Long Term Care

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The President’s Proposal to “Live Within Our Means”

September 29, 2011 in CHIP, Home Health, Medicaid, Medicaid/Medicare, Medicare, Medicare Part D, Part B, Physician Compensation, Public Policy | 3 comments

President Obama released a proposal last week to jump start the economy and reduce the deficit.  The proposal includes many cuts to Medicare and increased cost sharing.  Senators Coburn and Lieberman are supporting these cuts.

Increased cost sharing is a common theme in Medicare, Medicaid, but also for other programs as well.  For instance, the proposal includes increases to TRICARE pharmacy benefit co-payments to be fall more in line with the most popular Federal employee health plan

The proposal, however, also has some interesting provisions.  For instance, it would require providers to secure prior authorization to perform advanced imaging.  This is one of the first moves away from the fee-for-service free-for-all towards managed care (read: rationing).

A pro-competition rule would prohibit ‘pay-for-delay’ where brand drug companies pay off other drug makers to delay their introduction of a generic into the market.  The FTC is charged with enforcing this requirement. The proposal also would reduce the exclusive period of generic biologics.  Weakening patent protection, for this authors perspective, is likely a good idea.

Specific changes under consideration which are related to medicare are highlighted below (with potential savings per year in parentheses):

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Long-term care hospitals (LTCHs)

July 12, 2011 in Hospitals, Medicare | 1 comment

Today I review how Medicare pays for long-term care hospitals (LTCHs) based on information from MedPAC’s 2011 Report to Congress.

LTCHs furnish care to patients with clinically complex problems—such as multiple acute and chronic conditions—who need hospital-level care for relatively extended periods. These facilities can be freestanding or colocated with other hospitals as hospitals within hospitals (HWHs) or satellites. To qualify as an LTCH for Medicare payment, a facility must meet Medicare’s conditions of participation for acute care hospitals and have an average length of stay of greater than 25 days for its Medicare patients. Medicare is the predominant payer for most LTCHs, accounting for about two-thirds of LTCH discharges. In 2009, Medicare spent $4.9 billion on care furnished to roughly 400 LTCHs nationwide. About 116,000 beneficiaries had almost 131,500 LTCH stays.

Nationwide there has been marked growth in both the number and the share of critically ill patients transferred from acute care hospitals to LTCHs. Kahn and colleagues found that, though the overall number of Medicare admissions to acute care hospital ICUs fell 14 percent between 1997 and 2006, the number of Medicare ICU patients discharged to LTCHs almost tripled.

Since October 2002, Medicare has paid LTCHs prospective per discharge rates based primarily on the patient’s diagnosis and the facility’s wage index. Under this prospective payment system (PPS), LTCH payment rates are based on the Medicare severity long-term care diagnosis related group (MS–LTC–DRG) patient classification system, which groups patients based primarily on diagnoses and procedures. MS–LTC–DRGs are the same groups used in the acute inpatient PPS but have relative weights specific to LTCH patients, reflecting the average relative costliness of cases in the group compared with that for the average LTCH case.

Beginning in July 2007, CMS extended the 25 percent rule to apply to all LTCHs. The 25 percent rule limits the percentage of patients who could be admitted to an LTCH from any one referring acute care hospital during a cost-reporting period without being subject to a payment adjustment.

The number of LTCHs increased 6.6 percent between 2008 and 2009, despite a limited moratorium on new LTCHs and new beds in existing LTCHs from July 2007 until December 28, 2012. New LTCHs were able to enter the Medicare program because they met specific exceptions to the moratorium.

Unlike most other health care facilities, LTCHs do not submit quality data to CMS. The Patient Protection and Affordable Care Act of 2010 mandates that CMS implement a pay-for-reporting program for LTCHs by 2014. A panel convened by the Commission to provide input into the development of LTCH quality measures suggested that CMS begin with a starter set of 10 to 12 measures based on those that most LTCHs already use for internal quality monitoring.

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Medicaid and Long-Term Care Services

November 17, 2010 in Medicaid, Nursing Homes | 1 comment

The increased use of long-term care (LTC) services has been one of the forces increasing health care cost and utilization.  Currently, 10.3 million Americans use LTC services.  The Kaiser Family Foundation provides a summary of LTC Services and Supports in the U.S.

Who uses LTC?

One can divide LTC services into those who receive care in the community (a.k.a at their home) compared to those who are institutionalized in a nursing home.  The vast majority of individuals receiving LTC services are community based (8.8 million) and these individuals are roughly divided equally between the elderly (4.6 million) and non-elderly (4.2 million).  Nursing home residents, on the other hand, are mostly elderly (87% of the 1.5 million nursing home residents).

Elderly individuals often require assistance from the symptoms of diseases such as Alzheimer’s, diabetes, pulmonary diseases, and other severely disabling chronic diseases.  Many children also require LTC services.  Examples include children with mental retardation, developmental disabilities (e.g autism), spinal cord injuries, traumatic brain injuries, and serious mental illness.

These individuals receive services that “range from providing assistance with eating, dressing, and toileting, to assisting with managing a home, preparing food, and medication management.”

Who pays for LTC?

In 2008, LTC services cost $177.6, of which $124.9 billion was spent on nursing home care.  “Nursing home care averages $70,000 per year, assisted living facilities average $36,000 per year, and home health services average $29 per hour.”

Although Medicaid pays for the largest share of services, benefit eligibility is limited. Eligibility for Medicaid nursing home benefits are often tied to SSI eligibility. “Additionally, elderly and disabled individuals who qualify for Medicaid must have very few assets ($2,000 for an individual and $3,000 for a couple, in most states).” Some states exclude home equity in this asset maximum while others do not.

What Does Medicaid Provided
“Over 3 million individuals, or 7 percent of the Medicaid population, rely on Medicaid long-term care services for a range of physical and mental health care needs. Over half of those who use Medicaid long-term care services are individuals age 65 and older, but 45 percent are disabled children and adults.”

Home and community based care (HCBS) has been growing as a share of Medicaid expenditures over time.

“Spending patterns for Medicaid home and community-based services vary widely among states although demand for services in the community is growing as evidenced by the number of beneficiaries on waiting lists for home and community-based waiver services – 331,689 individuals in 33 states in 2007 – an 18 percent increase over the previous year.”

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Incentives for Long-term Care Facilities to Hospitalize Patients

October 27, 2010 in Hospitals, Medicare, Nursing Homes | 2 comments

Why are hospitalization rates so high for Medicare beneficiaries living in long-term care facilities (i.e., skilled nursing facilities, nursing facilities, and assisted living facilities)?  The first reason is obvious: they are sick.  If they weren’t, they wouldn’t need to be living in these facilities in the first place.  Hospitalizing sick patients is often necessary.  Unnecessary hospitalizations, however, can have adverse affects on patient outcomes.  For instance, unnecessary hospitalizations:

  • Can be physically and emotionally hard on frail patients (e.g., disorientation),
  • Hospital treatment records are rarely passed on to the LTC after patient discharge, and
  • Hospital physicians often prescribe patients new medications without consulting the LTC facility staff.

So why do LTC facilities send so many patients to hospitals unnecessarily? The reason is basically that they have lots of incentives to do so and none not to.  According to this series of interview conducted by the Kaiser Family Foundation, here a breakdown of LTC facility incentives to hospitalize.

Incentives

  • Limited on-site capabilities to deal with serious medical issues,
  • Reduces liability concerns (i.e., defensive medicine)
  • Allows for more timely diagnostic work,
  • Is more convenient for physicians (especially during weekend and nighttime hours),
  • Preference to send residents to hospital to die to avoid disrupting facility staff and other residents,
  • Is financially beneficial for the physician and facility.

Disincentives

  • None

As an economist, I of course focus in on the financial incentives.  Some quotations from the report:

  • “In the hospital, I am billing every day that [my patient] is there.”
  • “While in the hospital, I would be able to do procedures [on the long‐term care facility resident], which is billable, which is what puts the cost all the way up there.”
  • “As long as [the doctor] is treating them [in the hospital], they’re making money.”

Facilities can also earn money since when the residents return to the facility, they are eligible for skilled nursing care (SNF) which is reimbursed by the more generous Medicare.  Standard residential nursing facilities are paid for by Medicaid which is less generous. In addition, facilities can earn money through bed holds.

  • “The [facility] is getting a bed‐hold on a lot of them. The patient is not in the building, they are not caring for them, and they get money [for the patient] every day.”

Solutions

In summary, physicians and facilities have lots of incentives to send patients to inpatient care facilities, and very few not to.  How do we change this?  The KFF report offers some suggestions:

  • More training and reduced staff turnover will improve the ability of facility staff to handle a variety of medical situations without hospitalizations.  More training, however, increases the cost of SNF care.  Medicare may need to increase reimbursement rates to encourage LTC facilities to incur this extra expense.  It may be worth the cost to do this, however, if hospitalizations decrease significantly.  If facilities pocket the extra cash, but do not change behavior, then the money will have been wasted.
  • Despite physician aversion, more medical support to back up facility staff during late night and weekend shifts would provide the manpower to reduce hospitalizations. Physicians are expensive, however, so the increased cost from physician or nurse practitioner hours must be less than the expected cost decrease from reduced hospitalizations.
  • Review financial incentives of physicians and facilities.  And the economist always comes back to financial incentives.

Source:

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Medicare spending for beneficiaries receiving long-term care

October 26, 2010 in Medicare, Nursing Homes | 1 comment

Medicare spends a lot of money on beneficiaries living in nursing homes.  How expensive are these beneficiaries:

  • Six percent of Medicare beneficiaries spend some time in a long-term care facility, but these same beneficiaries make up 17% of total Medicare cost.
  • Three percent of Medicare beneficiaries spent an entire year in a long-term care facilities.  These beneficiaries make up 5% of all Medicare cost.
  • Of these 3% of these of Medicare beneficiaries who spent an entire year in a long-term care facilities, 41% where in the top quartile of spending and 17% were in the top decile.
  • Among beneficiaries who spend time in a LTC facility, but died before the end of the year, 69% of beneficiaries ranked in the top spending quartile and 31% in the top Medicare spending decile.
  • Thirty eight percent of beneficiaries living in a LTC facility were admitted to a hospital at some point during the year.  Over half (51%) of LTC residents had at least one emergency room visit.

So Medicare beneficiaries in long-term care facilities are expensive…who cares?  These beneficiaries are also likely sicker than other patients and need this skilled care.  Further, they would cost Medicare more money than a typical patient regardless of where they live.

Although LTC residents are expensive, much of their cost could be avoided.  According to a KFF report, 24 percent of all hospitalizations for long‐term care facility residents in 2006 were potentially preventable. In particular, “greater attention to transitions to and from the hospital could also help to minimize costs associated with preventable complications.”

Source:

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How Medicare payment policy affects SNF incentives to hospitalize patients

October 25, 2010 in Medicare, Nursing Homes | No comments

Under Medicare Part A, beneficiaries can receive coverage for care provided by skilled nursing facilities (SNFs), also known as nursing homes.  Between 2000 and 2007, however, the rate of potentially avoidable re-hospitalizations for five key conditions (congestive heart failure, respiratory infection, urinary tract infection, sepsis, and electrolyte imbalance) increased from 13.7% to 18.5%. One potential explanation for this increase is that Medicare reimbursement policy may incentivize SNFs to transfer patients to acute impatient care.  Today, I examine a Kaiser Family Foundation brief which examines these SNF incentives.

Background

A SNF is a long-term care facility  providing skilled care. This is different from general nursing facilities (NF) who provide custodial rather than skilled care. Medicare pays for most SNF care whereas Medicaid is the primary payor for most NF care.  All SNF Part A inpatient services  are paid under a prospective payment system (PPS). In the PPS, providers receive a daily base rate which is adjusted for case mix. “Assignment to a RUG is based on a number of considerations, such as the patient’s need for certain services, the presence of certain conditions, and an index based on the patient’s ability to perform independently four activities of daily living.”  SNFs can earn extra revenue through bed holds and reserved bed arrangements.   In the bed hold scenario, residents transferred to an inpatient facility pay the SNF to keep the same bed. States regulate bed holds.  For instance, California mandates that a bed must be held for 7 days while Wisconsin mandates a minimum bed-hold of 15 days.  Additionally, impatient facilities may reserve beds.  This way, the hospital will guarantee placement of their discharged patients.

Care is provided by a number of different provider types, but Medicare mandates that “each resident must be seen by a physician at least once every 30 days for the first 90 days after admission, and at least once every 60 days thereafter.”

There are two types of models for SNFs and NF. In a closed staffing model, the facility directly employs the physician and pays them a salary. In an open staffing model, community physicians care for residents.

The remainder of this post will examine how certain Medicare payment policies may or may not encourage SNFs to send residents to acute care facilities unnecessarily.
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Income and Long Term Care

August 10, 2010 in Nursing Homes | No comments

Almost 7 out of every 10 of individuals living to age 65 will require some long-term care (LTC) assistance.  Of these, over one-third will spend some time in a nursing home.  In general, however, the elderly strongly prefer home based LTC if possible.   “Mattimore and colleagues (1997) found that 30% of elderly survey respondents would rather die than enter a nursing home and an additional 26% indicated they were very unwilling to move to an institutional setting.”

A recent paper Goda, Golberstein and Grabowski (GGG hereafter) examines how permanent income shocks affect LTC utilization.

The estimation equation used is the following:

  • Uhi = βIh + δXh + ε

where U refers to a LTC utilization measure (e.g., nursing home, paid home health care, unpaid care), I is annual household Social Security Income, and X is a set of exogenous controls.

Identifying income and LTC choices independently is difficult.  Individuals with a high probability of needing LTC may more years or longer hours per year to accumulate additional assets to fund LTC expenses.  Ideally, identification requires an income shock that is exogenous to the individual’s labor market choices.  For that purpose, GGG rely on natural experiment known as the “Social Security Benefits Notch” to serve as an instrument for the income variable.  The authors define the Notch as follows:

“Prior to 1972, neither lifetime earnings nor post-retirement payments were indexed for inflation, but rather periodically adjusted by the Congress. In 1972, Congress amended the Social Security Act to provide automatic indexation of credited earnings for those workers who had not yet retired, which created an unanticipated windfall for workers from certain birth cohorts because of an error that led the prior earnings of these workers to be doubly indexed for inflation. The high rate of inflation over the following years led to a large increase in benefits for the affected cohorts. In 1977, Congress passed another law to eliminate the double indexation for future cohorts of retirees.  This law change created a large reduction in Social Security payments for those cohorts born in 1917 or later relative to the preceding cohorts. Importantly however, cohorts born prior to 1917 (near retirement in 1977) retained doubly indexed benefits under a grandfather provision. Taken together, these law changes and the high rate of inflation over the mid 1970s created a large and permanent difference in Social Security payments across birth cohorts, which came to be called the Social Security Benefits Notch.”

Econometrically, GGG use a dummy variable for being born in the notch years (i.e., 1915-1917).  To apply their model, the authors use data from the 1993 and 1995 waves of the Assets and Health Dynamics Among the Oldest Old (AHEAD).  The authors find that this instrument is weak for richer households who have at least a high school education, but much stronger for households whose heads have at least a high school diploma.  Due to this result, GGG limit the sample only households without a high school education.  Using this specification,  the authors find the following results:

“…positive income shocks had a negative effect on nursing home entry, but a positive effect on the use of paid home care. Specifically, a $1,000 (or 10.2 percent) increase in annual Social Security income for those in this low-education group would decrease the likelihood of any nursing home use by 22%-30% (relative to mean) and increase the likelihood of receiving any paid home care use by 24%-34%. Social Security income was not systematically related to the receipt of any informal (unpaid) care across the different specifications.”

At first glance, one might perceive that increased income leads to less nursing home care due to substitution for home health care.  Alternatively, higher income could improve health directly and thus lessen the need for institutionalized care.

One obvious mechanism by which increased income would decrease nursing home use is through disqualification of Medicaid eligibility.  The authors claim that assets rather than income are the key driver of Medicaid eligibility for nursing home care, but do not investigate how asset accumulation and the Social Security notch are related.

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No Wrong Door

August 2, 2010 in Medicaid, Nursing Homes | No comments

In Virginia, there are over one million people age 60 and older and over 90,000 Virginians age 85 and older. These figures will only grow in the upcoming decades.  Thus will put increasing strain on public programs and will require service providers to reorient medical care toward providing continued, high-quality long term care services.  Long term care is of growing importance to health care sector.  Although the aged and disabled populations make up 30% of Virginia’s Medicaid population, these individuals account for 70% of the state’s $4 billion Medicaid budget.

Yet providing long term care to those in need is a confusing a bureaucratic process.  For instance, in Virgina, there are 6 agencies that provide long term care services:

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CLASS Act: Will it work?

April 6, 2010 in Health Insurance, Public Policy | 1 comment

One aspect of health reform that has received little attention is passage of the Community Living Assistance Services and Supports(CLASS) Act.  This act creates a long-term care (LTC) insurance program.  However, the insurance plan in its current form is fairly limited.  Those who require assistance with activities such as bathing, dressing, getting out of bed and using a toilet would receive about a $50 per day benefit.  This is of course not enough to pay for full-time care in a nursing home, but would help defray some of the cost for assistance in one’s home.

Milliman notes that currently, the CLASS act would be voluntary and would include guarantee issue (meaning that no one could be denied coverage).  Separately, each of these provisions could allow for a sustainable long term care insurance product.  The private sector currently uses the voluntary insurance model with underwriting.  On the other hand, a guaranteed issue policy could work if purchasing LTC insurance was mandatory.

Together, however, these provisions may be problematic.  “The voluntary aspect of the program allows low-risk individuals to never sign up for the program while the guaranteed issues enables some of the highest-risk individuals to join the program.  This is a formula that is virtually certain to create financial instability in any insurance program unless there are other important provisions to control risk.”

The CLASS act does have some additional risk control provisions.  To qualify for these benefits, one must pay into the plan for 5 years.  Employers can decide to offer this LTC as a benefit and employers who choose to this option will have employees automatically enrolled with the premium deducted from each paycheck.  Individuals would have to specifically ask to be removed from the program.  Also, individuals who opt-out of the program will have to pay a higher premium if they decide to opt back in.  The purpose of the vesting and opt-out penalties is to minimize adverse selection.

However, Scot Forman of Long Term Care Associates notes that many employees may not realize that if they opt out after just 1 payment and later opt in more than 5 years in the future, they would pay “a massive penalty,”  If a young worker who has just 1 deduction from her paycheck at age 38 later decides to opt-in when she’s 59, her premiums would be higher than they would have been had she stayed in the program. In the example given, “the rate increase will be no less than 250% on each payment, which is CLASS’s penalty for opting back in.”

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