Reality: MCO-Driven Long Term Care Model Not Cost-Effective

Ms. Jackie Glaze Associate Regional Administrator Division of Medicaid and Children s Health Operations Centers for Medicare and Medicaid Services (CMS) 61 Forsyth Street, SW, Suite 4T29 Atlanta, GA 30303-8909 February 18, 2011 Dear Ms. Glaze: I am writing today on behalf of Florida CHAIN to urge you to reject the Florida Agency for Health Care Administration s applications for Section 1915(b) and 1915(c) Medicaid Waivers implementing the Managed Long-Term Managed Care Program created by the Florida Legislature via House Bills 7107 and 7109 during its 2011 regular session. Although Florida CHAIN has commented previously on each of the waiver applications and proposed amendments submitted to CMS arising from that legislation, the following comments are focused specifically at our continuing concerns regarding the pending 1915(b)/(c) applications: Reality: MCO-Driven Long Term Care Model Not Cost-Effective As you know, House Bills 7107 and 7109 are designed to move virtually the entire Medicaid population into managed care organizations (MCOs), beginning with managed long-term care (LTC) services for the elderly and disabled in 2013. As you know, however, the state must first receive waiver approval from CMS. The purported rationale for this qualitative shift in Medicaid policy was that it will simultaneously contain costs and improve quality in the state s LTC program. The fact is, there is no credible evidence supporting the view that MCOs, whether HMOs or provider service networks (PSNs), will provide LTC services that are as efficient, cost-effective or free of fraud as those provided by the statewide network of Area Agencies on Aging and other non-profit aging service providers for the past 30-plus years. As noted in a March 2011 St. Petersburg Times article: Swept along in this broad transformation is one slice of Medicaid that is remarkably free of waste and fraud. It has trounced managed care for years in side-by-side cost comparisons. Nevertheless, the Legislature intends to eliminate these efficient programs - a move that could easily cost Florida hundreds of millions of dollars. The side-by-side cost comparisons referred to in the article are included in studies conducted by the Florida Policy Center on Aging (at the University of South Florida) and the Office of Program Policy Analysis and Government Accountability (OPPAGA) between 2003 and 2010. In particular, OPAGGA found that, while all four of Florida s LTC waiver programs were relatively cost-effective for Florida CHAIN (Community Health Action Information Network) 16887 96 th Terrace North Jupiter Florida 33478 561.972.4090 www.floridachain.org

beneficiaries with Alzheimer s or related dementia, the two Aging Network-operated waiver programs were much less expensive on a per person per month basis than the Nursing Home Diversion program, the current managed LTC program. The cost comparison is summarized in the table below: LTC Waiver Program Average Monthly Cost Operated By (Costs are adjusted for differences among the enrollee populations) Aging Network $1,947 Cost vs. Nursing Home Diversion Waiver Program Nursing Home Diversion Aged and Disabled Aging Network $1,260 $687 less Adult Assisted Living for the Managed Care $1,452 $495less Elderly Organizations Source: OPPAGA Analysis of Medicaid claims data. These studies provide overwhelming evidence that the private, non-profit Aging Network is markedly more efficient than the MCOs currently operating within Florida Medicaid s LTC system. They also confirm the wisdom of past state and federal policy-makers who invested several billion dollars in the development of the Aging Network for more than 30 years. It was this investment that made the home- and community-based system of LTC possible in Florida. This proven track record of the Aging Network calls into serious question the Legislature s decision to now adopt the historically more expensive model for financing and delivering Medicaid LTC services, and we are unable to discern any rational basis for such approval. We respectfully question then why either state or federal policy-makers would adopt this more expensive LTC policy, particularly in the face of the large projected increase in the need for LTC services in Florida over the next several years as well as the fiscal shortfalls that are likely to continue to confront the state. MCO-Driven Model Would Undermine Longstanding, Effective Aging Network-Administered System The fact is, the only way MCOs could compete with the Aging Network in terms of cost would be to serve fewer eligible persons, reduce the services provided, or implement some combination of both. However, this in turn would soon drive up nursing home use. The state (not to mention the federal government) could soon find itself either paying more for LTC than it would have with an Aging Network-based LTC system. Alternatively, the state could opt to serve decreasing numbers of elderly and disabled persons in its LTC system, and serve them with increasingly poorer quality at that. Furthermore, damage done by this approach might not be reversible. In all likelihood, as the MCOs gain full control of the LTC system, the Aging Network would no longer be viable as a lower cost, higher quality alternative. Thus, the state could find itself facing a crisis of caregiving with no competitive alternative to the MCOs, which would then be in a position to exercise increasing leverage over state 2

and federal policymakers. It was just this kind of crisis that the President s Council on Bioethics warned about in 2005, when they identified two major dangers facing the nation s LTC system: The first is the danger that some old people will be abandoned or impoverished, with no one to care for them, no advocate to stand with them, and inadequate resources to provide for themselves. The second danger is the complete transformation of caregiving into labor, creating a situation where people s basic physical needs are efficiently provided for by workers, but their deeper human and spiritual needs are largely ignored. Mechanisms that could produce such abandonment and depersonalization are present in House Bills 7107 and 7109 from 2011, and these are based on the recommendations in the study prepared by the Pacific Health Policy Group for the Legislature in 2010. These recommendations reflect the nearcertainty that the MCOs would need to restrict access to both nursing home and community-based services in order to generate savings or even contain costs. This pressure to reduce access would be intensified by the requirement to discount rates by an arbitrary 5%, yet still allow MCOs to divert sufficient revenue to overhead and profit to ensure their willingness to remain the LTC business. Pressure to reduce access is also inherent in the incentives in the legislation to maximize nursing home diversion, despite the fact that Florida already has the fifth lowest nursing home utilization rate in the country (2.3% of 65+ population), a high percentage of residents with care needs (8%), and 27,000 on waiting lists for home- and community-based services. The Pacific Health Policy Group s report specifically concluded that, in order to contain costs its LTC program, the state must: 1) Tighten pre-admission screening criteria so that fewer are assessed as needing institutionalized care, and 2) Limit the number of home- and community-based service slots, so that frail elders who need services but do not meet the tighter eligibility criteria for nursing home care would be placed on wait lists until funds become available. Such tighter criteria and increased wait times would inevitably prove untenable and put many of the most vulnerable Floridians at risk, particularly given that more than 27,000 are already on wait lists. Furthermore, Florida s population of frail elders is projected to double over the next 20 years. Consequently, given its decision to proceed with this capitated MCO-driven LTC model, the state will not even be able to attempt to accommodate the anticipated LTC caseload growth unless the state implements both of these problematic measures. At a practical level, MCOs would be awarded bonuses for shifting residents out of nursing homes - whether there are community services available or not - until the desired, arbitrary utilization mix is achieved (35% of participants in nursing homes and 65% served in the community). In the case of nursing care, the nursing home reimbursement rate is paid by AHCA and passed through the MCO to the nursing home. By contrast, payment of the capitated rate to the MCO for community-based care is conditioned on the availability of funds, so MCOs would be able to keep residents out of the nursing 3

home to claim the bonus, while the resident ends up on the wait list to receive non-existent services in the community. Since the Legislature already has compelling evidence that MCO-managed LTC services cost more than the Aging Network-administered LTC programs, its pursuit of a policy approach that vastly expands the role of capitated MCOs and requires arbitrary savings that can only be generated by restricting access through tighter admission requirements and capped funding is indefensible. MCO-Driven Model Incorporates Inappropriate Expectation of Role of Assisting Living Finally, it is important to recognize that HB 7107/7109 and its charge to move all Medicaid LTC recipients into capitated managed care is based on the assumption that participants will increasingly be served in assisted living facilities (ALFs) in lieu of nursing home placement. Admittedly, a majority of those served in the current managed LTC program, Nursing Home Diversion, are living in ALFs. Although assisted living has gradually developed the capacity to serve a more impaired resident population, it may now be approaching the upper threshold of resident impairment (functional and medical needs) that must be preserved in order to maintain its qualitatively distinct difference from living in a nursing home. The impenetrability of that threshold would serve as a fatal impediment to the state s approach even if ALFs were evenly available across the state and equally willing to accept the Medicaid rate for ALF residents. Any initiative to expand the role of assisted living in Florida s Medicaid LTC system and reduce nursing home use as a means of preserving MCO administrative overhead and profit margins should be assessed in the context of the fact that, as noted in the St. Petersburg Times article: In Florida nursing home usage is already low 2.3% of residents over 65, compared to the national average of 3.7%. Among other things, Florida long ago capped its nursing home bed count with dramatic results. The over-65 population grew 18 percent over the last decade, but Medicaid s nursing home population dropped from 49,000 to 42,000. Low usage leaves Florida nursing homes with the sickest of the sick. They may not be safe elsewhere, even in assisted living homes, many of which lack 24-hour monitoring. But the legislature is proposing a system that won t work unless it can squeeze that nursing home lemon a lot tighter. Most important, Florida isn t starting from scratch like Arizona. Florida has a long track record of providing community-based services, and in this state, managed care has never matched the efficiency of its traditional, fee-for-service competitors. MCO-Driven Model Raises Additional Concerns In addition to our general concerns about the relative lack of cost-effectiveness of the proposed managed LTC programs in comparison with the current Aging Network system, we have several 4

administrative and operational concerns with the provisions of HB 7107/7109 and the associated LTC waiver applications. Some of these concerns are raised in our general critique and have also been identified by other organizations, including the American Association of Retired Persons (AARP), the Winter Park Health Foundation, and the Health Policy Institute at Georgetown University. First, we fully agree with AARP s Joyce Roger s observation in her letter to Secretary Mann that HB 7107/7109 and the associated waiver proposal raise many unanswered questions, e.g., about specific procedures, quality outcomes and measurements, transparency, and adequacy of service networks. These unanswered questions include, but are not necessarily limited to, the following: As written, HB 7107/7109 and the associated waiver proposal are designed to reduce the state s capacity to provide appropriate levels of care for a rapidly expanding population of Medicaideligible persons needing LTC services through tactics that include: the use of restrictive eligibility assessment criteria, manipulation of waiver wait list procedures, arbitrary reductions in nursing home appropriations; indifference to insufficient home- and community-based service capacity, and irreversible displacement of the more efficient and cost-effective Aging Network from the Medicaid LTC system by for-profit MCOs. The waiver fails to not indicate what standards the state intends to establish to measure the adequacy of HMO or PSN administrative operations and organizational structure (sufficiency of provider network capacity). The proposal merely mentions the need for rigorous and transparent process outcomes, an approach the state has in fact used in the past to evade such rigor and transparency. At this point, the only concrete measure to be reported would appear to be reductions in nursing home use, which, as a governing measure of LTC system performance, is woefully inadequate and inappropriate. Yet such a singular focus on reducing nursing home use is the sole basis for awarding incentive payments to MCOs. Rigorous outcome measures focusing on quality of care for enrollees are an absolute necessity for ensuring a more balanced and honest assessment of cost-effectiveness in the new system. The failure to incorporate the state s Area Agency on Aging-based Aging & Disability Resource Centers into the legislation or the waiver proposal as the first option for choice counseling is a disturbing omission that immediately gives rise to the question of whether the state intends to dismantle its aging network and squander the multi-billion dollar investment in its development over the last 30 years. This omission also raises serious questions about how much accountability the state actually intends to require from MCOs. In September 2011, AARP ranked Florida s Aging and Disability Resource Centers the best in the country. The decision to ignore extraordinary choice counseling resource in favor of using service brokers in a fashion similar to their role in the Medicaid Reform Pilot is indefensible. This model received considerable criticism in the Reform Pilot and is likely to be even less functional in a far more complicated managed LTC program, as it will serve a far more at-risk population and create even greater potential conflicts of interest in the assessment and referral processes. 5

The proposed achieved savings rebate (ASR) approach to ensuring that appropriations are not wasted on excessive administrative overhead and profit margins leading to underfunding of services is a wholly inadequate and ineffective alternative to a medical loss ratio (MLR) approach. The ASR approach is inefficient and far less likely to keep spending for services at an appropriate level. We recommend that the MLR be required and that it be set at 85%, the same level now used in setting capitation rates in the Nursing Home Diversion (NHD) program (NHD). When the NHD program began using the 85% MLR a few years ago, PMPM spending dropped from $2,200 in 2004 to under $1,600 on average in 2010. NHD is still far more expensive on a PMPM basis than the other Aging Network-administered waiver programs, but the implementation of the MLR helped make it significantly less expensive over the last few years. **************************** In conclusion, we ask that CMS reject Florida s 1915(b)/(c) waiver applications for the proposed Medicaid managed LTC program. The poorly detailed waiver applications raise far more questions than they answer. Moreover, the limited amount of substantive information in the application generates a number of concerns - including those identified in this and other letters requesting rejection - regarding the state s willingness and capacity to meet the LTC needs of its growing populations of elderly and disabled adults in its single-minded pursuit of containing LTC Medicaid spending with little regard for service access and quality. If CMS requires the state to respond to these concerns honestly, it will become clear that the proposed capitated, MCO-driven model of LTC service delivery is, in fact, a less cost-effective and consumer-oriented model of care than the current, largely not-for-profit Aging Network-administered system. Replacing a highly functional low-cost LTC system built on more than three decades of state investment with a model designed to cost more and serve fewer is strategy favorable neither to frail elderly and disabled LTC recipients nor taxpayers. CMS should require that the state explain in clear detail why it is has ignored available objective information and proposed the adoption of a more expensive LTC Medicaid program at the precise moment state and federal policy makers are making cuts in current expenditures. Florida already has one of the lowest-cost LTC systems in the nation, and to suggest that its costs can be appropriately reduced through for-profit MCOs without limiting access and diminishing quality is simply not credible. Such reductions could be achieved only in the absence of accountability to taxpayers and Florida s frail elder and disabled populations. We appreciate your receptivity to date to our input, and we thank you in advance for your continued consideration. Sincerely, Laura Goodhue Executive Director 6

cc: Mr. Ralph Lollar, Director, Division of Long-Term Services and Supports 7