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Long-term fix

Medicare could save $2.1 billion curing what's ailing skilled nursing-home facilities


By Jessica Zigmond
Posted: October 18, 2010 - 12:01 am ET
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The CMS could save billions of dollars in the Medicare program by making substantive changes to the way care is managed, delivered and paid for at skilled nursing and other long-term-care facilities.

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A report released last week showed the program could potentially save $2.1 billion if hospitalization rates among long-term-care residents were reduced by 25%. That study, along with a report about factors that lead to hospitalizations of long-term-care residents, were the subjects of a briefing in Washington last week at the Kaiser Family Foundation, which produced the findings.

“I've never seen a time for more possibility,” said CMS Administrator Donald Berwick, who offered opening remarks at the briefing and outlined what he called the CMS' “triple aim” under his guidance: better care, reducing the need for care through prevention, and lower costs, which all relate to the problems and potential solutions in long-term care. Berwick also said that 9.2 million people are covered by both Medicare and Medicaid, two programs that pour money into long-term care. “We're going to get this answer right,” he said.

To do so, the agency will have to address the host of issues that both the reports and experts have said are driving Medicare expenditures for post-acute care, such as inadequate staffing, which includes the level of skill and training among skilled-nursing caregivers; low Medicaid costs for skilled-nursing stays that can lead facilities to seek more profitable services from Medicare to make up the difference; and the idea that long-term care has long been viewed as separate from healthcare rather than as an essential and costly component of the nation's healthcare system.

Federal statistics show that post-acute care in America is contributing to a surge in federal healthcare expenditures. In June, the Medicare Payment Advisory Commission reported that Medicare spent $54.4 billion in 2009 on all post-acute care—which includes skilled nursing facilities, home health agencies, inpatient rehabilitation hospitals and long-term-care hospitals—about a 29% increase over the $42.2 billion spent in 2005, and more than double the $26.6 billion the program paid in 2001. Skilled nursing accounted for the greatest amount—$25.5 billion in 2009—while long-term-care hospitals had the smallest share at $4.9 billion.

“This is a population that is relatively frail,” said Tricia Neuman, vice president at the Kaiser Family Foundation, director of the foundation's Medicare Policy Project and an author of both reports. “People who are living in long-term-care facilities tend to have cognitive impairments and multiple health problems and significant health needs, and long-term care is sometimes viewed as a policy issue that is quite separate from medical care,” she added. “And I think this research shows how the two policy issues are very much integrated, and, because of the severity or complexity of their medical needs, this really is an issue for Medicare because Medicare covers the hospital and other services that are provided.”

State Medicaid programs cover facility stays, while Medicare covers medical costs. Often, underfunding of Medicaid can lead to an increase in Medicare.

Eli Feldman is president and CEO of Metropolitan Jewish Health System, an integrated delivery system of home health, adult day healthcare, skilled nursing, palliative care and hospice services in New York City's five boroughs. Though the two government programs are separate, the use of Medicare and Medicaid dollars in long-term-care facilities are actually clinically intertwined. There is a “Medicare silo and Medicaid silo, and they're really integrated,” Feldman said. “They complement each other. I emphasize coordinated care, which ties together medical and nonmedical services, which ensures an individual can get the care they need in the appropriate setting.”

According to Kaiser's report, Medicare Spending and Use of Medical Services for Beneficiaries in Nursing Homes and Other Long-term-care Facilities, about 2.2 million Medicare beneficiaries lived in a long-term-care facility for some or all of 2006. These beneficiaries accounted for about 6% of the Medicare population but 17% of total Medicare spending.

However, about half of the Medicare spending for these beneficiaries happened before their admission to a long-term-care facility. Still, among Medicare beneficiaries who survived in long-term-care settings for all of 2006, 41% were in the top quartile of Medicare spending, with average Medicare expenditures of $26,732. And, the study showed, average Medicare spending is about two times greater for beneficiaries living in long-term-care facilities than for all others (See chart).

“Long-term care is often thought to be separate and aside from—and irrelevant to—what we consider as healthcare,” said Cheryl Phillips, a physician who is chief medical officer of On Lok Lifeways, which serves nursing home-eligible seniors in the San Francisco area. On Lok is the parent to the Program for All-inclusive Care for the Elderly, or PACE, a model used across the nation. According to Phillips, the data from the reports show “that it's not only naive, but it's cost-foolish to think of nursing-home care as separate and irrelevant from healthcare.”

Instead, Phillips and her fellow panelists at the Kaiser discussion emphasized that long-term care needs to be regarded as part of the entire healthcare spectrum. In an interview, Phillips highlighted not only the problems and decisions that families and long-term-care providers face, but why these decisions can end up being so costly. The scenario: Imagine an elderly woman who is not doing well independently at home. Because she's frail and dehydrated, she visits the hospital. After three days in the hospital—the required amount of time for a nursing facility to receive reimbursement for that stay—she must have a skilled-nursing need to be eligible for a nursing-home stay.

For that to happen, providers consider these questions: Does she need an IV or feeding tube in order to receive that skilled-nursing benefit? At that point, the nursing home is more willing to accept her, and the family is pleased because Medicare will pick up what Medicaid will not cover, as Medicaid pays for long-term stays (whereas Medicare covers medical needs). After six or seven months of receiving “custodial,” or long-term, care, the patient contracts pneumonia. Then there is a huge incentive to send her back to the hospital, where providers believe she may be safer, although that may not be the case. But if she stays three nights, and if it's a new calendar year, and she has a new diagnosis, she then enters the Medicare cycle all over again. As Phillips explained, this shows how care decisions, medical-intervention decisions and services are delivered and influenced by “who's paying for what.”

On Lok takes a different approach, Phillips says. The model there uses what she refers to as “one bucket” of funding to coordinate all care for enrolled participants by blending payments from Medicaid and Medicare. “PACE is an ACO (accountable care organization) in that they get the financing from both entities and are responsible not only for coordinating, overseeing and providing care, but also paying for it through those two funding streams that are responsible for a population of people,” Phillips said.

Data from Kaiser support how scenarios such as the one Phillips outlined are not uncommon. More than one-third, or 38%, of beneficiaries living in a long-term-care facility in 2006 were admitted to a hospital during the year, and 41% of those beneficiaries—representing 15% of all long-term-care residents—had two or more hospital admissions that year. And hospitalizations account for the largest share of average Medicare spending per long-term-care facility resident at 39%, the report showed.

“We spend a lot of money trying to fix things that went wrong that, with proper care, probably would not have gone wrong,” said Toby Edelman, a senior policy attorney with the Center for Medicare Advocacy in Washington. During the panel discussion, Edelman focused on what she sees as a significant problem in the long-term-care industry today: a lack of adequate staffing. In an interview, Edelman said there is a great need for clinical providers in this segment, including registered nurses, licensed practical nurses, licensed vocational nurses and certified nursing aides.

But citing a lack of staff might be oversimplifying the problem, said Phillips of On Lok. “The very first place to go is to say, ‘There's not enough staff,'” Phillips said. “The challenge is not the right amount of staff, but my issue is the training and skill sets of staff,” she added. “Part of the reason facilities send them out of the nursing home to the hospital is staffing.”

Kaiser's second report, To Hospitalize or Not to Hospitalize, supports that theory. After conducting 43 interviews with family members and clinical providers at facilities in St. Louis, Miami, Philadelphia and Phoenix, researchers cited 10 factors that contribute to hospitalizations. Topping the list was limited on-site capacity at the facility to deal with medical issues.

“Physicians and nurses say that long-term care facility staff often lack the skill and training needed to deal with medical issues, particularly those that are unanticipated and more acute in nature,” the report said, adding that this results from a host of factors, including inexperienced and unseasoned staff—partly as a result of high staff turnover rates—a lack of training and no clear policy on how to deal with certain medical situations, including when to hospitalize a resident; insufficient nurse-to-resident ratios that result in over-extended nurses; and licensing limitations that do not allow certain medical procedures and tests to be done on-site.

“We need to start with what is a fundamental level of staffing needed to take care of certain types of patient,” said Larry Minnix, president and CEO of the American Association of Homes and Services for the Aging. “We need to pay for training, livable wage and benefits, supervisors,” he added. “We do know part of it is we need to manage better and part of it is we need to get paid for what we're doing. But the direct caregiver is as important to a nursing home resident as a heart surgeon is to someone who needs multiple bypasses.”

As this year's health reform legislation continues to take shape slowly, long-term-care providers still are uncertain how their segment will be affected. But the panelists at Kaiser's event last week seemed hopeful for a few reasons. First, the reports quantified what they have known for years: The long-term-care system in America is not well-integrated, nor has it been considered as important a component in healthcare as other segments, such as hospitals or physicians.

Second, the panelists echoed each other when they said Berwick appears to understand this healthcare segment needs considerable improvement. Berwick himself said in the Oct. 12 briefing that the opportunities for change in this area are “fantastic,” and that he wants to lead the CMS “to be a trustworthy partner” in the process.

“I think the agency has always looked first to money: cut hospital, cut nursing, cut home health,” Phillips said, likening the CMS' past behavior regarding costs to the adage: “I've been teaching my horse not to eat and then he up and died.”

“Berwick gets that concept—you can only drive cutting payments to a certain point and then you lose the quality you're struggling for,” she added. “What Berwick has brought in: When quality is first, good quality drives utilization. If you start with quality—right services, right time, right setting—appropriate utilizations and costs controls follow.”

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