS FOR SENIORS

TUESDAY, APRIL 29, 1997

HOUSE OF REPRESENTATIVES,

COMMITTEE ON WAYS AND MEANS,

SUBCOMMITTEE ON HEALTH,

Washington, DC.

The Subcommittee met, pursuant to notice, at 9:37 a.m., in room

B–138, Rayburn House Office Building, Hon. Bill Thomas (Chairman of the Subcommittee) presiding.

[The advisory announcing the hearing follows:]

2

ADVISORY

FROM THE COMMITTEE ON WAYS AND MEANS

SUBCOMMITTEE ON HEALTH

FOR IMMEDIATE RELEASE CONTACT: (202) 225–3943

April 22, 1997

No. HL–12

Thomas Announces Hearing on

Coordinated Care Options for Seniors

Congressman Bill Thomas (R–CA), Chairman, Subcommittee on Health of the

Committee on Ways and Means, today announced that the Subcommittee will hold

a hearing on coordinated care for beneficiaries eligible for coverage under both the

Medicare and Medicaid programs. The hearing will take place on Tuesday, April 29,

1997, in room B–318 Rayburn House Office Building, beginning at 9:30 a.m.

In view of the limited time available to hear witnesses, oral testimony at this

hearing will be from invited witnesses only. However, any individual or organization

not scheduled for an oral appearance may submit a written statement for consideration by the Committee and for inclusion in the printed record of the hearing.

BACKGROUND:

As many as six million Americans, known as ‘‘dual eligibles,’’ are enrolled in both

the Medicare and Medicaid programs, and an additional three to four million Americans are eligible for both programs. For these dual eligibles, Medicaid may help pay

Medicare premiums and deductibles, or cover services Medicare does not provide,

such as hearing aids, prescription drugs, and long-term nursing home stays.

Most dual eligibles are poor and many have chronic illnesses or complex acute illnesses and are in need of long-term care services. Dual eligibles comprised about

16 percent of the Medicare population but accounted for about 30 percent of total

Medicare expenditures in 1995. Similarly, dual eligibles made up 17 percent of the

Medicaid population and accounted for approximately 35 percent of Medicaid payments in the same year. Because the fragmentation in today’s health system is exacerbated when people are covered by both the Medicare and Medicaid programs,

many believe that better coordination of care for dual eligible individuals can save

tax dollars while improving the quality of care for this population.

Currently, there is not a generally available comprehensive integrated care benefit available to people eligible for both Medicare and Medicaid. However, there have

been two major demonstration projects that have attempted to better coordinate

care for some dual eligibles: Programs of All Inclusive Care for the Elderly (PACE)

and Social Health Maintenance Organizations (SHMO). The PACE and SHMO programs, which currently cover about 23,000 elderly people, combine Medicare, Medicaid and private funds to provide integrated acute and chronic care services to target

populations. In addition, several States, including California, Florida, Massachusetts, Ohio, Wisconsin, Minnesota, and Arizona have begun to explore ways to improve quality and reduce costs by managing and coordinating health care for dual

eligibles.

In announcing the hearing, Chairman Thomas stated: ‘‘I strongly support expansion of innovative coordinated care programs, such as PACE and SHMOs. At the

same time, I believe we need to look for ways to move beyond existing models to

make coordinated care networks a permanent competitive option for all beneficiaries.’’

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FOCUS OF THE HEARING:

The purpose of the hearing is to examine the PACE and SHMO programs, and

other efforts to coordinate care for beneficiaries who may be eligible for coverage

under both the Medicare and Medicaid programs.

DETAILS FOR SUBMISSION OF WRITTEN COMMENTS:

Any person or organization wishing to submit a written statement for the printed

record of the hearing should submit at least six (6) copies of their statement and

a 3.5-inch diskette in WordPerfect or ASCII format, with their address and date of

hearing noted, by the close of business, Tuesday, May 13, 1997, to A.L. Singleton,

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.

FORMATTING REQUIREMENTS:

Each statement presented for printing to the Committee by a witness, any written statement

or exhibit submitted for the printed record or any written comments in response to a request

for written comments must conform to the guidelines listed below. Any statement or exhibit not

in compliance with these guidelines will not be printed, but will be maintained in the Committee

files for review and use by the Committee.

1. All statements and any accompanying exhibits for printing must be typed in single space

on legal-size paper and may not exceed a total of 10 pages including attachments. At the same

time written statements are submitted to the Committee, witnesses are now requested to submit

their statements on a 3.5-inch diskette in WordPerfect or ASCII format.

2. Copies of whole documents submitted as exhibit material will not be accepted for printing.

Instead, exhibit material should be referenced and quoted or paraphrased. All exhibit material

not meeting these specifications will be maintained in the Committee files for review and use

by the Committee.

3. A witness appearing at a public hearing, or submitting a statement for the record of a public hearing, or submitting written comments in response to a published request for comments

by the Committee, must include on his statement or submission a list of all clients, persons,

or organizations on whose behalf the witness appears.

4. A supplemental sheet must accompany each statement listing the name, full address, a

telephone number where the witness or the designated representative may be reached and a

topical outline or summary of the comments and recommendations in the full statement. This

supplemental sheet will not be included in the printed record.

The above restrictions and limitations apply only to material being submitted for printing.

Statements and exhibits or supplementary material submitted solely for distribution to the

Members, the press and the public during the course of a public hearing may be submitted in

other forms.

Note: All Committee advisories and news releases are available on the World

Wide Web at ‘HTTP://WWW.HOUSE.GOV/WAYSlMEANS/’.

The Committee seeks to make its facilities accessible to persons with disabilities.

If you are in need of special accommodations, please call 202–225–1721 or 202–226–

3411 TTD/TTY in advance of the event (four business days notice is requested).

Questions with regard to special accommodation needs in general (including availability of Committee materials in alternative formats) may be directed to the Committee as noted above.

Chairman THOMAS. The Subcommittee will come to order.

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I want to welcome you to today’s hearing on coordinated care systems under the Medicare Program. The health care system generally and the Medicare and Medicaid Programs in particular are

characterized by conflicting Federal and State rules and payment

policies which reinforce, unfortunately, isolated administrative,

clinical, and financial incentives for individual providers instead of

focusing on what we are all supposed to be doing, and that is the

needs of chronically ill patients.

These problems can lead to fragmented care, repeated and

lengthy hospital stays, family stress, premature nursing home

placement, and impoverishment for the 6 million so-called dual eligibles enrolled in both the Medicare and the Medicaid Programs

who have chronic illnesses or complex acute illnesses.

It is pretty obvious, based upon the evidence presented by witnesses and other sources, that this fragmentation also leads, unfortunately, to excessive costs. While dual eligibles comprise about 16

percent of the Medicare population and 17 percent of the Medicaid

enrollees, they account for about one-third of both Medicare and

Medicaid spending. Moreover, as the baby boom population ages,

the number of chronically ill Americans is projected, unfortunately,

to grow by as much as 25 percent.

We need to remove administrative and financial barriers to coordinated care and provide incentives for providers to work together to care for chronically ill patients. Notwithstanding the testimony and the arguments which, I believe, are very good of a

number of our witnesses for various approaches, yesterday, I introduced, along with Representatives Pete Stark, Ben Cardin, and the

Chairman of the Commerce Health Subcommittee, Mike Bilirakis

of Florida, the PACE Coverage Act of 1997, which would grant permanent provider status to the program for all-inclusive care for the

elderly.

I do not mean to send a signal that other approaches are not

worthy or appropriate or, in fact, would not be renewed before their

termination date. It is just that there are items that need to be

cleared up and/or vehicles other than stand-alone bills which might

be appropriate to deal with some of the other concerns that we

have, because although PACE is not the only solution to problems

facing frail older Americans, it has been shown to provide highquality services at a reduced price to both Medicare and Medicaid.

We will also hear testimony, as I said, about other creative coordinated care options for dual eligibles, such as the social health

maintenance organizations, SHMOs, and others.

At the same time, I do look forward to ideas that are going to

be presented, especially in creating coordinated care networks that

provide a continuum of care that is focused on the patient and

their needs rather than on the bureaucratic structure, which I believe to be the current system.

Does the gentleman from Wisconsin wish to make any opening

remarks?

Mr. KLECZKA. Very briefly, Mr. Chairman. I look forward to the

testimony by the various panels today. One of the programs we will

be talking about will be the municipal health services program,

which, I should add, in my district, Milwaukee, is part of the pilot,

along with Baltimore, San Jose, and Cincinnati, and hopefully, as

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we develop legislation or review the legislation introduced by the

Chairman, we can not only provide for continuance but also make

sure that it is serving the population that it is intended to do.

Thank you, Mr. Chairman.

Chairman THOMAS. I thank the gentleman.

I would ask Dr. Meiners and Dr. Wallack to come forward at this

time. I want to thank both of you for coming. I know you both have

written statements and they will be made a part of the record,

without objection. You can address us in any way you see fit in the

time that you have available to inform us.

Dr. Meiners, if you will begin, and then we will go to Dr.

Wallack.

STATEMENT OF MARK R. MEINERS, PH.D., ASSOCIATE

DIRECTOR, UNIVERSITY OF MARYLAND CENTER ON AGING

Mr. MEINERS. Thank you. Mr. Chairman and Members of the

Subcommittee, my name is Mark Meiners. I am based at the University of Maryland Center on Aging. I am an Associate Professor

there. As part of my duties, I have worked quite a bit with the Robert Wood Johnson Foundation and I wanted to take my time today

to chat with you about a couple of programs we are working on.

One is the Partnership for Long-Term Care, which is a long-term

care insurance program, which may not seem obviously relevant to

the immediate topic, but I think it is. The other is the MedicareMedicaid Integration Program. Both of these are State-based programs and a lot of my work with the Johnson Foundation has been

involved in program development related to health and aging

issues.

States, as you know, are hungry for workable models to deal with

their long-term care responsibilities. There is a general recognition

of the need to improve health care delivery systems, particularly

for those with chronic care needs. A commonly accepted premise is

that to make progress, we must improve the integration and coordination of acute and long-term care, and to do this, we must experiment with new systems of care and financing.

While Medicaid’s early involvement with managed care has focused on families and children, State policymakers are increasingly

interested in enrolling all Medicaid beneficiaries into some form of

managed care. The expansion of managed care for aged and disabled populations inevitably raises the question of how Medicare’s

acute care services can be coordinated with Medicaid’s long-term

care services.

The integration of acute and long-term care is important to the

development of a coordinated managed care system that provides

the flexibility and incentives to manage the full array of care for

aged and disabled.

Now, as you know, the problem of fragmentation between Medicare and Medicaid is not new. Since the mideighties, policymakers

have been looking for ways to end the fragmentation that seems to

be inherent in the fee-for-service system. Beginning with the Channeling Project and On Lok in the eighties and continuing with the

PACE Program and the Social HMOs, a variety of efforts have been

made to create the necessary incentives for managed care providers

to integrate acute and long-term care.

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More recently, the Robert Wood Johnson Foundation has made

a grant to the State of Minnesota to plan a managed care program

that integrates acute and long-term care services. The Minnesota

Senior Health Options Program received Federal approval last year

to proceed with a demonstration program to enroll and capitate

health maintenance organizations and other health plans.

One thing to note is that the Minnesota Senior Health Options

Program is much more broadly based than either the SHMO or the

HMO option. It includes a wider range of people at risk as well as

those who are healthy.

Further development is likely to build on the efforts of the Social

HMO and the PACE projects. Though these are few in number,

they really have provided many good lessons for us in terms of how

we work out the integration of acute and long-term care.

Unfortunately, I think that demonstrations like those of the

PACE and SHMO have received complaints from both extremes in

the policy debate and part of it is that people have grown tired of

demonstrations, they want action, and the other part of it is that

people really are afraid that the demonstrations are simply a foot

in the door to greater benefit packages.

I think realistically, though, we need more efforts like those that

we have had. They provide us with great learning experiences and,

I think, have served to a great extent to help the Health Care Financing Administration sort out some of its own confusion about

how Medicare and Medicaid ought to integrate.

I wanted to touch on the Partnership for Long-Term Care, a

long-term care insurance program, partly because this Subcommittee had a hand in grandfathering the four States who are doing

that program, but also at the time of that OBRA 1993 language,

there were some restrictions placed that have really inhibited the

development of the long-term care insurance partnership program.

Why I think that is important is because I think links between

that partnership program and managed care are quite possible and

need to be explored and States are interested in doing that. So, I

would encourage you to take a look at some of my written testimony in that regard because I do not think we will be as successful

as we want to be with the notions of Medicare-Medicaid integration

on the public side unless we have equally strong programs on the

private side. Medicaid, of course, is not available for everyone, so

we need to encourage that gap to be filled with private long-term

care insurance. There are some creative efforts going on to link

PACE with long-term care insurance products and I will be happy

to explore those with you further.

[The prepared statement follows:]

7

Statement of Mark R. Meiners, Ph.D., Associate Director, University of

Maryland Center on Aging

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that.

Chairman THOMAS. Thank you. I will have a question or two on

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Dr. Wallack.

STATEMENT OF STANLEY S. WALLACK, PH.D., EXECUTIVE

DIRECTOR, INSTITUTE FOR HEALTH POLICY, BRANDEIS

UNIVERSITY; AND CHAIRMAN OF THE BOARD AND CHIEF

EXECUTIVE OFFICER, LIFEPLANS, INC., WALTHAM, MASSACHUSETTS

Mr. WALLACK. Thank you. Good morning, Mr. Chairman and

Members of the Subcommittee on Health.

My testimony today reflects my experiences in the two domains

in which I work. First, I am on the faculty of the Heller Graduate

School at Brandeis University, where I direct the Institute of

Health Policy.

And second, I am the founder, chairman, and chief executive officer of LifePlans, a for-profit long-term care risk and care management company. LifePlans was founded in 1987 with its mission to

help develop a credible private sector long-term care financing alternative to Medicaid. I had the privilege of speaking before this

Subcommittee as the chairman of the Coalition for Long-Term Care

Financing.

I want to acknowledge and thank this Subcommittee for leading

the way with Federal tax clarifications, and I think these will be

very important in terms of individuals taking responsibility for

themselves and reducing the financial demands on Medicare and

Medicaid in the future. I am a little bit concerned about how the

act will be implemented, perhaps making the benefits very restrictive, and so we may end up with the qualified plans being less consumer friendly than many of the current policies on the market.

At the Institute for Health Policy at Brandeis, I developed, along

with my colleagues, the Social HMO when HCFA asked me in 1979

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to propose an alternative to fee-for-service Medicare, particularly

for the older and frail elderly. The demonstration of the Social

HMO concept did not start until 1985, requiring the cooperation of

over a dozen foundations and actually an act of Congress.

The Social HMO, which was demonstrated at four sites, offered

expanded benefits, in particular, prescription drugs and a limited

personal care benefit with a dollar maximum. As you know, the Social HMO benefits occurred at no additional cost to the Federal

Government. The Social HMO model has proven viable and a number of TEFRA HMOs are evolving and moving toward it.

I really have three points I would like to make today to this Subcommittee. They are, first of all, that I think we have evidence

about coordinated care and that it can work in terms of improving

health status and reducing costs.

Second, I think the Social HMO is a model that can work for the

vast majority of elderly.

And finally, that although I support the PACE Program and legislation that would allow it to become a permanent provider, there

are many other programs worthy of being innovated in the United

States and I think we need much more general legislation to do

that.

First of all, with regards to coordinated care, I think it is clear

that we see in the acute care sector that coordinated care works.

The substitution of preventive services, primary care services for

hospitalization is evident. On the long-term care side, we see the

same thing, we can keep people out of the nursing home, as we did

in the SHMO by expanding home care benefits.

When it comes to linking or coordinating the long-term care system and the acute care system, I think we have evidence that if

we focus on those who are disabled and bring medical management

to them, whether it is in their home, whether it is in an adult day

care center, whether it is in an assisted living environment or a

nursing home, we, in fact, can avoid expensive hospitalization and

emergency room visits. And by keeping people out of the hospital,

we avoid them becoming more debilitated, and, we avoid a variety

of other losses, particularly around physical functioning.

The key to coordinated acute and long-term care is really having

a physician, perhaps a geriatrician on one side, the long-term care

or the care manager on the other side, and a case manager in between them. Now, we can integrate them or coordinate them. There

are various ways of doing it. The Social HMO, used more of a coordinated approach.

The point I would like to make to this Subcommittee, to really

underscore it today, is that when we start talking about alternatives to Medicare, we have so few to consider. We have the Social

HMO, done by an act of Congress. We have PACE, which was done

by waivers. Why do we have so few? That is because we have to

go through a very cumbersome research waiver process, which

today is very foolish and time consuming.

The Social HMO can serve the vast majority of older people, well

over 85 percent, and I think we have learned a great deal about

how to help people—help people recover from short-term disability

and care for them during transitions.

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Another key finding of the Social HMO, which I hope this Subcommittee would consider, is that what we have learned, that a

limited Medicare extended care benefit, home care, can deal with

what Medicare was intended to deal with, that is to keep people

from becoming permanently disabled and to help them when they

come out of institutions.

What I find fascinating is this expansion of TEFRA HMOs in the

last few years really parallels the tremendous growth in postacute

benefits under Medicare. It was really with the double payment for

subacute and acute care and the explosion in home care that we

started to see HMOs, in fact, really grow in this market. And,

whereas in 1989 half of the TEFRA HMOs could have lost money

and half won money under the AAPCC, today, you can hardly lose

under the AAPCC and that is related to the expansion in postacute

benefits.

I think we can deal with this issue through benefit design—and

I think in a fee-for-service market that is uncontrolled, you have

to look at benefit design. The SHMO experience tells us that a limited home care benefit, 150 visits, 200 visits, would, in fact, be adequate to take care of almost all Medicare beneficiaries. If you did

that, you would not only have short-term savings under Medicare,

you would also be reducing the payments you are making to

HMOs.

I know this Subcommittee is considering reducing the AAPCC

payment, but it seems to me a much better way is realigning and

controlling the growth in the Medicare Program in an appropriate

way. You actually can fix both things—Medicare costs and excess

HMO payments—at the same time.

When it comes to the permanently disabled, I think we have a

lot of alternatives. Clearly, PACE is one that merges Medicare and

Medicaid. I think the Social HMOs is one. As Mark said, with

HMOs and private long-term care insurance, we can take care of

the vast majority of people. I think modifying the Medicare Program to allow programs targeted on the frail, elderly and disabled

like EverCare. I assume, Mr. Chairman, you are familiar with

EverCare, which is a program focused on those Medicare beneficiaries who are in the nursing home where medical management

in the nursing homes saves acute care dollars by reducing hospitalizations. If we modify Medicare Programs like PACE,

EverCare and social HMOs, we can get tremendous savings in cost.

Now, I know, as you said, you have already introduced PACE

legislation, and I certainly hope that the SHMO legislation would

soon follow. As you mentioned in your press release, there were

23,000 people under the PACE and Social HMO projects today.

Twenty-thousand-plus of them are in the SHMOs, and it seems to

me appropriate that if you are going to legislate for PACE, you

should be doing the same for SHMOs.

But I believe you should go much beyond that, Mr. Chairman

and Subcommittee. I think we should look for ways through legislative changes that would allow managed care programs that voluntarily enroll elderly and disabled, both in generalized and specialized care programs, to be instituted without having to go through

this research waiver process. I think HCFA can contract with responsible plans and I have three specific recommendations to

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change the statute that will allow the innovative programs that

really are directed to the frail elderly and disabled to evolve.

One is we should delete from the statute the requirement for

statewideness under HMOs. The uniformity of services would be

number two. And, finally, the 50–50 rule. Right now, as you know,

an HMO can only have 50 percent of its enrollment in Medicare

and Medicaid. If we want to design programs for Medicare people

and disabled people, we have to get rid of that 50–50 rule. I cannot

overstate the importance of that.

I do not think we have should continue to rely on structural requirements for who can participate as an HMO. I think we know

a lot today about the operations of HMOs and their outcomes. We

should base our decisions on who is eligible by their performance.

By removing these restrictions I mentioned, you would allow

long-term care or personal care providers, both not-for-profit and

for-profit, who have a greater awareness of the personal and social

needs, the continuum of needs of the frail and disabled population,

to develop innovative and cost effective solutions.

Thank you, Mr. Chairman, for allowing me to testify.

[The prepared statement follows:]

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Statement of Stanley S. Wallack, Ph.D., Executive Director, Institute for

Health Policy, Brandeis University, and Chairman of the Board and Chief

Executive Officer, LifePlans, Inc., Waltham, Massachusetts

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you have, you could not go into the detail that you did in your writChairman THOMAS. I thank both of you. Obviously, in the time

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ten testimony. It is not only part of the record, we looked at it.

My problem is that I can give a really good half-an-hour speech

about the needs for continuum of care and the way in which it

should be focused, but when you take a look at what we have got

and what it is going to take to get there, saying it and doing it are

two different things.

Dr. Wallack, would you for just a minute expand on your argument about the number of home health visits, because, obviously,

if we are dealing with integration of programs, we tend to look at

the macro structure, but you mentioned briefly and focused on rethinking what we actually do, since there seemed to be an amazing

parallel in terms of the benefits that were provided and the use

structure that followed it.

Mr. WALLACK. Certainly. I know you know that what happened

in 1988 as the result of a court action is that HCFA revised its administrative regulations. The court really required that HCFA

could no longer talk about part time and intermittent. That meant

you could not restrict people to home care who both needed less

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than 8 hours a day and 7 days a week. It went from and to or. You

could either get it part time or you could get it intermittently.

But that was not the big administrative change that occurred.

That was not the change that really resulted in the explosion of

home care services. What happened in the administrative changes

is that they allowed a skilled nurse to, in fact, make a decision that

somebody needed services and what could pursue from there was

a whole variety of personal care services.

So if you look at the home health benefits today and their explosion, it is really for those who are getting over 100 visits or over

200 visits. We are starting to move home care, through administrative decisions and not legislative decisions, from an acute,

postacute benefit to a custodial, long-term care benefit. If we are

doing that, it seems to me Congress should say that is what we

want to do. It was not the initial intention of Medicare.

Chairman THOMAS. I do not know that we want to do it and we

got into it by a court action, but my question would be, as we are

looking at new approaches to funding this rapidly growing area in

home health care on a prospective payment basis, something as

simple as a visit is not defined, and if we get into this whole structure without going after the definitional framework, I am afraid

that we will have missed an opportunity.

If we can get into the procedures that are involved or the time

increments, except then that runs counter to the desire I think you

have expressed, and I expressed very briefly, about getting away

from the micromanagement aspect. Now, how do you reconcile the

two?

Mr. WALLACK. I agree with you. Getting into what a visit is is

very difficult and that is going to micromanagement. We do not

know what a visit is and we do not have a real definition of home

care.

Chairman THOMAS. Well, we are going to before we put in a prospective payment system.

Mr. WALLACK. You are going to have to, are you not?

There are different ways of doing benefit redesign. I guess the

point I was trying to make is that if you have an unrestricted feefor-service system, the way you have to deal with this, is with benefit redesign. You have dropped benefit redesign from the debate,

but I think that is what you have to use. You have restrictions on

hospital days. You have restrictions on nursing home days. But

somehow or other, you do not have it on home health care visits.

It does not seem to me to make a lot of sense.

If you do not want to deal with the visits, maybe another benefit

redesign is dealing with the dollar amounts. What we are going to

see now is the average payments per episode is going to $8,000. My

own view is you are going to have home health expenditures in a

few years exceeding physician expenditures under Medicare.

Chairman THOMAS. That is what the growth lines look like.

Mr. WALLACK. So maybe it is a dollar benefit. Maybe you do not

want to get into specific visits.

Chairman THOMAS. I am very interested in trying to promote private sector plan integration into the public dollars. We tried to

offer some help in recent legislation with counting long-term care

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29

duction structure. My problem is that if we had done that when the

medical deduction was 2.5 percent of adjusted gross income, we

might have had some impact, but when it is at 7.5 percent of adjusted gross income, even on lower incomes, that is a relatively

high threshold.

Have you seen any evidence, or we even allow personal opinions

here, that would suggest that maybe as we are spending dollars in

this area, one of the ways that we could get some fairly decent

stimulation of private sector insurance coordinated with Federal

programs would be to focus on that 7.5 and maybe bring it down

by one-third to 5 or even back to the original 2.5. Would that be

useful at all, either Dr. Meiners or Dr. Wallack? And if you do not

have an opinion, it is also acceptable not to have one.

Mr. MEINERS. I think it would certainly help with that specific

problem. When it comes to subsidizing the market for long-term

care insurance, I at this point am rather biased toward the partnership strategy because I think it is a way to target what moneys

you might put toward supporting a market to those who are most

at risk of spending down. It also is a subsidy that you do not give

to everybody who buys a product, so it is more targeted in that way

and, I think, more efficient.

It is only when somebody buys a partnership product, goes into

benefit, uses those up, that then the subsidy occurs. That subsidy

occurs around the time that the benefits of avoiding people going

on Medicaid also occurs. So if you think in terms of a present value

of subsidizing, it is much more efficient.

Chairman THOMAS. Yes.

Mr. MEINERS. If I was to work on the next steps, it would be to

make sure that that partnership opportunity was more available to

States. I do not think States are going to give away the store, and

so I think that is an important thing to have happen.

Chairman THOMAS. It is partly counterintuitive, though. Witness

what we did in 1993 in terms of requiring people to exhaust their

resources before we are willing to offer alternatives. The idea that

would be a real incentive for people to husband and for a State coordination runs a little counterintuitive to a number of people in

terms of what either they would be willing to vote for or could vote

for because, in fact, they did vote for it.

Mr. WALLACK. Could I make a comment, please?

Chairman THOMAS. Surely.

Mr. WALLACK. First of all, you are right about the 7.5 percent not

being very powerful anymore with regard to the experience——

Chairman THOMAS. It is very powerful. Nothing happens.

Mr. WALLACK. Nothing happens. Right. You are absolutely right.

Obviously, you can move to some kind of a credit, tax credit. But

I think there are much more basic things.

When I talked before you on tax clarification, I sort of played my

role as an economist and talked to you about tax deductibility as

price reductions, and that they will do a little bit to affect the demand. Effectively, a tax benefit reduces the price and you will increase demand. But what is much more important, it seems to me,

is the attitude of people about taking responsibility. Economists

call that a shift in demand and I think that can happen. I think

you started it now. But you have to tell the American public in

30

some way—it is the government they look toward—that this is how

we are expecting to fund long-term care. The government cannot

afford it. We could only fund Medicare and long-term care, but we

have other things we want to do with Federal dollars.

The other thing that got lost in your bill, which I think could be

very important, we want to encourage saving for long-term care

earlier, people worrying about the costs of getting old when they

are younger, when they are our age, I guess. The way to do that

is through a savings account. I think you had an IRA approach

that allowed people to put money in a dedicated program and, in

fact, buildup their savings and then use it for long-term care. People are saving more. We have to come back to this perspective,

start saving earlier for long-term care. I think this is an important

thing to add.

Chairman THOMAS. I have had a super IRA bill in for some time

with my colleague from Massachusetts. The problem is, when you

go through the Congressional Budget Office, they write the expenses on the front 5 years of investing and they do not look at the

long-term return of actually having people spend their own money

rather than public money over a 20- or 25-year period.

Let us establish the fact that the 50–50 rule, if either of you are

in agreement, which may have been a useful substitute at some

time, although I wonder why, for a quality measurement, in fact,

works exactly opposite when you are trying to build a coordinated

structure that focuses on a particular group of folk, and that if you

could not get fundamental agreement on the larger TEFRA risk

HMOs, clearly, in the area that we are talking about, it makes no

sense, we agreed, to——

Mr. WALLACK. Oh, I absolutely agree. I think I said that. But let

me make a point, I think the Social HMO has a lot more potential.

I mean, it is a much bigger potential program than PACE. If you

target just on the disabled, a PACE-like program can meet the

needs of those people who are disabled.

The Social HMO, it seems to me, is a more appropriate Medicare

HMO program. I have not changed my view in the last 20 years.

Having prescription drugs in the benefit makes a lot of sense to

me, and some extended care package makes more sense for a Medicare Program.

If you had a lot of dedicated HMOs, like Social HMOs, they

would eventually develop very integrated programs like PACE for

those that have become disabled, because when people become disabled, they need a greater integration of services and those would

evolve, it seems to me.

What we have really restrained, it seems to me, through these

kinds of restrictions is the evolution of a lot of good plans. I think

there are a lot of people out there who could help solve this problem if you would let them do it.

Chairman THOMAS. Part of the problem is that in looking at

some of the changes that we are thinking about making, we will

have Mr. Bringewatt later, but he has a Chronic Care Act of 1997

which is a complete vision, including ready-made bureaucracies to

review the structure, and he will have a chance to comment back

later, I am sure.

31

That is not going to be the solution, either, but when we sit here

and get testimony from HCFA that they are only about 4 years

away from a prospective payment system out there that they have

had 15 years to talk about how they are going to get there, and

you talk about the Social HMO as something that needs to go forward and we cannot get HCFA to tell us after all the years of experience we have had what is an appropriate model structure, it is

very, very frustrating because you reach a point of trust in which

you have to rely on folks in a larger structure doing what is right

and we have not seen that in the recent past. That is one of the

reasons you have a 50–50 rule.

So it is difficult to put a specific structure in place and it is probably impossible to get a trust structure in place, either.

Mr. WALLACK. When you think about where we are with those

people that cost the most money and for whom we are responsible,

it is discouraging that we have so few alternatives that have been

tried. It is pretty remarkable. Particularly, when you compare it

with the private sector and how they have evolved all sorts of alternatives in disease management. Just the kinds of things that are

going on in the private sector now, are the kinds of things that

would go on for Medicare beneficiaries if we loosened up these

rules.

I guess that is really what I have been saying—that is what I

think you should be thinking about is not just I PACE, I know it

is important, but I think there is a much bigger issue out there.

Chairman THOMAS. I know, Doctor, but you cannot say loosen up

the rules.

Mr. WALLACK. No, the statute.

Chairman THOMAS. Rethink.

Mr. WALLACK. Rethink.

Chairman THOMAS. Loosening makes a lot of folks nervous.

Mr. WALLACK. OK.

Chairman THOMAS. But rethinking is what we need to do, especially when you have dollars coming from the Federal Government

under the rubric of Medicare and dollars coming from the Federal

Government under the rubric of Medicaid and there are conflicts

which cost more money.

One final question and I will turn it over to the gentleman from

Wisconsin. There was also a discussion, especially in the Social

HMOs, about the use of skilled nursing facilities, more nursing

homes, and what I got out of it, and again, I will be corrected if

I was wrong, was that there seems to be a general agreement that

the nineties, 21st century high-tech hospital is way too expensive

for doing a lot of things, but does it really make sense to recreate

the fifties technology hospital in a skilled nursing facility to perform those functions. Maybe it makes sense to do so. But, you

know, the lab work, the x rays, the stuff we used to get in what

we used to call a hospital being done in a nursing facility rather

than a hospital.

Mr. WALLACK. That is an interesting question. There are two

parts to that subacute issue. One is the use of subacute after hospitalization. I believe the nursing home or the assisted living,

places where people live are more appropriate than staying in a

hospital. We should start bringing managed care to people rather

32

than bringing people to managed care. This results in shorter hospital stays.

I think, in nursing homes and other kinds of assisted living

should, in fact, be a place where people get their acute care and

thereby avoid going to the hospital. This results in fewer hospital

admissions.

So I view the nursing homes as probably a place where we really

should see expansion in the subacute side. It is less expensive. I

think the hospitals have tremendous overhead. So I would say, yes,

for both going into the hospital as well as coming out of the hospital, and I think you really get two hits there.

Chairman THOMAS. Dr. Meiners, do you have any comment on

that?

Mr. MEINERS. One of the things I just wanted to comment on was

the fact that I think we are learning an awful lot, along with

HCFA, in the demonstrations we are doing. It has become very

clear to me as we work with HCFA that they have had a Medicare

focus for many, many years and their focus on Medicaid has only

been emerging in the few past years. How Medicare and Medicaid

have worked together is something that is a very new focus for

HCFA.

You also have a disconnect between the States which are looking

for what HCFA will let them do to integrate Medicare and Medicaid so that it will not be so difficult to get the waivers while HCFA

is basically in the mode of receiving applications and going over

them to see if they meet the law without really necessarily having

a clear vision of what the States could or should do. So they are

not talking to each other very clearly and comfortably.

It is not like there is one or several models that you can use easily to integrate Medicare and Medicaid. Part of HCFA that is focused on doing demonstrations and a demonstration means that

you may actually do one such program and no more. However,

when a waiver approach gets approved, the States want to use it

as a model that they can replicate without a difficult approval process. For a variety of very technical reasons HCFA is not comfortable with this as yet.

We need to work through that. I know HCFA is working hard to

do that, but it is still a very troubling process to the States who

really are under duress to make integrated care work. I think directions from HCFA that supports states integration of Medicare

and Medicaid systems is something we need to work on in a positive way to make it happen would be very helpful. Even then

progress will be difficult because when you get down into the details, absolutely, there are laws and rules that get very tricky, like

the 50–50 rule.

Some of those rules and restrictions we can do away with, but

beyond those that Stan mentioned there are a whole host of others

and we simply need the opportunity to work on with more of a

mindset of can do, need to correct them. States are not out there

asking for waivers to give away the store financially by any means.

That is why I emphasized this Partnership for Long-Term Care in

the OBRA language as part of my testimony. States need the

chance to have those debates on their own home turf without ConVerDate 11-SEP-98 16:36 Sep 08, 1999 Jkt 058338 PO 00000 Frm 00035 Fmt 6633 Sfmt 6602 F:58338 W&M3 PsN: W&M3
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gressional limits. That is a very helpful debate to have, and oftentimes leads to bright ideas, good ideas.

But if you stand in the way and say, no, you cannot do any more

of those type programs, that is not very helpful. It takes away the

one laboratory of experimentation, which is the States, that is really very active out there and has great potential.

Chairman THOMAS. We are hopeful that the mental side of

HCFA has undergone a change, and I think evidence of that is

their attempt to restructure and bring managed care into more of

a core arrangement, which will allow for a closer in-house observation of the inconsistencies rather than two separate groups not

talking to each other. Maybe that is the positive spin I can give it,

but to the degree we can oversee that, as well, I think it will help.

The gentleman from Wisconsin?

Mr. KLECZKA. Thank you, Mr. Chairman.

Dr. Wallack, in your statement, you talk about individuals accepting more financial responsibility rather than assuming Medicare and Medicaid will pay. However, you have come before us

wearing two hats and the flip side to that is, and, by the way, I

am chief executive officer of LifePlans. I would like to sell you a

policy. Is there any conflict here? I am having a little problem with

this.

Mr. WALLACK. I should like to respond.

Mr. KLECZKA. The first goal is laudable. The second one is——

Mr. WALLACK. Well, no, in terms of addressing a social problem,

I basically worked here in Congress for the Congressional Budget

Office, where I headed up the health and welfare area, and I tried

at one point——

Mr. KLECZKA. You are an insider. You know how we score these

things.

Mr. WALLACK. Yes. I know how you score these things. I did a

Part C of Medicare and looked at its costs and benefits. Once you

are outside of Washington, you start to think about other financing

alternatives. As a researcher at Brandeis, I realized that the private sector can respond to this and my own view is that we should

let the private sector go as far as it possibly can and have Medicare

dollars or Medicaid dollars focus on poor people and really be targeted, because we cannot afford everything.

So is there a conflict? I do not really think there is. I think you

can do good social policy from the private sector as well as from

the public sector.

Mr. KLECZKA. What type of experience have you had in selling

long-term health policies?

Mr. WALLACK. We do not sell. What we have done——

Mr. KLECZKA. What is LifePlans, then?

Mr. WALLACK. What LifePlans does is help companies design

products. I mean, we became involved back in 1987, when, basically, long-term care insurance was a postacute benefit. We have

helped develop the product so it has moved to a very flexible product that you can use in any site. It has really improved, that is,

the value of the product. It has moved from a medical criteria for

benefits to a disability criteria for benefits. So I was involved in a

lot of product development. We were involved a lot in the development, and now we help companies——

34

Mr. KLECZKA. Then for companies who are selling these policies,

what type of activity have they seen?

Mr. WALLACK. Basically, what we do as a company is we help

companies assess people for insurability. We help to assess people

when they are eligible for benefits and then we help manage them

if they go into benefits. So we are a risk and care management

company in long-term care.

Mr. KLECZKA. There was an article or a story on the local news

a day or two ago about long-term policies. Are these basically designed for individuals with a lot of assets, that should something

occur, that they could possibly protect those assets for these purposes?

Mr. WALLACK. I think you can make that argument, but not for

very wealthy people. They can pay themselves. I think long-term

care is a problem for most of us who I would call the middleincome, upper-middle-income people, who have——

Mr. KLECZKA. Certainly not the poor. They——

Mr. WALLACK. Certainly not the poor. I mean, it would be foolish

for a poor person.

Mr. KLECZKA. They depend on Medicaid.

Mr. WALLACK. That is right. We have Medicaid, and that is what

Medicaid should do. It should deal with poor people.

But a lot of us sort of have some savings, have some assets, and

I think we do want to protect them, but that is not the primary

reason people buy long-term care insurance. If you ask them why

they buy long-term care insurance, they buy it to remain independent. They do not want their kids to be responsible for them. They

want to have choice. And right now, the policies allow them to be

at home or to be wherever. The policies are very flexible. It gives

them the opportunity to get what they want in terms of——

Mr. KLECZKA. Let me turn real quickly to home health care. We

have seen a real explosion in the cost of that program. Outside of

a definition of visits and possibly some limitation, one of the administration budget proposals is to shift the cost of part B but not

apply any premium to that or copay. What is your view of trying

to restrain costs in home health care, which, as you know, is going

out the window? I would like both gentlemen to comment.

Mr. WALLACK. Would you like to go first?

Mr. KLECZKA. Maybe you could cite some real abuses that we

should be looking for, because they clearly are there.

Mr. MEINERS. I have tracked that a little bit, as much through

the articles that we have seen about it, and, frankly, I am not sure

whether it is—my understanding is that there has been movement

between part A and part B over the years. It is very confusing. It

would result in people contributing some premium to the cost of

home care, which they would not be doing under part A.

Mr. KLECZKA. The proposal, as I recall it, and I may be corrected

by my colleagues, is that it would be picked up by part B but not

be applicable to the premium. Is that not correct?

Mr. WALLACK. And there is no copay. Can I——

Mrs. JOHNSON. The current proposal is no copay, but it is a reform of the way we pay for home health, eventually ending up in

a payment per episode.

35

Mr. WALLACK. Eventually, as you said. Let me comment on that,

on the question. The part A to part B is the way it once was—I

guess that is fine, if you want to do it. I think there are a number

of people who get home care as a result of coming out of the hospital. There are a number of people in the community that need

some to avoid going into the hospital.

I think, however, given that this program has absolutely no restrictions on it, it is completely supply driven. It is the worst of the

fee-for-service we could imagine, unlimited benefits, absolutely no

copays. You have to approach this, again, from what I call a demand side or a benefits design approach. I think, personally, there

should be benefit restrictions that are reasonable, and very generous in terms of really trying to do what Medicare was designed to

do, but copays certainly makes sense. You have to deal with the demand side of the equation a little bit. Therefore, copays in that program like we have in other programs make a lot of sense to me.

Mr. MEINERS. From a State perspective on the Medicaid side, filling in the deductibles and copays, is an extra unfunded liability the

way things work now. That would be a major concern to States.

Mr. KLECZKA. Thank you.

Mrs. JOHNSON [presiding]. Mr. McCrery.

Mr. MCCRERY. Dr. Wallack, in your recommendations at the conclusion of your written testimony, you say, ‘‘Rather than create a

special status for the PACE Program in statute, I urge the Committee to take the necessary steps that would allow these and other

worthy programs to develop,’’ and then you say that these programs ought to be able to be initiated without having to go through

the waiver process.

How would these programs be recognized by HCFA and how

would the payment be made?

Mr. WALLACK. I think if we, again, deleted from the statute some

of those restrictions, like the 50–50 rule, they could apply to HCFA

much like TEFRA HMOs do now and HCFA would have all the

ability, it seems to me, to decide that these programs have the appropriate knowledge base to do the care, they have the appropriate

geriatric care, they have the right delivery system, they have the

right financial wherewithal. HCFA would contract with them. It is

a contracting mechanism, much like we do with the private sector

in HMOs. So you would have HCFA being able to contract like it

does right now. They would become, or fall under some kind of a

TEFRA system. There is nothing different there.

I think we have to come to a point, with 5 million people in

HMOs and given the system and where it is going, there will be

a lot more, that we are going to have to deal with this thing

through effective contracting and oversight. You know, just as in

these demonstrations, we look at them, we evaluate them. By making a law, HCFA should not end doing oversight. Oversight should

go on continually, to look at all the programs.

So we need to view this as a continual change in HCFA rather

than a research project, which you hire academics like myself that

can rip them all apart. This is the way we have to start things in

motion and we have to have an ongoing process of evaluating what

works and what does not work and make the necessary changes.

Mr. MCCRERY. Would it be a capitated payment to these——

36

Mr. WALLACK. We could get into a long discussion about capitation. I do not know if you want to do that.

Mr. MCCRERY. I do.

Mr. WALLACK. You do? What would you like to know, then?

Mr. MCCRERY. I only have 5 minutes, but I am just curious. Do

you envision these other types of organizations being paid on a

capitated basis?

Mr. WALLACK. Absolutely. I mean, absolutely. If the Congress decides that the option to fee-for-service is full capitation, absolutely,

they should get paid full capitation, and, clearly, like the PACE

model, they can deal with that. You can deal with it just from

Medicare capitation, which I think is possible. I think you could

take care of people in assisted living or in nursing homes or other

places just with a Medicare capitation because you can avoid expensive hospitalizations.

I think the way you sort of pay people, the AAPCC now needs

to be rethought so that people of certain health status or disability

status, whether they are in an institution or not in an institution,

need to be reimbursed at a higher level. I think we should change

some of the rate cells. But I absolutely think, yes, the answer could

be capitation.

Mr. MCCRERY. Dr. Meiners, do you have any comments on that

subject of capitation and how we would pay for these types of organizations that are kind of providing an array of services, from acute

care to subacute care to——

Mr. MEINERS. Well, I think that capitation probably is the way

to jar loose the kind of system changes that we want to see. You

talk about expanding the continuum of care. I think that is going

to happen when you are better able to meld the dollars from Medicare and Medicaid both under capitation. You can certainly do

subcapitationss on a lot of populations, which basically is what

PACE and SHMO are. EverCare is a subcapitation. There is really

nothing wrong with those, but they are pieces of the bigger puzzle.

I think whenever you have subcapitations and then some component, reimbursed on a fee-for-service basis, then there are costshifting incentives. More problematic is that if you have pieces of

the care system under managed care, they had better be under the

same managed care system or you may have two case managers

doing different things and working against each other.

So that is one of the things that I think the innovations of the

Minnesota Senior Health Options Program has really learned from

SHMO and PACE and developed a capitation arrangement that includes Medicare and Medicaid dollars for all elderly and disabled

populations, not just those in nursing homes, not just those at risk

in the community, but healthy as well as at-risk and nursing home

populations, and that reduces some of that cost shifting that can

occur.

Mr. WALLACK. I would like to add one comment that as Mark

was talking I thought about. Really, I think it is unfortunate that

we have now made synonymous capitation and managed care. That

is not what a lot of us—I was involved going way back in the HMO

Act when I was here in Washington. We really meant care management. That is what we were really talking about. All of a sudden,

it just becomes this fixed payment, and I really believe you can get

37

managed care, or what I believe is managed care, without going to

full capitation, but still creating the proper incentives for the providers to be efficient.

I think it is an impossibility for government to set by regulation

the right price. Either we have to get off that system, or we have

to go to something other than capitation, but please do not link

managed care with capitation. They are different things.

Mr. MCCRERY. So we could have capitation for seniors for either

managed care or fee-for-service.

Mr. WALLACK. I think so. Well, I do, but I will take this opportunity——

Mr. MCCRERY. I do, too. I am surprised to hear somebody agree

with me.

Mr. WALLACK. Brandeis is trying to start a HCFA demonstration

right now. It is, I think, a very exciting demonstration with regards

to fee-for-service payment. It is called the group volume performance standard demonstration, where we deal with large medical

groups in this country that are very interested in doing this. They

are incented using the current total payments per unique beneficiary they are now seeing. The groups are paid on a fee-for-service

basis and we give them an overall target per person and we increase that by the rate of increase in the AAPCC. If the cost stays

below the target, HCFA shares in the gains, the savings, with that

site.

So it is a fee-for-service system. But the basic elements of managed care, which are very important, are there as well. You have

to have care management of the person, utilization management,

appropriate protocols. Second, you have to select preferred providers who you really think are good providers. And finally you have

to provide incentives. The incentive does not have to be full capitation, but there does have to be some incentive on a population basis

to, in fact, manage the people you care for in a better way.

Mr. MEINERS. I think you are absolutely right. I mean, at some

level, once you have a new paradigm of care, you could buy it on

a fee-for-service basis and have a case manager coordinate it.

I think one of the concerns I have, though, is that is like leaping

ahead of where we are in terms of understanding how to do that.

To some extent, we need, I think I would argue, we need some of

these incentives that came with capitation to force the integrated

care systems to come together. That is not to say they cannot happen through a negotiated, coordinated fashion. I think they can.

But I also do not think it is one approach or the other. I think we

still need to find those better systems of care.

Some of this discussion of home care and what we do about that

and how much to provide really comes from, rather than thinking

that we can define that up front, we need to provide an opportunity

for the care givers to really define a level of care and hold them

responsibly in sort of a satisfaction and quality approach.

I think that is why HCFA is emphasizing quality assurance.

That is why the States are emphasizing a quality approach. It is

the outcomes that are important. But you need to have the resources pulled together at this point, it seems to me, and right

now, they are not. Medicare and Medicaid are huge disconnects in

so many different ways that I think the capitation mindset is alVerDate 11-SEP-98 16:36 Sep 08, 1999 Jkt 058338 PO 00000 Frm 00040 Fmt 6633 Sfmt 6602 F:58338 W&M3 PsN: W&M3
38

most necessary because it brings those two pools of dollars together, at least for the dual eligibles.

Mr. MCCRERY. Thank you.

Mrs. JOHNSON. Thank you.

Actually, this has been a very interesting discussion, I think

right on point. I think capitation in its most simplistic form has a

lot of problems. We are not very good at solving the outlier problem

under the DRG system and with smaller hospitals out there and

shorter lengths of stay, we are seeing now a folly of DRGs with no

accommodation for severity. So I am reluctant to, myself, see us

move entirely in the direction of capitation.

Yet, I do hear what you are saying about you will not get the

level of integration if you do not put it out there hard. We certainly

are seeing that in social services as a result of welfare reform. For

the first time, I see the social services in my town sitting down at

the same table. I chaired the Child Guidance Clinic for 12 years.

We could not get the three family service agencies in town to think

seriously about cutting overhead.

So you do have to force the level of integration of services that

we need, but ultimately, you have to do better than a flat capitation plan and I am not sure—this is a longer discussion, but I

think we do need to have it. This is a big problem in the home

health care area, and certainly if we do not come to some kind of

rational decision about it this year, we will not generate the savings in that sector we need to.

The President just shifts payment into the general fund. Well,

that is just more competition for education and environmental protection. All discretionary spending is a sixth of the budget, so it is

sort of dumb to put $40 billion more in to compete with everything

else that we are having trouble funding.

You each, though, did go through a useful list of legislative barriers to the integration of acute and long-term care services for

dual eligibles. Would you lay out some of the solutions? What of

the most important things to solve, and what is the way we could

solve them?

Again, having been very much involved in the VNA system, this

dual eligible stuff has been extraordinarily costly to the system and

the number of administrative dollars we are wasting and the chaos

we periodically create in that area is really appalling. So would you

like to point out the primary legislative barriers that you think we

need to address and how we might address them this year?

Mr. WALLACK. You can go first on that one.

Mr. MEINERS. I think Stan did hit on some. That is why I was

yielding to him, the 50–50 rule and the several others you mentioned.

I think what comes to mind most readily for me is this issue with

HCFA about choice under Medicare. I know that the States are

very concerned about their ability to link onto the Medicare system

because HCFA has been so adamant about the requirement of

choice. Now, I will add that, chatting with my mother this weekend, she agrees with HCFA, so it is not an insignificant issue for

seniors—she is 83 and lives in Wisconsin, by the way.

But I do think that there are arguments that can be made and

mechanisms that can be used to assure that people get good care,

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but how choice is viewed is a real stumbling block, as to whether

the systems of care can be constructed through the gerry-rigged

processes that the States are having to go through. That has been

part and parcel to some of the difficulties of getting movement toward integration between acute and long term care systems. I

think we need to work on a clear understanding of what choice

means and how to really capture what is good about the elements

of choice.

I think Minnesota would argue that, to a great extent, the way

they have done it that apparently is not going to be allowed in

other States is not unlike a point-of-service situation, where if

somebody goes out of network, they are responsible for paying some

of the costs. Now, admittedly, for vulnerable populations who do

not have a lot of resources, that is maybe not a very good answer.

So that is one area we need to resolve. Whether that is a legislative fix or whether that is one that we continue to work on with

HCFA, I am not sure. But my impression from discussions with

States and what they have gone through in their waiver approval

process is that it may well have to be a legislative fix. We always

come back to this incredible learning process we are going through,

making sure that the demonstrations that we are working on are

able to go forward in a somewhat more sympathetic fashion so that

we can learn what we can recommend to you with regard to that

and not violate the important principles of choice for vulnerable

populations in particular.

Mrs. JOHNSON. On this particular issue, we did bring this up in

our hearing last week at some length, and it is discouraging that

the administration felt that allowing a point-of-service option, I

think Ms. Buddo’s comment was, it makes it too much like an insurance product. Well, if the government guarantees that the HMO

delivers all Medicare services and oversees quality in that system

if someone wants to buy a point-of-service option, they should be

allowed to do so. They can now under Medigap, it just costs more.

So it is a very constraining view that does not allow choice to develop within the system, although choice is there at a higher cost

through Medigap alternatives. Would you say that was accurate?

Mr. MEINERS. Yes, I would. Minnesota is not the only place. We

have had both Colorado and Florida are two other States that we

are working with under the Medicare-Medicaid Integration Program that we have got going with the Robert Wood Johnson Foundation and they are doing things a little bit differently. They are

both working with TEFRA HMOs, but both also are faced with special requirements regarding this choice issue.

In the case of Florida, as we sort through a very difficult discussion, it almost seems like they are online to create what is almost

like a shadow option out there so that choice exists, and it has gotten so confusing that it really gets in the way of implementing the

programs. The waiver process can oftentimes take as much as 2

years, and when you think about these programs, it just eats up

a lot of resources and energy before you ever get to implement.

I think that is one of the reasons. There are two reasons why I

think a lot of these social experiment programs that we have, like

SHMOs, PACE, the Partnership Program, do not get as big as we

would like them to. First, time, energy, and resources are eaten up

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so much in getting the programs off the ground, and second

through that process, there is sort of an aura that it does not work

or that there are problems with the programs. Finally when we

give consumers the choice to opt in, they are at best confused, if

not thinking that it is a bad thing. I think we need to turn that

around because these programs really are useful and worthwhile

for people to seriously consider but that message does not get to

them.

Mr. WALLACK. I would add that one of the things I try to say in

my testimony, which is somewhere in there, is that if we want to

develop programs around the elderly, around the frail elderly,

around the disabled, what we need are organizations that really

have that as their service mission, to be involved.

One of the problems we have is we are looking at HMOs, which

are pediatric models of care and primary care models that are designed to take care of an elderly population and a disabled population. By dropping this 50–50 rule, by not loosening but by having

more reasonable standards by which we can contract and some of

these other service restrictions, so we can have flexibility in services, which HMOs do, by the way, under TEFRA. They can offer

different kinds of services.

What we will be able to do, though, is bring in the personal care

systems, the VNAs. We will be able to bring in the long-term care

providers. We will bring in people who are dedicated to serving

older people and disabled people, and by doing that, we will open

up the options, it seems to me, through the States who deal with

those people and also through those providers that serve the Medicare/Medicaid population. We are missing those organizations that

are focused and dedicated, and I think if we bring them in, we have

a chance to make some real progress.

Mrs. JOHNSON. I understand. Thank you.

Thank you, Mr. Chairman.

Chairman THOMAS [presiding]. Let me ask you just one question

about the financing, because, obviously, the administration has proposed over a 5-year period a gradual reduction on the TEFRA risk

from 95 percent to 90. Given your payment structure at 100 percent of the AAPCC, does it seem possible that you could follow a

reduction pattern, albeit at the appropriate distance, as we reduce

regular HMOs, or not?

Mr. WALLACK. Do I think we could follow it? Yes, I think we

could follow it. Again, it follows from my argument, what I told you

before, why the AAPCC has gotten so high and such an easy target

for HMOs is on this postacute side.

Chairman THOMAS. Is it also an easy target toward ratcheting

down the HMOs?

Mr. WALLACK. Yes, it could be, sure. But I do not think it is the

appropriate—I mean, ratcheting down the AAPCC does not seem

to me the appropriate way to deal with this problem because it is

the whole Medicare Program that is the issue here.

Chairman THOMAS. I understand that. But absent addressing the

entire Medicare problem——

Mr. WALLACK. I would think you would have to keep the equity,

yes.

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Chairman THOMAS. If we get some commitment on equity, that,

to me, argues for a desire to continue. You started your testimony

off by saying that, so far, only PACE has a life and that you are

interested in the others having a life and I am trying to build a

case for the reasonableness of continuing these models and expanding them, so your testimony helps.

Dr. Meiners, I assume you would agree that given the way in

which we pay, that we could probably find some savings without

destroying the program?

Mr. MEINERS. Yes. I definitely think that. I think these programs

are really examples, sort of incremental steps that we need to take.

They are not parts of the big fix, but, frankly, long-term care is a

very local community type of issue. So I think programs like Social

HMOs and PACE are good steps in the direction. I think the Minnesota Senior Health Options is another example.

I think the point is that we are on the right track if we can get

behind looking to these programs for what they can teach us, as

Stan has suggested, working with the right players and helping

them happen rather than standing in the way. This hearing, can

contribute to that.

Chairman THOMAS. I appreciate your testimony. Are there any

additional comments by any members? Thank you very much.

The next panel, we will ask to come forward. It consists of Judith

Baskins, president, National PACE Association and also director of

Geriatric Services of the Richland Memorial Hospital in Columbia,

South Carolina; Eli Feldman, executive vice president and chief executive officer, Metropolitan Jewish Health System and Elderplan,

Brooklyn, New York; Richard J. Bringewatt, president and chief executive officer, National Chronic Care Consortium, Bloomington,

Minnesota; and Dr. Malcolm Adcock, Commissioner of Health, Cincinnati Health Department, Cincinnati, Ohio, on behalf of the Municipal Health Services Program, including San Jose, California.

I thank you all. Any written testimony that you have will be

made a part of the record, and in the time that you have, you can

address us in the way in which you see fit, starting with Ms.

Baskins and we will work across the panel.

STATEMENT OF JUDITH PINNER BASKINS, PRESIDENT,

NATIONAL PACE ASSOCIATION, AND DIRECTOR, GERIATRIC

SERVICES, AND PALMETTO SENIOR CARE PROGRAM, RICHLAND MEMORIAL HOSPITAL, COLUMBIA, SOUTH CAROLINA

Ms. BASKINS. Good morning, Mr. Chairman and Members of the

Subcommittee. My name is Judy Baskins and I am the director of

the Palmetto Senior Care Program, which is a PACE Program operating in Columbia, South Carolina, since 1990, under the auspices of Richland Memorial Hospital, which is a 649-bed regional

community teaching hospital.

PACE, as you know, is the acronym for Program of All-Inclusive

Care for the Elderly. I am also president for the National PACE

Association and am pleased to testify today on behalf of its members, the community, and the public organizations that have been

committed to meeting the unique medical and social services needs

of the frail elderly.

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I also would like to introduce Ms. Jennie Chin Hansen, who is

the executive director of On Lok Senior Health Services on which

the PACE Program is based, and Ms. Chris Van Reenen, who is the

executive director of the National PACE Association.

On Lok originated the essential components of the program in

1972, and today, 11 of the 12 PACE Programs across the country

oversee and essentially provide the entire spectrum of health and

long-term care services to enrollees without limits as to duration or

dollars. Since 1983, PACE Programs have served a total of approximately 6,000 frail older people.

Before I explain a little bit more about PACE, I would like to express our appreciation for the strong bipartisan support of Congress for PACE over the last 15 years, including concerned support

from many of the Members of this Subcommittee, especially Congressman Thomas. I would like to thank you, Congressmen Stark,

Cardin, and Bilirakis for the introduction of H.R. 1464. We greatly

appreciate your efforts in moving this forward.

PACE Programs differ from other managed care entities and

long-term care providers in the following way. PACE enrolls only

individuals who meet their State’s eligibility criteria for nursing

home level of care, thereby totally focusing on serving a very frail

high-cost subset of the elderly population. PACE provides a comprehensive range of primary, acute, and long-term care services,

and our ability to weave the medical and social services into a comprehensive health care delivery system allows individuals to remain within the PACE Program regardless of their changing needs

and to continue to receive much of their care from providers with

whom they have developed a longstanding, trusting relationship.

Interdisciplinary teams consisting of physicians, nurses, social

workers, physical, occupational and recreational therapists; dieticians; and home care workers integrate the delivery of acute and

long-term care. Within PACE, integration of services is achieved

through the daily face-to-face interaction between program enrollees and the professionals and para-professionals who provide their

care. The PACE approach allows for health professionals to respond immediately to the changes in enrollees’ conditions, which

are frequent, sudden, and often serious in the case of frail elderly.

PACE Programs receive capitated payments from Medicare and

Medicaid and private pay sources. These payments are pooled at

the program level, allowing health care providers enormous flexibility in developing treatment plans that respond to the enrollees’

needs rather than the reimbursement regulations.

PACE Programs assume total financial risk and responsibility for

all medical and long-term care without limitations and without copayments and deductibles.

Often in large health care systems, the individual patient is lost

within that system. In contrast, in PACE, the intimate relationship

between the health care providers, the participant, and their families allows for autonomy and decisionmaking about health care

issues, ranging from polypharmacy to end-of-life decisions.

PACE can legitimately be called a creature of Congress. In 1986,

Congress initiated an authorization of waivers for up to ten nonprofit community-based demonstration sites with the objective of

determining whether On Lok’s experience in San Francisco could

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be replicated nationally. The number of authorized demonstration

sites was increased to 15 in 1990. Together, the 11 programs now

under Medicare and Medicaid waivers have accumulated more than

60 years of operating experience. Here is some of what the experience has been and what it has taught us.

In short, the demonstration has proved that the successful replication of the On Lok Program based in San Francisco is, indeed,

possible. Among more specific findings, PACE participants experienced lower rates of hospitalization admissions and overall utilization of nursing home and hospital care than they do for comparatively frail individuals outside of PACE.

A dramatic example of PACE’s efficiency is hospital utilization

among PACE participants as measured by hospital days per 1,000

per annum in PACE, which is quite comparable to that of the general Medicare population, at approximately 2,400 days per 1,000

per annum. This is astonishing, considering the level of frailty and

medical complexity of the PACE population in relation to the general Medicare population.

In South Carolina, with one of the frailest PACE populations currently enrolled, we have reduced hospitalization rates among our

enrollees to less than 1,000 days per 1,000 per annum and we have

done this by substituting community-based services for traditional

care that is usually provided in hospitals. This has substantially

improved the quality of care and the quality of life while maintaining clinical and functional outcomes comparable to, if not better

than, the traditional institutional management.

The quality of care provided by PACE enrollees to date has been

high. It is never sacrificed in pursuit of lower cost. In South Carolina, a recent survey was conducted by the South Carolina Department of Health and Human Services that revealed that 83 percent

of the respondents found their health care provided by Palmetto

Senior Care to be very good or excellent. But more importantly,

they found that 87 percent of the participants believe that their

quality of life has improved as the result of enrollment in the

PACE Program.

To assume that PACE Programs maintain quality of care and

quality of life experienced by participants and their care givers at

its current level, the National PACE Association is developing

standards of care for the PACE Program.

In terms of cost effective of PACE relative to Medicare and Medicaid, a recent study commissioned by the National PACE Association concluded that PACE generates approximately 12 percent savings to Medicare relative to Medicare’s expenditures for a comparable population for the fee-for-service system. States estimate

savings of 5 to 15 percent relative to current per capita long-term

care expenditures. None of the dollar savings measure the enhanced quality of life in terms of improved function and the ability

to remain in the community.

Building upon the years of experience and findings of the demonstration, it is time to expand the availability of PACE services

to many more qualified frail elderly individuals throughout the

United States. We request your support of H.R. 1464 that would

make PACE available to those Medicare and Medicaid beneficiaries

who could benefit from these services. H.R. 1464 proposes a

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thoughtful, deliberate approach toward expanding PACE, one

which builds upon the lessons learned over the course of the 11-

year history of the demonstration.

Although we clearly realize that PACE is not the only answer to

meeting the needs of frail elderly beneficiaries, it is one of just a

handful of operational programs which integrate the entire spectrum of acute and long-term care services and it has withstood the

scrutiny that comes with a high degree of visibility. We strongly believe that the efforts to expand PACE should be built directly upon

the demonstration experience.

We must retain the distinguished characteristics of the PACE

model that have been successfully addressed. They include a staff

model in which PACE staff deliver the majority of the services provided to the enrollees.

A community-based orientation for programs, not only with respect to the location in which services are delivered, but equally

important, the active participation of community representatives

from governing bodies in key committees of PACE Programs, such

as ethics committees. PACE Programs serve frail elderly individuals who are expected to die within three to 4 years of enrollment.

It is essential that program operations be visible and accountable

to members of the local community and subject to public scrutiny.

The absolute distinction between service allocation decisions and

financial considerations at the individual care planning level

should be a strong part of this. Care planning decisions must be

made focusing on patient needs and not financial considerations.

Capitated financing, which places the provider at risk for all

services. Unless the provider is required to assume risk for all services, the incentive always exists to utilize services for which one is

not financially responsible, thereby shifting cost.

We appreciate the interest that the Subcommittee has expressed

in PACE over a period of years. We also appreciate the commitment to PACE by the administration and HCFA. That commitment

was evidenced most recently by the inclusion of language to expand

PACE in the administration’s current budget.

PACE, we hope, creates an opportunity to work together to improve the delivery of services to a subset of the most needy Medicare and Medicaid beneficiaries.

Thank you.

[The prepared statement and attachment follow:]

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Chairman THOMAS. Thank you, Ms. Baskins.

Mr. Feldman.

STATEMENT OF ELI FELDMAN, EXECUTIVE VICE PRESIDENT

AND CHIEF EXECUTIVE OFFICER, METROPOLITAN JEWISH

HEALTH SYSTEM, AND ELDERPLAN, BROOKLYN, NEW YORK

Mr. FELDMAN. Thank you, Mr. Chairman.

Mr. Chairman, I appreciate the opportunity to testify for all Social HMO sites on an innovative model of care. In addition to

Elderplan, there are two other first generation sites, including

Medicare Plus Two, sponsored by Kaiser Permanente, which serves

residents in Oregon and Washington States, and Scan Health Plan

of Long Beach, California.

The SHMO model should be of great interest to the Committee

for several reasons. First, it provides a cost-effective alternative for

serving high-cost populations, such as the aged, the disabled, and

dually eligible.

Second, it represents a more rational approach to cost containment than across-the-board rate reductions. SHMOs restructure

benefits and service delivery design and realign provider and payor

financial incentives. Further, SHMOs use health risks adjustors in

structuring payment levels.

Third, it offers the States a model for developing a Medicaid

managed care program for seniors and reducing spending on the

dually eligible population.

Social HMOs integrate the full spectrum of primary, acute, and

long-term care services for seniors. Beyond traditional part A and

B benefits, SHMOs cover, for example, eyeglasses, hearing aids,

prescription drugs, and up to $1,000 per month in home and community-based services.

The SHMO programs have achieved several important goals

since their inception. They have produced a model for integrating

the full range of primary, acute, and community-based long-term

care services to more closely parallel the needs of our aging population. They have enhanced coordination of seniors’ health services

through uniform care management policies and geriatric care protocols, simplifying seniors’ access to a broader range of more appropriate services.

And, they have produced Medicare and Medicaid cost savings in

several ways, by eliminating duplication of function across multiple

provider settings, through better coordination of care, by improving

health outcomes through high-risk screening and appropriate followup interventions, and through a flexible benefit design which allows SHMOs to substitute lower cost services.

For example, Kaiser research shows that a home and community

care benefit produces savings by delaying or preventing long-term

nursing home admissions and reducing nursing home lengths of

stay. For every month we delay nursing home entry in New York

City for a dually eligible person, Elderplan saves the government

about $5,700. Instead, we spend about one-tenth that amount in

home and continuing care benefit services under Elderplan’s chronVerDate 11-SEP-98 16:36 Sep 08, 1999 Jkt 058338 PO 00000 Frm 00056 Fmt 6633 Sfmt 6602 F:58338 W&M3 PsN: W&M3
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ic care benefit. If we delay admission for 1 full year, the public sector achieves net savings of about $68,000 annually.

Additional savings could be produced by more effectively integrating Medicaid long-term care services under managed care financing arrangements. The SHMOs collectively have encountered

regulatory barriers in this area.

For example, since New York State’s managed care waiver currently is limited to the Aid for Dependent Children population,

there is no mechanism for Elderplan to receive Medicaid capitation

for long-term care benefits. Accordingly, we must continue to provide Medicaid long-term care services under a separate fee-forservice structure.

SHMOs can serve as the bridge to link acute and long-term care

benefits for dually eligible persons under managed care arrangements. The Federal Government already has made a substantial

investment in developing Medicare managed care options under the

TEFRA Program and has produced an effective infrastructure for

integrating acute care services and financing.

To achieve systemwide savings, however, Medicaid long-term

care benefits need to be integrated fully into the structure, as well.

SHMOs provide the model for bridging the Medicare, Medicaid, and

acute care long-term care gaps in the current system.

Waiver authority for the SHMO demonstration will expire at the

end of this year if no further action is taken by Congress or the

administration. We are currently awaiting a 1-year administrative

extension from HCFA. In addition, the President included a 3-year

legislative extension in his fiscal year 1998 budget proposal. While

we remain hopeful that the administrative extension will be enacted by the end of the year, this is obviously only a stopgap measure.

Mr. Chairman, as you develop your Medicare budget proposals,

we request that you give serious consideration to the following recommendations. First, at a minimum, extend SHMO waiver authority for 3 years, to December 31, 2000. Second, as part of a larger

Medicare restructuring initiative, grant SHMOs permanent provider status and extend this option to other Medicare beneficiaries

nationwide. And third, identify incentives encouraging States to

fully integrate Medicaid long-term care benefits with Medicare

HMO acute care benefits for the dually eligible population to maximize integration efforts and cost savings potential.

Thank you, Mr. Chairman.

[The prepared statement follows:]

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Mr. Bringewatt.

Chairman THOMAS. Thank you, Mr. Feldman.

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STATEMENT OF RICHARD BRINGEWATT, PRESIDENT AND

CHIEF EXECUTIVE OFFICER, NATIONAL CHRONIC CARE

CONSORTIUM, BLOOMINGTON, MINNESOTA

Mr. BRINGEWATT. Mr. Chairman and Members of the Subcommittee on Health, I appreciate the opportunity to testify at today’s

hearing regarding the need for greater coordination of health care

and related services for seniors.

Nowhere is the need for coordination more evident than for persons with chronic diseases and disabilities. People with chronic conditions, such as Alzheimer’s disease, heart disease, strokes, and hip

fractures, represent health care’s highest cost and fastest growing

service group.

In 1995, nearly 70 percent of the nation’s personal health care

expenditures were for direct medical costs of persons with chronic

conditions. Chronic illness cost our country about $660 billion in

1995 [sic], $425 billion in direct medical expense and the remainder

in lost productivity. The dually eligible which account for about 6

million people, represent an expensive subgroup of this population.

Their health care costs represent about 30 percent of Medicare and

35 percent of Medicaid expenditures.

These high costs can be attributed in large part to four factors.

First, we develop policies in managed care as if the problems of

Medicare and Medicaid beneficiaries are acute rather than chronic.

We focus on issues of cure more than care, on issues of disease

more than disability, and with a significant focus on institutional

services and a successive use of high-cost technology.

Second, we develop policies in managed care around settings,

such as hospitals, physicians, nursing homes, and care providers

instead of around the ongoing problems of people whose problems

require care that crosses time, place, and profession. We look at

cost and quality one piece at a time without a sense of their cumulative cost or care effects. We fail to recognize that care for people

with chronic conditions requires the involvement of multiple care

providers working together to achieve common quality and cost objectives over an extended period of time.

Third, we finance care only after a problem has reached a crisis

proportion with few incentives for preventing, delaying, or minimizing the progression of disease or disability over time.

Fourth, we develop policies in managed care as if there were little or no relationship between Medicare and Medicaid and a host

of other public and private programs. We establish rules and regulations under each payment source one program at a time without

regard to issues of cost shifting or the cost of duplicative and conflicting requirements.

As a foundation for addressing the problems in Medicare and

Medicaid over the long term, we recommend that Congress consider

legislation which would lay a foundation for containing the accumulation of Medicare and Medicaid costs while maintaining America’s commitment to quality. NCCC’s model legislation would establish a national policy agenda for chronic care that would recognize

the relationship among programs and payors serving the chronically ill and the importance of controlling chronic disease cost to

preserving the Medicare Trust Fund.

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The Chronic Care Act also would streamline oversight for Medicare and Medicaid by establishing a simplified and uniform set of

rules and regulations for governing administration, data collection,

care management and planning functions, reporting, quality assurance, and so forth.

Third, it would enable payors and providers to move beyond demonstrations and establish new methods of operations in the marketplace with incentives for functioning as part of an integrated network of care with special capabilities for serving people with chronic disease and disabilities.

During a 3-year period, PSOs and dedicated providers of chronic

care services would be subject to specific capacity criteria and

would be evaluated on their ability to meet cost and quality objectives. Those who do would be designated as qualified chronic care

networks, operating under a uniform set of oversight rules and

paid under shared risk financing arrangements involving health

status adjustments representative of the high-risk population being

served.

Fourth, the Chronic Care Act would enable the public and private sectors to redirect existing research and technical assistance

resources to help transform existing structures to better serve people with chronic disease and disability. Examples would include developing capabilities to better track and analyze financial and clinical data for chronic disease and the management of care; assisting

in restructuring financing approaches, using risk-based adjustment

payment that recognized the high cost of chronic care; and identifying and disseminating best practice tools that can help expedite the

use of more cost-effective care technologies.

If America is going to preserve the Medicare trust over the long

term, it is critical that we establish a foundation for national

health policy built upon the problems of the future rather than

problems of the past and problems of people rather than problems

of providers. It is critical that we move beyond demonstrations to

creating real incentives for a fundamental transformation under

marketplace conditions with cost containment and quality treated

as interdependent objectives.

Thank you.

[The prepared statement follows:]

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Dr. Adcock.

Chairman THOMAS. Thank you very much.

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STATEMENT OF MALCOLM ADCOCK, PH.D., COMMISSIONER OF

HEALTH, CINCINNATI HEALTH DEPARTMENT, CINCINNATI,

OHIO; ON BEHALF OF MUNICIPAL HEALTH SERVICES PROGRAM

Mr. ADCOCK. Thank you, Mr. Chairman and members of the

Health Subcommittee. I am Malcolm Adcock. I am the Health Commissioner for the City of Cincinnati. I appreciate this opportunity

to present this testimony on behalf of the City of Cincinnati as well

as the three other cities that participate in the Municipal Health

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Services Program, those being Baltimore, Maryland; Milwaukee,

Wisconsin; and San Jose, California.

My colleagues are with me today from Baltimore and San Jose.

Also, Dr. Graham Atkinson, who performed the cost study on our

programs, is here. They can certainly answer questions at your request.

The MHSP, or Municipal Health Services Program, is a forerunner of managed care programs which increases access to preventive

care and ancillary services in a coordinated and cost-effective manner. We believe the Municipal Health Services Program is a common sense approach to health care which has demonstrated cost

savings and a better level of care for the inner-city poor, underserved individuals that are eligible for our program. Therefore, we

are requesting that the Subcommittee authorize an extension of the

Municipal Health Services Program rather than allow this program

to expire in December, as it would without Congressional action.

By way of historical background, the MHSP was established in

1978 to address the unique health care needs of vulnerable populations, underserved, low-income, and urban communities. HCFA,

in fact, grants waivers of certain reimbursement limitations for

Medicare beneficiaries to encourage a managed care approach.

The Municipal Health Services Program delivers cost-effective,

coordinated managed care to individuals who otherwise would depend on emergency rooms and hospital outpatient care for basic

medical services. In fact, that was part of the original mandate

under an initiative through the Robert Wood Johnson Foundation.

Neither HCFA, in our opinion, nor the emerging managed care

market have responded to the primary care needs of this elderly

population which is served by our programs.

With regard to the overall control and management of the program, HCFA requires operational guidelines which are strictly adhered to through contractual arrangements. They require quarterly

reports detailing patient utilization, coordinated care activities,

quality assurance, and marketing activities. There are program

guidelines which include service definitions, reimbursement procedures, and claims processing, cost reporting, among other mandated operational requirements. Through these efforts, HCFA

maintains careful control over our programs.

There is an expanded set of benefits available to the beneficiaries

under this program, which include primary and preventive care,

prescription drugs, podiatry, comprehensive dental services, optometry, routine eye exams, laboratory, hypertension management, and

other services. The copayments, except for eyeglasses, and the

deductibles, are waived, encouraging use of the services. Transportation is provided, if needed.

Convenient access to routine health care services allow providers

to manage care at an affordable cost. We believe it allows us to better manage chronic disease and other illnesses through routine primary care which saves costs on the inpatient and long-term care

side of the equation.

The eligibility requirements are, again, strictly laid out by

HCFA. Participants must be residents of the city in which the program operates, and must be eligible for Medicare part B. The services are provided in the clinics in which we operate.

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The client profile certainly includes elderly, of course, and minorities, people who live alone, subsist on a fixed annual income,

and, in short, are at increased risk for chronic disease and other

illnesses and also likely to postpone care.

We believe that the justification for the extension of this program

is that the services are needed to manage chronic and other agespecific illnesses. We believe that termination of this program could

mean increased dependence on emergency room and other outpatient services, which would increase costs.

Which HCFA and Congress are potentially moving toward a

managed care environment for Medicare, but as we stand here

today, the HMOs in our localities do not target our urban low-income seniors and, in fact, we tend to think that they cherry pick

the healthiest individuals for inclusion in their networks. To date,

the HMOs that are operating in our locales have been unwilling to

contract for provider-based contracts for our facilities.

As indicated in Dr. Atkinson’s study, we believe the Municipal

Health Services Program ultimately saves money. We disagree

strongly with the cost estimates from HCFA that the program will

cost $79 million in fiscal year 1997. We, in fact, believe that Dr.

Atkinson’s study is correct that the Municipal Health Services Program will save Medicare $27.4 million in 1996, an additional

amount in 1998, and potentially $128 million over the course of a

4-year extension. On average, we believe the program saves Medicare almost $500 per user.

So, basically, what we are saying is that this program has a long

history and a lot to teach us about managed care for this underserved population, and, we believe, this information has not been

taken advantage of to this point. We also believe that these programs represent a critical provider network which will be required

in any event if managed care is to move into the inner cities. We

believe that a lot could be gained from looking closely at this program as we begin to look at how managed care could operate in

that environment.

I would be happy to answer any questions.

[The prepared statement follows:]

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[The report of Mr. Atkinson follows:]

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Chairman T

Ms. Baskins, one of the differences between H.R. 1464 as we

HOMAS. Thank you, Doctor. Yes, we will have some.

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have introduced it and the administration’s proposal is that the administration includes additional payments from the Federal Government for operational losses in the startup years. We do not include that in our legislation because I am trying to figure out how

that would work as an incentive, given the structure of the program, and if you do not have it coming to the program, how additional payments for losses would produce it in the startup years.

So, it just made no sense to me.

As someone who is involved in the program, do you have any

comment on whether or not it was appropriate that we left the

startup loss coverage out of the bill?

Ms. BASKINS. In the initial demonstration, the risk mechanisms

were important to us because we really were not sure what we

were doing. We had small numbers changing effectively how a provider provides care under this system. It was a learning curve for

us, and that risk reserve did give us some protection from that.

Now that sites have started up PACE Programs in a different

way, they begin now as capitated for the Medicaid component only

and then move into bringing the Medicare dollars down, those sites

have been much stronger. Their learning curve has been on the

Medicaid side, preparing and building the infrastructure necessary

to manage the burden and responsibility for Medicare and I think

the need for risk reserve has been less under that developmental

phase.

But I am not sure how the provider legislation creates the opportunity to move immediately into dual waivers and the risk reserve

may be needed as sites begin in their infancy to put all these pieces

together.

Chairman THOMAS. It is hard for me to talk about the willingness to move toward a permanent program. If you still need all of

the nurturing startup protections, then you probably are not mature enough to move into an ongoing program. Obviously, we can

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what incongruous or inconsistent to do both of those. If it is a demonstration program and it is not ready for prime time, then I understand that.

I just have a difficult time, and I will just say this as an aside,

Dr. Adcock, and I will get to you with questions, that if you have

had a demonstration since 1979, at some point you have to say,

this thing either works or it does not. The longer you need a structure for a number of reasons, you begin to wonder whether you just

let them sink or swim. We had testimony earlier about the sink or

swim and that is going to be one of my broad questions to all of

you in a minute.

The other thing that I am trying to resist, given the differences

notwithstanding similar populations we are serving, but the differences between States, since you have to deal with match-ups,

willingness of States to go forward, how much sense does it make

if these folks are ready for prime time that we just let them go

through the State regulatory approval process rather than creating

a separate structure at the Federal level?

Ms. BASKINS. I think the ability to bring the Medicare dollars

down is critical and that is going to require Congressional legislation. Being able to merge those two funding sources in one that is

very flexible is key.

Chairman THOMAS. But if you create the structure that makes

it work in terms of the licensure aspect of a program, do we also

need to deal with that at the Federal level or can we deal with it

at the States?

Ms. BASKINS. I think licensure can be dealt with at the State

level, yes.

Chairman THOMAS. Mr. Feldman, I guess this is for everybody,

but you focused on it. First of all, the first panel indicated that perhaps for Social HMOs—they may have been more academic, you

have to deal with the bottom line maybe a little bit more—that instead of the 100 percent reimbursement, if we are moving TEFRA

risk down from the 95 to 90 or some similar reduction, how uncomfortable would you be for the Social HMOs to follow a similar parallel reduction pattern?

Mr. FELDMAN. In speaking for the Social HMOs, I think that the

issue of moving to 95 percent of the AAPCC is not as much an

issue as the significant variations that take place in the AAPCC at

the various locations.

Chairman THOMAS. Sure.

Mr. FELDMAN. But we have discussed it and we feel comfortable

that within a certain process, I think that the AAPCC could be reduced to 95 percent and the efficiencies that we have learned over

the years can be applied to produce what we need to do.

Chairman THOMAS. Yes. Obviously, the differential in the counties through the AAPCC does not make a lot of sense to us. We

have examined it. We have talked about ways in which we can

change it. Many of them simply make it worse. So, it is one of

those situations where it is a lousy structure but we do not have

a better one right now. Obviously, if we could get a risk assessment

model and begin plugging those kinds of components in, as was indicated in terms of a desire for a data based system, and Mr.

Bringewatt talked about that and I am very interested in computVerDate 11-SEP-98 16:36 Sep 08, 1999 Jkt 058338 PO 00000 Frm 00093 Fmt 6633 Sfmt 6602 F:58338 W&M3 PsN: W&M3
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erized patient profiles and others that can get us some good statistical data as we move forward, but that is for the future.

If you are willing to accept what is in essence now a TEFRA risk

payment, what else do you folks need other than for us to say, forget the demonstration category. If you have to put the package together and you do it differently than someone else, why should we

care?

Mr. FELDMAN. I think the issue is the nursing home certifiable

component of the population, which is the unique component. We

have 15 percent of our subscribers who are enrolled, nursing home

certifiable that would normally have qualified to be in the nursing

home and we care for them in the community.

We receive an additional adjustor for that population that is

unique and we think that a 95 percent TEFRA with an adjustor

for that particular group would probably work adequately at most

of the sites. But the 95 percent of the AAPCC will not cover the

service component for the long-term care and community-based

benefits that are currently being provided purely through the 95

percent of the AAPCC.

Chairman THOMAS. Even with the obvious individual adjustor——

Mr. FELDMAN. With the current adjustors but without the nursing home certifiable.

Chairman THOMAS. Is this more New York specific as a problem

or is it pretty general?

Mr. FELDMAN. I think it is general as a problem and I think that

most projects, including the PACE projects, they have adjustors

that are specific to certain types of populations that would not normally be included under a general capitation arrangement.

Chairman THOMAS. My concern is that I think we need fewer

demonstrations that stretch out over decades and more fish or cut

bait in terms of programs so that we can simply go out and see

what happens.

Mr. Bringewatt, would you agree basically with that in terms of

the 95 percent, coming down from 100? I know your testimony focused on that——

Mr. BRINGEWATT. Yes.

Chairman THOMAS [continuing]. And I know you want a complete

legislative package which covers everything. It is an interesting experiment, but given the realities, if we reduce the money and structure it in a way that provided for that mix, I assume everybody

here would love to move out of the demonstration category and into

the sink or swim.

Dr. Adcock, I do not understand why since 1979 we do not know

how many users there are in Milwaukee. There may be a very good

reason for why they could not determine it, but it kind of amazes

me.

Mr. ADCOCK. I am not sure of the answer to that and I do not

believe anyone is here from Milwaukee today that can speak to

that.

Chairman THOMAS. Well, they may be, based upon the way they

count.

Mr. ADCOCK. But I do not have the answer to that question.

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Chairman THOMAS. OK. Why does the only minimally successful

area, again, since 1979, appear to be Baltimore? They have 26,000

folk, Cincinnati 1,800, Milwaukee 4,000 to 6,000, San Jose 6,000,

according to the structure in your testimony.

Mr. ADCOCK. The sizes of the program were really dictated at the

outset by virtue of how we started. The growth was really constrained by HCFA’s requirements that we not expand beyond the

fixed sites involved. We had strict constraints on advertising and

so on. So it was a fairly controlled program at sites involved with

the program.

Chairman THOMAS. If HMOs had a cost-based reimbursement for

non-Medicare-covered health care services, do you think they would

move into the area and serve the population?

Mr. ADCOCK. I think that is a possibility, although, a risk-based

adjustment and capitation could also provide incentive. It is ironic.

We feel that we have one of the longest cost histories going for

doing just that in our sites, and so we would certainly invite HCFA

to use our cost-based information to do that. We have successful

programs. We feel that that information could be used to provide

incentives.

Chairman THOMAS. Notwithstanding that, we have some studies

that say it saves money and then we have a study that says it costs

money. That concerns me in terms of reconciling methodology, because when you have that big of swing, something is going on that

does not give us an immediate ability to understand the dynamics

of this demonstration program.

Mr. ADCOCK. I understand, but the study that was done for

HCFA essentially concluded that our programs were actually saving money and keeping people out of the hospital. They then did

an adjustment on the study outcome assuming sicker populations,

thereby causing it to appear that our cost was increasing. We never

did agree with that and we never understood it.

Chairman THOMAS. The gentlewoman from Connecticut?

Mrs. JOHNSON. Thanks. I would like to pursue this point a little

further. Why do you think HCFA would study your program and

say it cuts costs and then what did they do to the study to change

the outcome?

Mr. ADCOCK. They did a study in 1993, at least that is when it

was released, to look at the overall cost of the program. Basically,

what they found was that through our program, there was less

hospital-based care and less specialty-based care. Therefore, the

patients under our program were effectively costing less than

nonusers of a comparable control group.

They then also concluded that the patients in our program were

less sick than nonusers, and, in fact, they even made a statement

that that might have been attributable to the managed care approach that we took. But the bottom line was they adjusted the illness severity for our group with another group and then concluded

that, presumably, if our group was as sick as the other group, it

might cost more. In fact, the group that we had under our care was

not as ill and we believe it was because of the managed care approach.

After all, if we do not believe that managed care saves money,

I think we are all going in the wrong direction here.

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Mrs. JOHNSON. That really is quite interesting. Is there any more

objective way of looking at the base population, a sense, before

care?

Mr. ADCOCK. You could certainly probably do it on a prospective

basis, and, in fact, I guess that to a certain extent, the first study

that was done on the program attempted to do some of that and

also concluded that the program saved dollars. So we believe that

there is a fairly sound basis in making that statement.

Clearly, I think it will depend on the risk of the population that

you are dealing with to begin with.

Mrs. JOHNSON. Dr. Adcock, why will not plans contract with you?

How many managed care plans do you have competing in Cincinnati, because it seems to me that if you save money, managed

care plans are going to want to contract with you because they

need to have a certain volume of patients to be successful.

Mr. ADCOCK. That is one of the things that we are trying to get

through to them now. In fact, we are discussing with them and attempting to contract with them for service to transition this program. The minute a person joins an HMO, they are no longer eligible for this program.

We believe that the HMOs that operate in Cincinnati, and I believe there are two at this point, do not understand. They believe

that the inner-city poor represent a higher risk population and they

do not understand what we have done to control that risk. They

simply do not understand that.

I guess there is no reason for them to understand it, given the

fact that inner-city poor do have a higher incidence of chronic disease and other illnesses.

Mrs. JOHNSON. These are HMO risk contractors?

Mr. ADCOCK. Yes.

Mrs. JOHNSON. If you have any suggestions as to how we can assure that HMO contractors under Medicare do not cherry pick, we

would certainly be interested in that, because, frankly, if they are

serving that region and they are not contracting with you, then

they are not covering many people in that part of town.

Mr. ADCOCK. Right.

Mrs. JOHNSON. Maybe we want to look at HMO risk contractors

to see what number of Medicare and Medicaid individuals they

serve as just an indicator of possible skimming. I would be interested in your thoughts on that.

Mr. ADCOCK. That would certainly be one way. The other way

would certainly be to work through the historical data, at least in

our case, with them through HCFA to make sure that they understand what the risk is with our populations because I really do not

think they understand it.

Of course, the other issue is if they perceive that the capitation

is not going to cover their risk, then, clearly, they are not going to

be amenable to moving into that market.

Mrs. JOHNSON. I think there is some urgency in trying to do

what the Chairman wants to do, that is, move what you all are

doing into, in a sense, the mainstream HMO contracting structure,

because last year, we did pass premium deductibility for long-term

care insurance, and as that takes hold, employer deductibility, as

that takes hold, say in 10 or 15 or 20 years, you are going to have

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people who are frail elderly and who are low income but who have

long-term care insurance. So you are going to need a more flexible

system that can target those populations in the cities and recognize

their low-income status but also a variety of payor options.

Mr. ADCOCK. We absolutely agree and we are fully prepared as

individual cities to move forward and transition toward that. Like

I say, we are attempting to contract with the HMOs in Cincinnati.

In fact, we sat down with them again this past week. I think we

are beginning to make some inroads, but it is a tough sell at this

point because they just do not seem to understand the situation

with our MHSP Program.

Mrs. JOHNSON. But you also are sitting down with HCFA?

Mr. ADCOCK. We are attempting to, yes. Yes.

Mrs. JOHNSON. Thank you. Any other comment? My time is expired, actually. The red light is on.

Chairman THOMAS. That is right. Let me see if the gentleman

from Louisiana——

Mrs. JOHNSON. While we are waiting for him, perhaps you could

answer this question that I posed to the preceding panel. You have

talked about a lot of barriers, and I know there are a lot of barriers, and what are the one or two we should focus on this session?

Ms. BASKINS. To reiterate, the 50–50 rule, I think, is an important one that needs to be resolved and addressed.

Mrs. JOHNSON. Would you all agree that the 50–50 rule is really

the biggest problem?

Mr. BRINGEWATT. I would agree. I would also like to underline

the importance of while we do some of these very important things

in the short term, that we lay the groundwork for doing some

things differently as we evolve over the next few years.

For example, moving away from the structure oversight relative

to each piece of the system, whether it is the hospital, the nursing

home, the home health agency—a micromanagement approach toward the process of simplifying how we approach regulation, moving more toward an outcome-based approach to monitoring and toward structures that finance care in relation to problems of people

rather than simply costs associated with care provided in a specific

setting.

Mrs. JOHNSON. Thank you.

Chairman THOMAS. Mr. Bringewatt, this may be hard for you to

deal with mentally, but I want you to try it. If the Federal Government were a business and we were test marketing a product and

we have done this now for 12 years on Social HMOs, first of all,

the decision is, should we now go to market with product.

What should be done in terms of the process, the timing, and the

decisionmaking to get a climate for these innovative products or at

least get them out on the shelf without continuing to incubate them

in demonstration projects? What is the downside risk for the taxpayers if we maximize the innovative process, coordinating with

States as I believe Dr. Meiners said in terms of the laboratories of

the States.

Yes, we will have some failed programs, but my problem is that

given the mental set, and maybe I am more trusting than some

others may be, but when we go back to the 50–50 rule, it is into

the early seventies. I mean, you are dealing not only with a difVerDate 11-SEP-98 16:36 Sep 08, 1999 Jkt 058338 PO 00000 Frm 00097 Fmt 6633 Sfmt 6602 F:58338 W&M3 PsN: W&M3
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ferent mindset in the ordinary TEFRA risk but, frankly, when you

spend any time at all with people who are involved in Social HMOs

and with the PACE Program, these are not folk out there for a fast

buck. They are desperate for an ability to put together programs

that are more seamless and actually meet real needs rather than

bureaucratically dictated box checking.

So what would be the downside if we just said, no more demonstrations. Go out there. Explain to us how we could facilitate the

coordination of Federal Medicare dollars and Federal Medicare

incentivizing the States for the State Medicaid portion, and most

importantly, what do you think we need to do to get the private

sector more participating in providing initial support, wrap-around,

phase-in, any other kind of structures that are necessary? Obviously, this is available to anybody else.

Mr. BRINGEWATT. There are a number of pieces that I want to

try to fold in here. One is, as a next step, I think it is critical that

we do exactly what you are suggesting being done in terms of the

demonstrations that we have already—that is, in fact, moving them

forward into the mainstream as they are proposed. But——

Chairman THOMAS. But the thing that bothers me about HCFA

is that we do not ever create a methodology which is a basic

screening process that if met, you get the demonstration up and

running. You create structure-specific demonstrations which, I

think, have very limited value and, frankly, apparently are designed to maintain an umbilical cord structure. Witness this 20-

year structure on a demonstration. So I have a very difficult time

with the fundamental conceptual and methodological approach of

HCFA on what they call demonstration projects but which I do not

think would ever grow to a realistic use model. That is my problem.

Mr. BRINGEWATT. We at the Consortium would fully agree with

that, and to put in place 3-year structures of demonstrations that

have 2- or 3-year time lags for evaluation and then the time is already past and in the marketplace, changes occur increasingly in

shorter cycles rather than longer cycles.

So our recommendation is that HCFA look toward making opportunities for providers who demonstrate certain capabilities to move

forward with a 3-year transition period, where they would define

their structure as it relates to serving a certain group of targeted

organizations, and where the Federal Government’s role would be

in relation to defining a limited amount of expenditures that would

be paid in relation to care that is either equal to or less than what

is available under other arrangements and to monitor quality in

order to ensure people do not get hurt.

Chairman THOMAS. If it is not costing any more money relatively, then your only other concern should be quality.

Mr. BRINGEWATT. Exactly.

Chairman THOMAS. And my problem is, we have no tool to measure quality except we want to make sure that it is not worse than

what they are getting otherwise and I just think it is a priori not

going to be worse with a good chance of being better. But at the

same time, we are not moving toward a computer-based patient

record so that we could begin to, at least on a comparative basis,

measure quality. Instead, they place quality structures which are

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hampering devices inside the demonstration which do not allow you

to give it a good demonstration.

So maybe we are just sharing frustration, and that used to be

the case when we were in the minority. Now that we are in the

majority, I am interested in getting rid of some of my frustrations

and we are going to——

Mrs. JOHNSON. It turns out not to be easy.

Chairman THOMAS. It turns out not to be easy, but it also turns

out not to be impossible.

I want to thank you all for your testimony. I want to underscore

the fact that notwithstanding the fact that we moved now with a

stand-alone PACE bill, my biggest problem is I do not think we

need necessarily narrow enabling legislation in other areas. I just

think we ought to mainstream as much as possible, and so I would

like to have staff and others talk with you about what changes we

need to make so we’re sure you have the maximum chance for surviving in a mainstream area.

Dr. Adcock, my biggest problem with your structure is not that

we do not want to meet the needs of those inner-city folk but that

what we need to do is figure out a glide path so that structures are

available for them, whether they need to be innovative or not, but

to maintain under a demonstration for two decades a cost-plus reimbursement halfway house model does not make a lot of sense to

me, especially if you are hamstrung with your ability to grow so

that you can prove your model to be successful or not. I guess what

I am saying is, we may pull life support but we are going to make

sure that there are alternatives available.

Thank you very much. The Subcommittee stands adjourned.

[Whereupon, at 11:29 a.m., the hearing was adjourned.]

[Submissions for the record follow:]

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Statement of Bruce D. Thevenot, Vice President, Government Relations,

Genesis Health Ventures, Inc., Kennett Square, Pennsylvania

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