Order Code RL30813
CRS Report for Congress
Received through the CRS Web
Federal and State Initiatives to Integrate Acute
and Long-Term Care: Issues & Profiles
January 22, 2001
Edward Alan Miller
Analyst in Social Legislation
Domestic Social Policy Division
Congressional Research Service ˜ The Library of Congress
Federal and State Initiatives to Integrate Acute
and Long-Term Care: Issues & Profiles
Over the past two decades, Congress has considered a variety of proposals to
improve the financing and delivery of long-term care. One such approach is to better
coordinate the acute and long-term care services needed by many of the 7 million
Medicare beneficiaries who also qualify for Medicaid. These “dual eligibles” are not
only disproportionately poor but are also more likely than other beneficiaries to be age
85 or older, under age 65 and disabled, non-white, female, alone, in only fair or poor
health, cognitively and functionally impaired, and suffering from many chronic
ailments and diseases. The $106 billion in public spending attributed to this
population in 1995 was one-third of all spending by Medicare and Medicaid
Dual eligibles are served by two financing programs (Medicare and Medicaid),
administered under different authorities (the federal and state governments), that, for
the most part, cover different services (acute and long-term care). Many believe that
this bifurcation of responsibility has helped create a fragmented service delivery
system, fraught with administrative inefficiencies and incentives to shift costs. To
achieve integration, most federal and state initiatives have relied on managed care
organizations to directly provide or arrange to provide health and social services
through affiliated providers for a prepaid, fixed monthly payment (or capitation). The
intent is to use managed care mechanisms as vehicles for integrating financing, service
delivery, and administration. The Program for All-Inclusive Care of the Elderly
(PACE) is an example of a federal initiative that capitates both Medicare and
Medicaid. Minnesota Senior Health Options, the Wisconsin Partnership Program, and
the Continuing Care Network Demonstration are examples of state initiatives that do
the same. Other federal initiatives include the Social HMO (S/HMO) demonstration,
which capitates Medicare acute and long-term care services, and EverCare, which
coordinates with Medicaid but capitates Medicare only.
While comprehensive reform has been considered, Congress has primarily taken
an incremental approach to long-term care. Though Medicare-Medicaid integration
programs serve a comparatively small number of dual eligibles, they provide options
Congress may consider when formulating future policy. Possibilities for congressional
consideration may include streamlining the federal waiver approval process necessary
for programs, relaxing Medicare and other impediments to state programs, developing
new care coordination mechanisms and payment methodologies, facilitating unified
Medicare and Medicaid program administration, and supporting care management in
fee-for-service Medicare and Medicaid.
Though the number of integration programs has grown, there are a variety of
reasons why states might exclude dual eligibles from their Medicaid managed care
efforts and why dual eligible enrollment in Medicare HMOs has been quite low.
These include doubts about managed care’s appropriateness for vulnerable
populations, lack of plan availability, selective enrollment, inadequate risk adjustment,
and statutory and regulatory impediments. Given these issues, some have proposed
relying on care management to integrate care without capitation.
Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Dual Eligibles Defined . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Characteristics . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Expenditures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Projections . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Serving Dual Eligibles: Separate Systems . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Medicare . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Medicaid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other Programs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Divided Responsibility: Implications . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fragmentation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Administrative Inefficiency . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cost-Shifting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Medicare-Medicaid System Reform Goals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Managed Care as a Vehicle For Integration . . . . . . . . . . . . . . . . . . . . . . . . . . .
Managed Care Basics . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Medicaid Managed Care Enrollment . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Medicare Managed Care Enrollment . . . . . . . . . . . . . . . . . . . . . . . . . . . .
A Managed Care Approach to Integration . . . . . . . . . . . . . . . . . . . . . . . .
Financial Integration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Service Delivery Integration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Administrative Integration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Federal and State Initiatives
Serving Medicare-Medicaid Dual Eligibles . . . . . . . . . . . . . . . . . . . . . . . .
Integration Through Federal Initiatives . . . . . . . . . . . . . . . . . . . . . . . . . . .
Integration Through Comprehensive State Demonstrations . . . . . . . . . . .
Integration Through Capitated State Medicaid Demonstrations . . . . . . . .
Concerns About Integrating Acute and Long-Term Care . . . . . . . . . . . . . . . . .
Doubts About Managed Care’s Appropriateness for Vulnerable
Populations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Resource Use and Costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Quality of Care . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Satisfaction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Lack of Plan Availability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Evidence of Risk Selection and Concerns About Inadequate Risk
Adjustment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Statutory and Regulatory Issues Regarding Integration . . . . . . . . . . . . . .
Care Management in the Fee-for-Service System:
An Alternative to Capitation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
Policy Implications . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
Appendix A. Summary of Federal and State Initiatives for Integrating Acute
and Long-Term Care for Medicare-Medicaid Dual Eligibles . . . . . . . . . . . 37
Appendix B: Detailed Program Profiles . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Program for All-inclusive Care of the Elderly (PACE) . . . . . . . . . . . . . . .
Social Health Maintenance Organization Demonstration (S/HMO) . . . . . .
EverCare . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Minnesota Senior Health Options (MSHO) . . . . . . . . . . . . . . . . . . . . . . .
Wisconsin Partnership Program . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Continuing Care Network Demonstration, Monroe County, New York . .
Arizona Long-Term Care System . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Oregon Health Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Florida’s Community-Based Diversion Pilot Project . . . . . . . . . . . . . . . . .
Appendix C: Waiver Authorities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
List of Tables
Table 1. Comparison of Medicare Beneficiaries by Dual Eligibility Status,
1998 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Table 2. Projections of Medicare and Medicaid Expenditures for Long-Term
Care Services for the Elderly, 2000-2025 . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Table 3. Examples of the Way Profiled Programs Pursue
Medicare/Medicaid Integration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Federal and State Initiatives to Integrate
Acute and Long-Term Care: Issues and
Congress has considered a variety of proposals to improve the financing and
delivery of long-term care. While comprehensive reform has been considered,
Congress has primarily taken an incremental approach when addressing long-term
care issues. Recent proposals, for example, would provide tax credits for families of
individuals with long-term care needs, offer tax deductions for individuals who
purchase private long-term care insurance, fund caregiver support services through
the Older Americans Act, and link the provision of additional federal nursing home
dollars to quality of care improvements.1 Another strategy supported by Congress as
well as the Clinton Administration and the states has been the development and
implementation of programs that integrate acute and long-term care services for frail
elders and disabled adults. This report discusses such efforts with an eye toward
providing Congress with the necessary information with which to consider future
action in this area.
Federal and state initiatives to integrate acute and long-term care usually focus
on Medicare beneficiaries who also qualify for Medicaid (i.e., the “dual eligibles”).
Compared to other beneficiaries, the nation’s approximately 7 million dual eligibles
are especially vulnerable and have high medical care costs. They also face additional
problems that arise from their being served by two separate programs (Medicare and
Medicaid), administered under two different authorities (the federal and state
governments), that, for the most part, cover two different types of services (acute and
long-term care). Many believe that the bifurcation of responsibility in caring for dual
eligibles has resulted in a fragmented health services delivery system, fraught with
administrative inefficiencies and incentives to shift costs. They argue that reform is
necessary if this population is going to be served more cost-effectively.
The primary vehicles suggested for reform are managed care organizations that:
(1) directly provide, or arrange to provide, health and long-term care services through
affiliated providers; and (2) receive a prepaid, fixed monthly payment, or capitation,
in exchange for assuming full responsibility for all covered benefits. Although these
entities often include health maintenance organizations (HMOs) that have traditionally
covered only acute health care services, the general goal of reform is to use managed
For further information, see CRS Report RL30254, Long-Term Care: The President’s
FY2001 Budget Proposals and Related Legislation, by Carol O’Shaughnessy, Bob Lyke,
care mechanisms to integrate Medicare and Medicaid financing (through prepaid,
fixed monthly payments or capitations, and broad, flexible benefits), service delivery
(through comprehensive provider networks and care coordination), and administration
(through unified program requirements and oversight). Care management without
capitation has also been proposed as an approach to achieving integration.
In exploring integration of acute and long-term care, this report begins by
characterizing the dually eligible population and describing the problems associated
with meeting their health and social service needs in an uncoordinated system. It
continues by analyzing the advantages of using capitation and care management as the
vehicle for integrating those services and by discussing concerns about care
integration strategies. It concludes by profiling nine federal and state programs that
to varying degrees integrate the acute and long-term care services that MedicareMedicaid dual eligibles often require. These are:
! Federal initiatives such as the Program for All-inclusive Care of the Elderly
(PACE), which capitates both Medicare and Medicaid acute and long-term
care services for dual eligibles, and the Social/Health Maintenance
Organization (S/HMO) and EverCare demonstrations, which capitate Medicare
! Comprehensive state demonstrations such as Minnesota Senior Health
Options, the Wisconsin Partnership Program, and the Continuing Care
Network Demonstration of Monroe County New York, which, like PACE,
capitates both Medicare and Medicaid benefits; and
! Capitated state Medicaid demonstrations such as the Arizona Long-Term
Care System, Oregon Health Plan, and Florida’s Community-Based Diversion
Pilot Project, which capitate Medicaid only, but actively pursue various
Medicare coordination strategies.
Proposals that explore using care management techniques to integrate Medicare
and Medicaid service delivery without capitation are also discussed briefly. The
report concludes with the observation that although federal and state initiatives to
integrate acute and long-term care for dual eligibles only serve a relatively small
percentage of this population, they provide a set of options which Congress may want
to examine when formulating long-term care policy in the future.
Dual Eligibles Defined
The term dual eligibles refers to individuals who qualify for both Medicare and
Medicaid. Persons qualify for Medicare because they are either age 65 or older, or
under age 65 and disabled and receiving Social Security disability insurance (SSDI)
for 2 years. Persons qualify for Medicaid because they are either aged, blind, or
disabled and meet the income and asset requirements for Supplemental Security
The S/HMO program also has the authority to capitate Medicaid covered benefits, though
this occurs in limited circumstances.
Income (SSI) assistance,3 or because they are “medically needy,” having “spent
down” their income and assets to pay for their medical or long-term care costs to
state determined levels. The majority who qualify for Medicaid are eligible for full
Medicaid benefits. Others, however, are only eligible for Medicaid coverage of some
portion of their Medicare premiums and cost-sharing. This latter group includes
Qualified Medicare Beneficiaries (QMBs), Specified Low-Income Medicare
Beneficiaries (SLMBs), Qualified Disabled and Working Individuals (QDWIs), and
others termed Qualifying Individuals (1) and (2) (QI-1s and QI-2s).4
Characteristics. In 1998, the Medicare program covered 39.8 million
beneficiaries, including 34.7 million individuals age 65 and older (87.2%) and 5.1
million disabled individuals under age 65 (12.8%). Of the 7.0 million (17.5%)
Medicare beneficiaries who were also eligible for full Medicaid benefits and/or for
Medicaid payment of Medicare cost-sharing requirements, 4.9 million (71.3%) were
over age 65. Data from the 1998 Medicare Current Beneficiary Survey indicate that
dually eligible Medicare beneficiaries are particularly vulnerable compared to persons
who qualify for Medicare only (see Table 1). Not only are they disproportionately
poor, by definition, but they are more likely than non-dually eligible Medicare
beneficiaries to be frail elders age 85 and over and disabled individuals under age 65.
They are also more likely to be minority, female, unmarried, institutionalized, alone,
less educated, report fair or poor health, and suffer from functional and cognitive
impairments such as limitations in instrumental and basic activities of daily living.5
Except for arthritis and cancer, dually eligible beneficiaries are also more likely to
suffer from most chronic ailments and diseases. Almost half of all Medicare
beneficiaries with Alzheimer’s disease (49.0%) are dually eligible.
In 2001, an individual qualifying for SSI must have countable income less than $530 per
month, and assets of less than $2,000.
QMBs have monthly incomes below 100% of the federal poverty level and assets less than
$4000, and receive Medicaid coverage for Medicare Part B premiums, as well as for any
Medicare deductibles and coinsurance. SLMBs have incomes below 120% of the federal
poverty level and assets less than $4000, and receive coverage for their Medicare Part B
premiums only. QDWIs lost their Medicare Part A benefits due to a return to work but have
monthly incomes below 200% of the poverty level and receive Medicaid coverage of their Part
A premiums. QI-1s have monthly incomes below 135% of the federal poverty level and can
receive coverage for their Medicare Part B premiums. QI-2s have monthly incomes below
175% of the federal poverty level and receive coverage for a portion of their Medicare Part
B premiums. The QI-1 and QI-2 categories were introduced by the Balanced Budget Act of
1997, which placed an annual cap on the amount of money available. To fund premiums, a
state is only required to cover the number of persons to bring its spending on these groups in
a year up to its allocation. The continuation of coverage for these latter two groups is
authorized in law through the end of 2002.
Instrumental activities of daily living are tasks necessary for independent community living,
and include the following: shopping, light housework, telephoning, money management, and
meal preparation. Activities of daily living are activities necessary to carry out basic human
functions, and include the following: bathing, dressing, eating, toileting, and transferring from
a bed to a chair.
Expenditures. Not surprisingly dual eligibles use a disproportionate share of
resources relative to their numbers. The 1995 per capita health expenditures for dual
eligibles ($16,854), for example, was close to two and a half times higher than for
non-dually eligible Medicare beneficiaries ($7,031).6 Dual eligibles consume more
spending than their share of recipients. Although they constituted only 16% of
Medicare beneficiaries in 1995, dual eligibles accounted for approximately 30% of
total Medicare expenditures ($53 billion).7 Although only 17% of Medicaid
recipients, dual eligibles accounted for approximately 35% of Medicaid expenditures
($53 billion). Overall, the $106 billion consumed by this population was one-third of
total spending by both the Medicare and Medicaid programs combined in 1995.
Table 1. Comparison of Medicare Beneficiaries by Dual
Eligibility Status, 1998
Income Less Than $10,000
Age 85 and Older
Under Age 65 But Disabled
Non-White (Hispanic, Black, Other)
Living Alone If in Community
Less than 12 Years of Education
Fair/Poor Self-Reported Health
1+IADL or ADL Limitation
Upper Extremity Limitation
Multiple Chronic Conditions
Other Type of Cancer
Source: HCFA Analysis of the 1998 Medicare Current Beneficiary Survey
IADL=Instrumental Activity of Daily Living
ADL=Activity of Daily Living
Murray, Lauren A., and Andrew E. Shatto. Dually Eligible Medicare Beneficiaries. Health
Care Financing Review, v. 20, no. 2, 1998. p. 131-140. Data from the 1995 Medicare
Current Beneficiary Survey.
Health Care Financing Administration (HCFA). A Profile of Dually Eligible Beneficiaries.
Prepared for the National Health Policy Forum, May 6, 1997.
The share of state Medicaid budgets consumed by the dual eligibles can be very
dramatic. In 1995, for example, the percentage of total state Medicaid spending
devoted to dual eligibles in each of the six New England states far exceeded their
percentage of each state’s Medicaid population. In Connecticut, Massachusetts, and
New Hampshire, for instance, dual eligibles constituted approximately 20% of each
state’s Medicaid recipients but accounted for more than half of spending.8
In 1999, Medicaid long-term care expenditures for the total Medicaid population
reached $63.2 billion or 35.2% of total Medicaid expenditures.9 Most of that
spending (74%) was devoted to institutional services (i.e., nursing home care plus
intermediate care facilities for the mentally retarded). Much less (26%) was directed
toward community-based services (i.e., personal care, home and community-based
waiver services (HCBS), and home health care). These 1999 figures represent only
the latest point in a decade of unprecedented Medicaid program growth. Between
1988 and 1999, the annual compound rate of growth in Medicaid expenditures was
12.0% for all of Medicaid, and 9.5% for Medicaid long-term care.10 Though
Medicaid program growth has been driven largely by factors such as inflation in
medical care costs, eligibility expansions, and the provision of additional services, the
aging of the population and the higher rate of chronic disease and disability that it
entails, has also played a small but increasingly significant role in driving program
expenditures. The graying of the baby boom generation (76 million strong) will only
exacerbate this trend.
Projections. June E. O’Neill, former Director of the Congressional Budget
Office (CBO), has argued that increased longevity, together with a large increase in
the size of the retired population and slow growth in the number of workers, will
dramatically expand the burden of federal long-term care expenditures in the coming
decades.11 Between 2000 and 2020, the number of individuals age 65 and older is
projected to increase by almost 50% (from 35.5 to 52.6 million), while the number of
individuals age 85 and older is projected to increase by 26% (from 4.6 to 5.8 million,
reaching more than 14 million by 2050).12 At the same time, the number of disabled
elderly persons with at least one ADL or IADL limitation is expected to grow by 42%
(from 5.2 to7.4 million), in large part due to the dramatic growth in the number of
individuals 85 and older. Based on demographic projections that indicate significant
New England States Consortium. Dual Chart Book: Dually Eligible Beneficiaries in New
England. [http://neconsortium.org/chrtbook.htm.] Visited June 15, 2000.
Burwell, Brian. Memorandum: Regarding Medicaid Long Term Care Expenditures in
FY1999. The Medstat Group, April 25, 2000. Using data from HCFA Form 64 Reports.
Ibid. Though high, these figures mask an especially explosive period between 1988 and 1993
when Medicaid grew at an annual compound rate of 19.6% and Medicaid long-term care grew
at 12.9%. Spending has since slowed, however. Between 1993 and 1999, annual compound
increases in total Medicaid and Medicaid long-term care expenditures dropped to 5.6% and
U.S. Congress. House. Committee on the Budget. Long-Run Budgetary Impacts of an
Aging Population. Testimony by June E. O’Neill, Director, Congressional Budget Office,
March 13, 1996.
The Long-Term Care Financing Model. The Lewin Group, Inc., 2000.
growth among the oldest old and the growing ranks of the population that will be
chronically ill and disabled, the Lewin Group has projected that Medicare and
Medicaid expenditures for long-term care services for the elderly will more than
double between 2000 and 2025 (see Table 2). It is likely that an increasingly
disproportionate share of these resources will be consumed by dually eligible
individuals, since they are more likely than non-duals to be among the populations
requiring long-term care.
Table 2. Projections of Medicare and Medicaid Expenditures for
Long-Term Care Services for the Elderly, 2000-2025
(in billions, in 1999 dollars)
Source: The Long-term Care Financing Model. Preliminary estimates prepared by the Lewin Group,
Inc., for the Office of the Assistant Secretary for Planning and Evaluation (OASPE), DHHS, 2000.
Serving Dual Eligibles: Separate Systems
Given their disproportionate share of disease and disability, dual eligibles often
require a continuum of acute and long-term care services that meet their changing
health and social service needs, including services delivered in the home and the
community. The Pepper Commission defined long-term care as “an array of services
needed by individuals who have lost some capacity for independence because of a
chronic illness or condition. Long-term care consists of assistance with basic
activities and routines of daily living such as bathing, dressing, meal preparation, and
housekeeping. It may also include skilled and therapeutic care for the treatment and
management of chronic conditions.”13
Different programs and levels of government have been assigned primary
responsibility for financing, planning, and administering the care that dual eligibles
require. Dual eligibles, in particular, are served by two programs (Medicare and
Medicaid), administered under different rules by different authorities (the federal and
state governments), that, for these persons, cover different categories of services
(acute and long-term care). Delivery of these two basic types of services, moreover,
has been delegated to different organizations and delivery systems. Whereas most
acute care services are provided within hospitals and physicians’ offices, most federal
and state funded long-term care services are provided by nursing homes and
community-based health and social service organizations. Though the Health Care
A Call for Action, The Pepper Commission: U.S. Bipartisan Commission on
Comprehensive Health Care. Final Report, September 1990. p. 90.
Financing Administration (HCFA) administers both programs at the federal level,
states have been granted primary administrative responsibility for the Medicaid
program. While Medicaid provides coverage for both acute and long-term care
services, Medicaid long-term care coverage is especially significant largely because
dual eligibles can rely on Medicare as the primary payer for acute care services. The
basic problem, some argue, is that neither Medicare nor Medicaid has responsibility
for the entire system.
Medicare. For dual eligibles, Medicare is the main payer for primary and acute
care services. It is federally financed and administered by HCFA and consists of Part
A, the Hospital Insurance Program, and Part B, the Supplementary Medical Insurance
Program. Part A provides coverage for inpatient hospital services, up to 100 days of
post-acute care in a skilled nursing facility following a hospital stay, home health
services for persons who need skilled nursing care, and/or therapy services, and
hospice services; Part B provides coverage for physicians services, outpatient hospital
services, laboratory services, durable medical equipment, some home health care, and
other medical care. Unlike Medicaid, Medicare’s role in funding long-term care is
Medicaid. For the majority of dual eligibles who receive full benefits, Medicaid
provides coverage for acute care and other services not included in the Medicare
benefits package (e.g., prescription drugs and medical transportation). More
importantly, though, for a chronically ill and disabled population, Medicaid provides
coverage for long-term care, including nursing home care and home and communitybased services. Because of substantial flexibility granted to states in implementing
Medicaid, there are essentially 56 separate Medicaid programs covering each of the
50 states, U.S. territories, and the District of Columbia.
Other Programs. A variety of other federal programs also support long-term
care services, including home and community-based services funded through the
Older Americans Act, the Social Services Block Grant, the Department of Veterans
Affairs, and various housing programs administered by the Department of Housing
and Urban Development. There are also additional state programs. All but two states
(Alabama and Mississippi) had state-only funded home and community-based care
programs for older persons in 1996, for instance.14 Though not nearly as large as
Medicare or Medicaid, these additional programs play a role in serving the long-term
care needs of dual eligibles and others who do not meet the eligibility criteria of
Medicare and/or Medicaid. They make care coordination even more difficult,
Kassner, Enid, and Loretta Williams. Taking Care of Their Own: State-Funded Home and
Community-Based Care Programs for Older Persons, no. 9704. AARP, Public Policy
Institute, Washington, DC, September 1997.
Divided Responsibility: Implications
Many believe that the bifurcation of responsibility for caring for dual eligibles
between Medicare and Medicaid (and sometimes other programs) has helped create
a fragmented service delivery system, fraught with administrative inefficiencies and
incentives to shift costs from one payer to the other.
Fragmentation. Because of their greater degree of disability and frailty, dual
eligibles often must access multiple health and social services from both the acute and
long-term care sectors. Some argue, however, that the separate funding and service
delivery systems of Medicare and Medicaid typically require that patients and their
families try to obtain care from a confusing assortment of badly coordinated providers
and care settings, which have no incentives to interact given divided financing
responsibility. Inconsistent practices and poor communication, along with separate
medical record systems, pose significant barriers to meeting the total care needs of
individual patients. Seldom does one provider assume responsibility for coordinating
care and assuring its continuity. Thus, despite their greater need for continuity, dual
eligibles are less likely than other Medicare beneficiaries to report having a consistent
source of care.15 According to a study published in 1993, they are also less likely to
receive specific types of preventive care, follow-up, and testing, and though they use
more health services generally, they are less likely to receive timely, appropriate care
relative to disease-specific standards.16
In addition to its implications for patient health, fragmentation may also increase
system costs by complicating coordination across service providers and care settings.
For example, patient discharges from expensive acute care facilities may be delayed
unnecessarily because appropriate care in a nursing facility or patient’s home could
not be arranged. Some, moreover, believe that incentives built into the current system
promote the overutilization of expensive institutional care and the underutilization of
less expensive home and community-based care services – which are also more
preferred by beneficiaries.
Administrative Inefficiency. Federal and state administrative rules for
contracting, enrollment, marketing, reimbursement, oversight, data collection and
quality standards are different for Medicare and Medicaid. The resulting
inconsistencies and overlapping requirements, some argue, complicate caring for
dually eligible beneficiaries as providers and payers must maintain parallel
administrative systems for the two programs. In particular, providers often need to
conduct multiple assessments, develop multiple protocols, and establish multiple
records for a single patient during a single episode of care.
According to the 1995 Medicare Current Beneficiary Survey, dual eligibles were less likely
than other Medicare beneficiaries to report seeing a particular doctor and more likely to report
using the emergency room. See: HCFA. A Profile of Dually Eligible Beneficiaries. May
Merrell, Katie, David C. Colby, and Christopher Hogan. Medicaid Beneficiaries Covered
by Medicaid Buy-In Agreements. Health Affairs, v. 16, no. 1, 1997. p. 175-184. Based on
claims from 1992 and 1993 for a 1% sample of beneficiaries.
Though difficult to measure, some researchers have indirectly estimated the costs
of such administrative inefficiencies. For example, one group of investigators found
that most of the higher Medicare costs of dual eligibles relative to other beneficiaries
was due to demographic, health, and disability factors. Controlling for these factors
reduced the cost gap from 282% to 45% of the average beneficiary’s costs. The
authors suggest that much of the remaining difference (45%) could be attributable to
the inefficiencies associated with providing care under two separate programs.17
Cost-Shifting. It has long been widely acknowledged that overlap in coverage
between two programs serving the same population creates opportunities for costshifting as a way for each program to limit its financial liability. Because Medicare is
entirely federally funded, for example, states have incentives to ensure Medicare is
billed for as many services as possible – a practice known as “Medicare maximization”
that states say is consistent with Medicare’s role as the primary payer of physician and
other acute care services. For those services for which both Medicare and Medicaid
are major payers, moreover, such as nursing facility and home care, opportunities and
incentives for cost-shifting by providers are particularly strong as they seek to
maximize payment or limit their liabilities. Incentives such as these may have
contributed to the explosive growth in Medicare home health expenditures between
1988 and 1997, which has been attributed, in part, to home health care agencies first
billing Medicare for needed care before turning to Medicaid.
Others fear that where two programs cover the same population and no single
entity is accountable for all patient care, reimbursement incentives may play a
disproportionate role in influencing treatment decisions at the expense of the patients’
best interests. To maximize reimbursement under Medicare’s prospective payment
system (PPS), for instance, which pays hospitals a fixed amount for each episode of
patient care, facilities have an incentive to discharge patients as quickly as possible to
long-term care settings in the home or nursing home, which are eventually paid for by
Medicare-Medicaid System Reform Goals
In view of perceived problems in the way acute and long-term care services for
Medicare-Medicaid dual eligibles are financed, administered and delivered, some
observers argue that reform of the health care delivery system is required if this
population is going to be served more cost-effectively. Among the most commonly
articulated goals of reform are to:
! Eliminate fragmented service delivery, while promoting enhanced continuity
of care and more simplified access to services;
! Develop community-based options that promote beneficiary independence
through the use of the most cost-effective, least restrictive care settings (i.e.,
reduce institutional care in favor of home and community-based care);
Liu, Korbin, Sharon K. Long, and Cynthia Aragon. Does Health Status Explain Higher
Medicare Costs of Medicaid Enrollees? Health Care Financing Review, v. 20, no. 2, 1998.
! Make benefits more flexible and responsive to the diverse and changing
needs of individual beneficiaries;
! Promote improvements in care quality and beneficiary outcomes; and
! Control costs through greater emphasis on prevention and primary care,
reduced incentives to use institutional care, fewer opportunities to cost-shift,
streamlined administration and oversight, and less reliance on cost-based
Managed Care as a Vehicle For Integration
Integration means different things to different people. For purposes of this
report, it refers to the process of unifying two previously separate systems into one
– in this case, acute and long-term care financing, administration, and service delivery
for dual eligibles. From the perspective of beneficiaries, a fully integrated system
would provide easier access to appropriate, seamless care, with acute care providers
coordinating with long-term care providers and vice versa.18 What are now multiple
systems would look and act as one. Perhaps the most frequently proposed vehicle for
integration has been managed care.
Managed Care Basics
A recent CRS report defined managed care as a payment system or delivery
arrangement through which health plans attempt to control or coordinate the use of
services by their enrollees.19 Particular managed care arrangements range from
managed fee-for-service systems using case management, utilization review, and other
utilization control strategies, to managed care organizations that combine utilization
management activities with a variety of risk-sharing arrangements. While traditional
unmanaged fee-for-service plans simply reimburse independently operating providers
for services rendered, managed care organizations directly provide or arrange to
provide for health care services through affiliated physicians, hospitals, and other
Managed care organizations also assume varying degrees of risk for the care that
they provide. Those assuming full risk receive a prepaid, fixed monthly payment or
capitation rate in exchange for which they are responsible for all member services.
Unlike fee-for-service systems that create incentives for providers to order additional,
possibly unnecessary, excessive, and duplicative services, managed care organizations
typically rely on prospective reimbursement, which creates incentives for providers
to minimize spending by, theoretically, controlling inappropriate utilization and
promoting early intervention. Common utilization management activities employed
Wiener, Joshua M. and Jason Skaggs. Current Approaches to Integrating Acute and LongTerm Care Financing and Servicing, no. 9516. Public Policy Institute, AARP. December
For additional information see CRS Report RS20259, Managed Care Fact Sheet, by Jean
P. Hearne. July 9, 1999. See also CRS Issue Brief IB98017, Patient Protection and
Managed Care, by Jean P. Hearne. Updated June 6, 2000.
by managed care organizations include case management, utilization review,
mandatory second opinions, preauthorization, and member copayments. Managed
care plans may also negotiate discounted rates with their provider networks, select
low-cost providers, or give participating providers a financial stake in the cost of the
services that they order.
In 1997, more than 60% of the U.S. population, or 165.7 million Americans,
including 75% of insured employees, belonged to Health Maintenance Organizations
(HMOs), Preferred Provider Organizations (PPOs), Provider Sponsored
Organizations (PSOs), and a host of other managed health care plans. Though not
nearly as common, enrollment of Medicare and Medicaid recipients in managed care
has also grown over the course of the last decade. Dual eligibles may enroll in
managed care through either Medicare, Medicaid, or both.
Medicaid Managed Care Enrollment
States generally rely on two types of managed care under their Medicaid plans,
including “risk-based” programs in which health plans assume full or partial risk for
at least some Medicaid covered services, and primary care case management
programs (PCCMs), in which states pay individual health care providers (a physician
or other licensed health professional) a small monthly fee in return for managing
health care services for a defined population. According to a survey by the National
Academy for State Health Policy, by 1998, 54.4% of all Medicaid recipients (16.7
million) were enrolled in managed care, up from 23.0% in 1994, with approximately
three times as many Medicaid beneficiaries enrolled in risk-based as opposed to
PCCM programs.20 The scope of services covered under a risk contract, in particular,
may range from a single service such as mental health to a comprehensive package
that includes all Medicaid covered benefits. Forty-eight states (all but Alaska and
Wyoming) and the District of Columbia had some form of managed care program that
year. While the number of states with risk-based programs grew from 27 to 45
between 1990 and 1998, the number of states with PCCM programs grew from 19
Medicaid law prohibits states from requiring dual eligibles to enroll in managed
care. Compared to other eligible groups (e.g., poverty-level pregnant women and
children) populations with complex needs are less likely to be enrolled in managed
care. Enrollment of dual eligibles in Medicaid managed care depends in part on
individual state Medicaid program policies. In 1998, for instance, only 23 of 45 states
with comprehensive risk programs enrolled community-based elderly Medicaid
recipients.22 Of these 23 states, only nine operated statewide programs that included
this population. Medicare-Medicaid dual eligibles and Medicaid long-term care
recipients are much more likely than other groups not to be enrolled in managed care
(i.e., excluded) or permitted to disenroll from an otherwise mandatory program (i.e.,
Pernice, Kaye N., and C. Pelletier H., eds. National Academy for State Health Policy.
Medicaid Managed Care: A Guide for States, Fourth Edition. March 1999. Portland, ME.
exempted). Of the 45 states with risk-based managed care programs in 1998, for
example, 73% excluded or exempted dual eligibles (31 and 4 respectively), 82%
excluded or exempted community-based long-term care recipients (36 and 3
respectively), and 87% excluded or exempted institutionally-based long-term care
recipients (39 and 1 respectively).
Medicare Managed Care Enrollment
Medicare beneficiaries are entitled to enroll in Medicare+Choice23 plans as long
as they live in areas served by those plans. In September 2000, 16.4% of Medicare
beneficiaries (6.2 million) were enrolled in one of 261 Medicare+Choice plans, up
from 3.3% in 1990.24 While Medicare HMO enrollment has grown, it still lags behind
Medicaid, (which has more than 50% of its beneficiaries enrolled in managed care).
Unlike states, which may make Medicaid managed care enrollment mandatory for
most populations, or acquire special waivers to do so for others (e.g., dual eligibles),
the federal government cannot require Medicare beneficiary enrollment in managed
care. This is because Medicare beneficiaries have a statutory right under the Social
Security Act to choose the providers from which they receive care, a requirement that
cannot be waived. Relative to other Medicare beneficiaries, however, dual eligible
enrollment has especially lagged. Only 4.7% of dual eligibles enrolled in a Medicare
HMO in 1998, compared to 17.4% of non-duals.25
A Managed Care Approach to Integration
Despite state reluctance to enroll dual eligibles in managed care, most initiatives
to integrate acute and long-term care for this population build on existing managed
care arrangements to meld together components of the Medicare and Medicaid
programs, including financing, benefits, providers, administration, and oversight. This
report considers three broad policy goals articulated by system reform advocates:
financial integration, service delivery integration, and administrative integration.26
The Balanced Budget Act of 1997 replaced the existing Medicare HMO program established
under the Tax Equity and Fiscal Responsibility Act of 1982 with a new program,
Medicare+Choice, which expanded the array of service delivery options available for
Medicare risk contracting, including health maintenance organizations, preferred provider
organizations, provider sponsored organizations, private fee-for-service plans, and medical
savings accounts. It should be noted that dual eligibles were specifically excluded from
medical savings account plans. For additional information see CRS Report 98-90, Medicare
Risk-Contract HMO and Medicare+Choice Private Plan Options, by Beth C. Fuchs, and
CRS Report RL30702, Medicare+Choice, by Hinda Chaikind and Madeleine T. Smith.
HCFA analysis of the 1998 Medicare Current Beneficiary Survey.
Booth, Maureen, Julie Fralich, and Paul Saucier. The Muskie School of Public Service,
University of Southern Maine, and the National Academy of State Health Policy. Integration
of Acute and Long-Term Care for Dually Eligible Beneficiaries through Managed Care.
August 1997. Medicare/Medicaid Integration Project Technical Assistance Paper No. 1. This
section builds on a more extended discussion reported in this study. For purposes of this CRS
Financial Integration. For financial integration to take place, the funds used
to pay for care need to be pooled together. The most common approach suggested
for doing so is capitation, which, as stated earlier, pays contracting entities a fixed fee
in advance to provide a range of services. In a fully integrated system serving dual
eligibles, a single contractor would receive combined Medicare and Medicaid
capitation payments in exchange for assuming complete responsibility for the full
range of Medicare and Medicaid acute and long-term care benefits. Unlike fee-forservice systems, which pays for each covered benefit provided, fully capitated entities
would, in theory, have the financial incentive to coordinate/integrate delivery of all
needed acute and long-term care services. Advocates also argue that because
managed care organizations are at risk financially, they would have an incentive to
emphasize preventive services, to reduce hospitalization, and to substitute low-cost
settings for high-cost settings when appropriate (e.g., nursing facility care for hospital
care, community care for nursing home care). In fact, some believe that savings
resulting from reduced acute care utilization (i.e., hospitalization) could be used to
fund expanded long-term care benefits, and that full capitation would also eliminate
incentives to shift costs because the use of a fixed payment to cover all services
eliminates the need to consider which program is paying.
Service Delivery Integration. For full integration to take place, service
delivery integration is also required. As a first step, proponents suggest the
development of comprehensive delivery systems with access to the complete array of
health and social services necessary to meet the complex needs of dual eligibles.
Ideally, an integrated network would combine traditional health care providers, such
as physicians, hospitals, and nursing homes, with community-based organizations with
experience caring for the chronically ill and infirm at home or in the community.
Supportive residential options such as assisted living might also be included.
Advocates point out, however, that simply forming an expanded provider
network does not guarantee that services will be integrated. Additional steps need to
be taken to ensure that coordination takes place. Possible strategies include: (1) case
management systems that facilitate communication and promote smooth transitions
across providers and settings; (2) assignment of a primary care provider or team
leader through whom beneficiaries access additional network services; (3)
interdisciplinary care teams that possess the varying skills required to meet the diverse
needs of individual members; and (4) centralized member records that ensure timely
access to beneficiary information.
Administrative Integration. For advocates, the last piece of the integration
puzzle is to eliminate the administrative inefficiencies associated with using multiple
payers and delivery sources in an uncoordinated system. Administrative integration,
in particular, would involve a single set of Medicare and Medicaid program
requirements, including the way contracts are administered, enrollment takes place,
report the categories used by Booth, et al. are compressed. According to Booth, et al., fully
integrated systems are those that provide for integrated financing, broad and flexible benefits,
far-reaching delivery systems, care integration, unified program administration, and
overarching quality systems.
data are reported, and quality management and oversight occur. Rather than
requiring plans to enter into separate contracts with Medicare and Medicaid, for
example, a fully integrated program would employ a single contract for plans serving
participants in both programs. In addition to helping to create a single point of
accountability for all Medicaid and Medicare benefits, use of a single contract would
reduce duplication and resolve important differences across the two programs.
To minimize the amount of paperwork and confusion resulting from separate
Medicare and Medicaid membership in the same plan, an integrated system would also
collapse the enrollment systems of the two programs into a single process for the
beneficiary. Moreover, to better track utilization across payment sources,
administrative integration would authorize the collection of a complete set of
encounter-level data (i.e., data gathered each time the beneficiary is seen, no matter
what the funding source). Through more consistent standards, fewer redundant
requirements, and better coordination among overlapping oversight authorities,
Medicare and Medicaid quality management activities would also be rationalized.
Federal and State Initiatives
Serving Medicare-Medicaid Dual Eligibles
The federal government and several states have developed a number of pilot
initiatives aimed at integrating acute and long-term care services for MedicareMedicaid dual eligibles. Nine are reviewed in this report. (See Appendix A and B for
detailed program profiles). They include:
! Federal initiatives such as the Program for All-inclusive Care of the Elderly
(PACE) which capitates Medicare and Medicaid, as well as the EverCare
demonstration and Social Health Maintenance Organization Demonstration
(S/HMO) which capitates Medicare only27;
! Comprehensive state demonstrations such as Minnesota Senior Health
Options, the Wisconsin Partnership Program, and the Continuing Care
Network Demonstration of Monroe County New York, which, like PACE,
capitates both Medicare and Medicaid benefits; and
! Capitated state Medicaid demonstrations such as the Arizona Long-term Care
System, Oregon Health Plan, and Florida’s Community-Based Diversion Pilot
Project, which capitate Medicaid only but actively pursue various Medicare
Implementation of dual eligible programs such as these require HCFA approval
of waivers of certain Medicaid and Medicare program rules. A Medicaid waiver, in
particular, allows states to waive certain federal requirements in order to operate
specific kinds of programs. The Medicaid requirements that may be waived are
statewideness (requirement that services be available statewide), comparability of
services (requirement that duration, amount and scope of services in the state be
The S/HMO program also has the authority to capitate Medicaid covered benefits, though
this only occurs in limited circumstances.
similar for all covered groups), and freedom-of-choice (requirement that Medicaid
recipients be free to choose their own providers). These waivers are usually referred
to according to the section of the Social Security Act under which they are
authorized. Extant Medicaid waiver authorities include 1115 “research and
demonstration” waivers, 1915(b) “freedom-of-choice” waivers, and 1915(c) home
and community-based services waivers. States may also use one non-waiver
authority, 1915(a), to establish voluntary managed care programs. (See Appendix
C for details.)
States have traditionally sought 1915(b) or 1115 waivers when considering
mandatory Medicaid managed care programs. Others have combined a 1915(a)
(allowing states to establish voluntary managed care programs), or 1915(b) waiver
(allowing states to establish mandatory managed care programs) with a 1915(c)
waiver which allows them to expand available services to include non-medical, social,
and support services that allow individuals who otherwise would have required
nursing facility care to remain in the community. Those explicitly incorporating
Medicare services into their managed care efforts have also sought Section 222
Medicare waivers which allow them to contract with plans that are not Medicare risk
contractors and to alter the way such contractors are paid. Waiver applications are
reviewed and approved by HCFA.
Though the nine programs profiled in this report use varying approaches and
combinations of waiver authorities, general similarities exist in their strategies for
integrating financing and service delivery (see Table 3). While financial integration
involves capitation of Medicare and/or Medicaid benefits, service delivery integration
typically involves comprehensive provider networks, case management, and
interdisciplinary teams of providers. Less effort, however, has been made to integrate
Medicare and Medicaid administratively. Only PACE and MSHO include provisions
to integrate Medicare and Medicaid data reporting requirements, while only MSHO
has integrated provider contracting and member enrollment processes.
Table 3. Examples of the Way Profiled Programs Pursue
Medicare and Medicaid
Program for AllInclusive Care of the Capitation. Acute and
One set of
data to HCFA
Acute and Some LongTerm Care
Acute Care Only
Medicare and Medicaid
Capitation. Acute and
Most Long-Term Care
process, and data
Medicare and Medicaid
Acute and Long-Term
Medicare and Medicaid
Capitation. Acute and
Long-Term Care and
some Acute Care
Oregon Health Plan
Some Acute Care
Long-Term Care and
Some Acute Care
Though similarities exist in some of the general integration strategies used,
program specifics vary greatly. The following three sections discuss these differences
in the context of federal initiatives, comprehensive state demonstrations, and capitated
state Medicaid demonstrations.
Integration Through Federal Initiatives
Under this approach dual eligibles voluntarily enroll in a managed care
organization participating in one of three federal initiatives: the first and second
generation incarnations of the S/HMO demonstration, the EverCare demonstration,
and the PACE program (which the Balanced Budget Act of 1997 made a permanent
benefit category under Medicare and an optional benefit states can offer under
Medicaid). All three programs operate under Section 222 Medicare demonstration
waivers and all three capitate Medicare acute care benefits. Although PACE and
S/HMO also operate under Section 1115 Medicaid waivers, S/HMOs serve a much
broader cross-section of Medicare beneficiaries than PACE (i.e., they target Medicare
beneficiaries generally) and, therefore, enroll comparatively few dual eligibles. PACE,
on the other hand, requires that enrollees be certified for nursing home care and
targets persons who are or would be eligible for Medicaid and on whose behalf the
state makes another capitated payment, generally to cover long-term care services not
covered by Medicare. The EverCare program, by contrast, focuses exclusively on
Medicare-eligible nursing home residents.
Though EverCare does not cover long-term care, its providers work closely with
nursing homes to coordinate acute and long-term care services. The goal of
EverCare, in particular, is to use physician-nurse practitioner teams as a way to
reduce the need to hospitalize nursing home residents. By emphasizing the delivery
of primary, preventive, and other outpatient services within the nursing home,
EverCare attempts to save Medicare money and reduce the dislocation trauma
associated with being transferred from the nursing home to the hospital. Under
EverCare, the per enrollee monthly capitation paid by Medicare is equal to 97.8% of
the Medicare county rate for Medicare+Choice plans. Approximately 11,300 nursing
home residents are being served at six EverCare demonstration sites. An evaluation
is due at the end of 2001.
Unlike EverCare, PACE provides coverage for a broad array of long-term care
services. The primary goal of PACE is to use interdisciplinary case management,
adult day care, and other home and community-based care services to prevent the
institutionalization of extremely frail elders. Case management teams, in particular,
consist of physicians, nurses, social workers, dieticians, physical and occupational
therapists, activity coordinators, and other health and transportation workers. Under
PACE, the per enrollee monthly capitation paid by Medicare is equal to 2.39 times the
Medicare county rate amount for Medicare+Choice plans. Calculation of the monthly
Medicaid rates varies by state and is subject to negotiation between each PACE
provider and state Medicaid agency. Member premiums are charged when
appropriate. There are currently 7,000 enrollees at 26 PACE sites in 14 states.
HCFA’s evaluators of the PACE demonstration found that compared to people
who applied to PACE but later declined to enroll, PACE enrollees were less costly
as indicated by lower health expenditures in the 6 months prior to applying to the
PACE program. 28 This led evaluators to conclude that PACE sites are experiencing
Irvin, Carol. Evaluation of the Program of All-Inclusive Care for the Elderly (PACE)
favorable selection, or the disproportionate enrollment of healthier than average
applicants (i.e., those individuals who were referred, screened, and willing to consider
program services). Controlling for prior utilization and other factors, they also found
that PACE enrollees, after enrollment, had lower hospital and nursing home use, a
higher probability of survival, better self-reported health status, higher satisfaction,
and lower levels of functional impairment. Though statistically significant impacts
were found with respect to each of these outcomes, PACE’s impact on medical
utilization tended to be longer lasting (i.e., more than 1 year after enrollment) than its
impact with respect to self-reported health status, satisfaction, and function (i.e., less
than 1 year after enrollment).29 While evaluators found that Medicare capitation
payments were much lower than expenditures would have been had PACE enrollees
continued to receive care in the fee-for-service sector, they found that capitated
payments made by Medicaid were greater than projected fee-for-service costs.
Overall, however, no statistically significant difference was found between combined
Medicare and Medicaid fee-for-service costs and the total (Medicare and Medicaid)
capitation rates received by PACE program sites.30
Compared to PACE the goal of the S/HMO demonstration is more limited.
Rather than attempting to fully integrate a wide range of acute and long-term care
services, it assesses the feasibility of adding a limited chronic care benefit to the
typical package of Medicare HMO services. While the three first generation S/HMO
sites (S/HMO-I) focus care coordination exclusively on those enrollees certified for
nursing facility care, the lone second generation site (S/HMO-II) focuses it more
broadly on individuals with high-risk conditions, evidence of impending disability, or
at high-risk for hospitalization. This latter site also uses a more geriatric-oriented
model of care, including greater reliance on interdisciplinary teams of providers.
Under S/HMO, the per enrollee monthly capitation payment paid by Medicare
is equal to 105.3% of the county rate for Medicare+Choice plans. Plans in both
S/HMO generations, moreover, adjust payment for high risk enrollees. First
generation sites’ payments are adjusted for the demographic characteristics of the
enrollee, e.g., higher capitation payments are made for persons in nursing homes than
for those in the community. The lone second generation plan, on the other hand, riskadjusts Medicare payments using impairments in activities of daily living and
instrumental activities of daily living, as well as the prevalence of adverse medical
conditions. In addition to Medicare payment, S/HMOs also receive Medicaid
payments when appropriate (currently only one site has a formal agreement with the
state to receive Medicaid capitation payments for dually eligible enrollees). They may
Demonstration: Determinants of Enrollment Among Applicants to the PACE Program, Final
Report. Prepared for the Health Care Financing Administration. HCFA Contract no. 500-960003/T04. Cambridge, MA, Abt Associates, Inc. January 1998.
Chatterji, Pinka. Evaluation of the Program of All-Inclusive Care for the Elderly (PACE)
Demonstration: The Impact of PACE on Particular Outcomes, Final. Report Prepared for
the Health Care Financing Administration. HCFA Contract no. 500-96-0003/T04.
Cambridge, MA, Abt Associates, Inc. June 1998.
Forthcoming report under review at HCFA. Based on personal communication with HCFA
also charge member premiums. Currently, more than 84,000 individuals are enrolled
at the program’s four sites.
An evaluation of S/HMO-I took place between 1985 and 1989. Evaluators
concluded that while it succeeded organizationally in offering long-term care to frail
enrollees, it failed to achieve an adequate degree of coordination between acute and
chronic care services. Lack of communication between physicians and other
participants, especially case managers, was largely to blame.31 This finding is one
reason why those planning S/HMO-II opted to use multidisciplinary teams of
providers to assess, plan, and manage care. Moreover, financial losses and high
expenditures (relative to fee-for-service Medicare) among a number of high risk
groups during the demonstration’s early years also led investigators to suggest
refinements to S/HMO operations.32
Like PACE, S/HMO-I sites experienced favorable selection, in this case, the
disproportionate enrollment of healthier than average Medicare beneficiaries. Using
prior utilization and health status, in particular, the evaluators found that S/HMO
enrollees tended to be healthier than those in traditional fee-for-service Medicare.
They also found evidence of favorable disenrollment, where frail and impaired
members were more likely to disenroll than healthier members.33 The impact of
S/HMO-I on outcomes was mixed. While the evaluators concluded that S/HMOs
performed HMO functions well for the healthy and acutely ill, they concluded that
S/HMOs did not perform well for impaired or acutely ill enrollees with chronic
impairments. Though there was no overall difference in mortality rates (standardized
for case mix) between S/HMO enrollees and fee-for-service Medicare beneficiaries.
Moreover, frail individuals had a higher probability of dying in S/HMOs than in feefor-service Medicare.34 While unimpaired S/HMO enrollees reported generally higher
satisfaction than comparable fee-for-service Medicare beneficiaries, impaired enrollees
reported lower satisfaction than impaired fee-for-service beneficiaries in all areas but
finance and benefits (where they were more satisfied).
Overall, S/HMOs serve comparatively larger enrollments than PACE and
EverCare because the latter two programs are limited, in part, by the need to deliver
essential program services at particular sites (i.e., adult day care centers for PACE and
nursing homes for EverCare). Though the PACE and S/HMO programs were
Harrington, Charlene, Marty Lynch, and Robert J. Newcomer. Medical Services in Social
Health Maintenance Organizations. The Gerontologist, v. 33, no. 6, 1993. p. 790-800.
Newcomer, Robert, Kenneth Manton, Charlene Harrington, Cathleen Yori, and James
Vertrees. 1995. Case Mix Controlled Service Use and Expenditures in the Social/Health
Maintenance Organization Demonstration. Journal of Gerontology: Medical Sciences , v.
50A, no. 1. p. M35-M44.
Harrington, Charlene, Robert J. Newcomer, and Steve Preston. A Comparison of S/HMO
Disenrollees and Continuing Members. Inquiry, v. 30, 1993. p. 429-440.
Manton, Kenneth G., Robert Newcomer, Gene R. Lowrimore, James C. Vertrees, and
Charlene Harrington. Social/Health Maintenance Organization and Fee-for-Service Health
Outcomes Over Time. Health Care Financing Administration, v. 15, no. 2, 1993. p. 173202.
designed to serve as models for states, the role of the states in designing and
managing federal demonstration programs such as these has been limited.
Integration Through Comprehensive State Demonstrations
Under this approach, a dually eligible beneficiary voluntarily enrolls in one of a
growing number of state administered demonstrations that capitate both Medicaid and
Medicare benefits. Particular programs include Minnesota Senior Health Options
(MSHO), the Wisconsin Partnership Program, and the Continuing Care Network
(CCN) Demonstration of Monroe, County New York (which will begin operating in
2001). In addition to goals of controlling costs and reducing administrative
complexity, all intend to delay institutionalization through the provision of expanded
home and community-based care options.
All three operate under Section 222 Medicare waivers. While Wisconsin
Partnership currently operates under a Section 1115 Medicaid waiver, MSHO
recently substituted a Section 1915(a)/1915(c) combination for the Section 1115
waiver under which it was originally authorized. CCN is also authorized under a
Section 1915(a)/1915(c) combination. There are currently 3,569 enrollees in MSHO
and Section 822 in Wisconsin Partnership.
Though all enroll dually eligible elders, Wisconsin Partnership also enrolls
younger disabled adults, while Minnesota intends to do so in the future. While
Wisconsin focuses exclusively on individuals deemed eligible for nursing facility care,
MSHO and CCN cast their nets more broadly, enrolling both impaired and unimpaired
beneficiaries. In addition to dual eligibles, CCN also enrolls Medicare-only
beneficiaries, who receive a limited chronic care benefit as part of enrollment in the
program and who may purchase extended long-term care coverage privately.
To provide services, CCN has contracted with a single managed care
organization that features a comprehensive network of acute and long-term care
service providers. Though most Medicaid benefits are included in the New York
demonstration, some, such as prescription drugs, remain in the fee-for-service system.
Minnesota, on the other hand, has contracted with HMOs which have in turn
subcontracted with Geriatric Care Systems to provide all or part of the MSHO
benefits package, including all acute care, home and community-based waiver
services, as well as 180 days of Medicaid nursing facility coverage (which, after 180
days, Medicaid pays on a fee-for-service basis). To provide all acute and long-term
care services, Wisconsin Partnership, by contrast, has contracted with communitybased organizations with experience serving elderly and disabled individuals living in
Interestingly, MSHO is the only program to receive waivers allowing it to
combine the purchase of Medicaid and Medicare services into a single contract
managed and overseen by the state. All other dual eligible initiatives, including the
Wisconsin Partnership Program and CCN, require that plans enter into two contracts,
a Medicaid managed care contract with the state and a Medicare contract with HCFA.
MSHO believes that use of a single contract has allowed it to better resolve important
differences between the Medicaid and Medicare programs than if separate contracts
had been used. For example, it has enabled MSHO to merge the enrollment
processes, membership materials, and grievance procedures of the two programs.
Medicare and Medicaid capitation payments are always pooled at the plan level rather
than the state level, even in Minnesota.
Plans in all three programs receive capitation payments from Medicare and
Medicaid. Like PACE, the per enrollee monthly capitation paid by Medicare under
Wisconsin Partnership is equal to 2.39 times the Medicare county payment rate
amount for Medicare+Choice plans. To create incentives for plans to use home and
community-based services rather than institutional services and to provide
disincentives for the favorable selection of healthier than average individuals, MSHO
and CCN base reimbursement, in part, on impairment, paying more for impaired
individuals living in the community than unimpaired individuals living in the
community. In doing so, both programs employ separate capitation rates for the
following subgroups: nursing home residents, unimpaired community residents,
community residents eligible for nursing facility care, and nursing home conversions.35
Impaired community enrollees in the Minnesota program receive 2.39 times the
Medicare county rate amount for Medicare+Choice plans along with a Medicaid
payment component equivalent to the average monthly payment for elderly home and
community-based waiver services. CCN, on the other hand, intends to use the results
of functional assessments to risk-adjust Medicare and Medicaid payments according
to impairment level.
While MSHO requires that each enrollee have access to a care coordinator, both
Wisconsin Partnership and CCN use interdisciplinary teams of providers to manage
care. Wisconsin partnership also has an especially strong emphasis on client
involvement in decisionmaking, including choice of provider, services and setting.
All three programs cater to limited service areas and enrollments. Though
comparatively few of each state’s dual eligible population is served by MSHO,
Wisconsin Partnership, and CCN, the limited scope of these programs has facilitated
each state’s ability to put together provider networks capable of delivering a
comprehensive array of acute and long-term care services. It has also facilitated their
ability to recruit health and social service organizations with experience serving
elderly and chronically disabled adults living in the community. All three programs
will be studied as part of a multi-state evaluation performed by researchers at the
University of Minnesota. The results are due in 2005.
Integration Through Capitated State Medicaid Demonstrations
Under this option a dually eligible beneficiary enrolls in a capitated Medicaid
demonstration that coordinates with either capitated or fee-for-service Medicare.
These demonstrations include mandatory, statewide Medicaid managed care programs
such as the Arizona Long-Term Care System (ALTCS) and Oregon Health Plan
(OHP), or small, voluntary programs such as Florida’s Community-Based Diversion
Pilot Project, which serves selected metropolitan areas or counties. While the ALTCS
Nursing home conversions refer to individuals who have been discharged into the community
after nursing facility stays of more than 6 months in the MSHO program and 5 months in the
currently enrolls 28,993 individuals, including close to 19,000 elderly and physically
disabled persons, enrollment in OHP stands at 349,500, including 50,000 elderly and
physically disabled dual eligibles. There are 501 individuals enrolled in the Florida
Both Arizona and Oregon use Section 1115 “research and demonstration”
waivers to require most state Medicaid recipients to enroll in managed care. While
recipients certified for nursing home care receive integrated acute and long-term care
services under the ALTCS, the OHP does not formally cover long-term care. Instead,
OHP contractors are required to hire “exceptional needs coordinators” (ENCCs)
whose responsibilities include coordinating OHP-covered acute care benefits with
long-term care services furnished in the fee-for-service system. Florida’s CommunityBased Diversion Pilot project, on the other hand, uses a Section 1915(c) home- and
community-based services waiver to add community-based long-term care to the
acute care benefits already covered by existing Medicaid contractors.
Though none of the three programs profiled capitate Medicare, aspects of each
increase the likelihood of coordination. All three, for example, contract with at least
one managed care organization which also participates in the Medicare+Choice
program, giving at least some dual eligibles the option of receiving capitated Medicaid
and Medicare benefits from the same plan. For those electing to remain in fee-forservice Medicare, moreover, Arizona and Oregon have received waivers from HCFA
allowing them to limit their Medicare cost-sharing obligations to services delivered
through their Medicaid plans36; that is, the state will cover Medicare cost-sharing
amounts only when Medicare covered services are provided by a capitated plan that
also has a contract with the state Medicaid program. (All other state Medicaid
programs must pay Medicare premiums, deductibles, and coinsurance for Medicare
beneficiaries who qualify for full Medicaid benefits, no matter where those
beneficiaries receive their care). Arizona’s and Oregon’s special cost sharing
restrictions, on the other hand, have provided dual eligibles with strong incentives to
use the same providers for both Medicaid and Medicare. Given HCFA’s reluctance
to offer any more such waivers, however, other states must instead rely on consumer
incentives, enrollment counseling and other strategies to persuade beneficiaries to use
Medicaid network providers for Medicare services. Where ALTCS and OHP
members choose to receive their Medicare services through enrollment in a
Medicare+Choice plan, however, the states are still obligated to pay any beneficiary
cost-sharing that might be required.
Rather than focusing on beneficiary choice of providers, Florida requires
contractors to hire case managers whose functions include coordinating the delivery
of all acute and long-term care services regardless of funding source. Where project
enrollees have opted to receive their Medicare benefits on a fee-for-service basis, for
example, case managers are responsible for actively pursuing coordination with their
primary care physician even though that physician may be a non-Medicaid affiliated
provider. How effective such coordination is, however, depends on how cooperative
Minnesota also has a similar waiver for its prepaid medical assistance program, i.e., its
mandatory Medicaid managed care program.
out-of-network providers are, since they are paid by Medicare but unaffiliated with
the Medicaid plan in which their patients are enrolled.
While the approach discussed in this section capitates Medicaid only, it provides
enrollees with a wide pool of Medicare providers from which to choose. Through
consumer incentives, enrollment education, and contracting with existing Medicare
HMOs, it also affords states the opportunity to encourage dual eligibles to receive all
of their Medicaid and Medicare benefits from the same plan. Some believe that this
approach may be particularly attractive to states designing programs for broadly
defined target groups and not just those certified for nursing homes. Others,
however, doubt whether effective care coordination can take place unless
requirements under both programs are formally synchronized and combined
Medicare-Medicaid capitation occurs.
Of the three capitated Medicaid programs reviewed, evaluation results are
available for Arizona and Oregon. An evaluation of the Florida program is currently
in the planning stages. The evaluation of the ALTCS found an approximately 16%
average annual reduction in what Arizona spent per capita for elderly and physical
disabled long-term care Medicaid recipients from what would have been spent in a
typical Medicaid program. Most savings arose from reduced hospital and nursing
home use. While the plan experienced higher ambulatory and administrative
expenditures, these were smaller than the savings due to lower utilization of
institutional care – resulting in net savings to the plan.37
The effect of the Arizona system on patient outcomes was mixed. Evaluators
found that nursing home residents in the ALTCS were less likely to be offered an
influenza vaccine than Medicaid nursing home residents in neighboring New Mexico.
Medicaid nursing home residents in the ALTCS, moreover, were also more likely to
experience other negative medical experiences (such as a decubitus ulcer, fever, and
catheter insertion) than nursing home residents served by the New Mexico program.
No significant differences, however, existed with respect to the incidence of patient
falls or fractures resulting from the use of psychotropic drugs.38
Evaluators of the acute care side of the Arizona Medicaid system found that SSI
recipients in Arizona were less likely to report being very satisfied with their overall
medical care compared to their counterparts in New Mexico. Arizona enrollees also
reported being slightly less satisfied, on average, with waiting time, evening and
weekend availability, information giving, courtesy and consideration. On the other
hand, Arizona recipients reported slightly more satisfaction with ease and convenience
and the costs paid out-of-pocket for medical care received.39
McCall, N., C.W. Wrightson, J. Korb, et al. Evaluation of Arizona’s Health Care Cost
Containment System Demonstration, Final Report. Prepared for the Health Care Financing
Administration. HCFA Contract No. 500-83-0027. San Francisco, CA, Laguna Research
Associates. February 1996.
McCall, Nelda, Jay Deborah, and Richard West. Access and Satisfaction in the Arizona
Health Care Cost Containment System. Health Care Financing Review, v. 11, no. 1, 1989.
Though an evaluation of the Oregon Health Plan has been undertaken, most
findings pertaining to the elderly and disabled portion of the demonstration will not
be made available until early 2001. Preliminary findings, however, indicate that
separate enrollment of dually eligible beneficiaries in Medicare and Medicaid is
extremely complex and time-consuming, and represents the greatest source of
frustration among OHP plans.40 They also indicate that while the ENCC program has
resulted in creative and flexible service plans for some beneficiaries, their effectiveness
has been limited by lack of consumer and provider awareness and variations in ENCC
program operation as a result of latitude granted plans in implementing these
Mitchell, Janet B., and Paul Saucier. Enrolling Elderly and Disabled Beneficiaries in
Medicaid Managed Care: Lessons Learned from the Oregon Health Plan. Prepared for the
Health Care Financing Administration and the Office of the Assistant Secretary of Planning
and Evaluation. Waltham, MA, Health Economics Research, Inc, 1999.
Walsh, Edith G., Gregory Todd French, and Fred Bentley. The Exceptional Needs Care
Coordinator in the Oregon Health Plan Draft. Prepared for the Health Care Financing
Administration and the Office of the Assistant Secretary of Planning and Evaluation.
Waltham, MA, Health Economics Research, Inc, 2000.
Concerns About Integrating Acute and Long-Term
Though the number of federal and state initiatives integrating acute and longterm care for dual eligibles has grown in recent years, there are a variety of concerns
that federal and state policymakers face when developing such programs in the future.
While some of these issues may be characteristic of managed care more generally,
they are especially salient where vulnerable populations such as dual eligibles are
concerned. They include:
Doubts about managed care’s appropriateness for vulnerable populations;
Lack of managed care plan availability;
Evidence of risk selection and concerns about inadequate risk adjustment; and
Statutory and regulatory impediments to developing and implementing
integrated care programs.
Doubts About Managed
Managed care organizations covering acute health care services through a
capitated payment arrangement have primarily served a relatively young and employed
population. Most states, moreover, have focused their Medicaid managed care
programs on children and non-disabled adults, while Medicare beneficiaries who
choose to enroll in managed care tend to be healthier than beneficiaries not enrolled.
Relatively few managed care plans, therefore, have had experience serving vulnerable
groups such as the dually eligible elderly who often have special needs associated with
chronic conditions, require continuous rather than episodic care, experience problems
in navigating through multiple systems, and often lack social resources (e.g., informal
caregivers). As a consequence, some doubt whether managed care organizations have
the expertise or the willingness to take on the risks associated with providing the
specialized services and long-term care required by predominately chronically ill and
disabled populations.42 Furthermore, given the primarily acute and post-acute care
experience of most plans, some fear the “over-medicalization” of long-term care
services or the diversion of funds budgeted for long-term care if integration should
Others, echoing concerns behind the recent passage of patient protection bills in
both the House and Senate,43 fear that financial incentives to do less under managed
care may lead to the under-provision of appropriate services, resulting in access and
quality problems. They are particularly wary that gatekeeper systems, limited
provider networks, and other conventions used to limit care for younger, healthier
enrollees may inhibit the appropriate access of chronically ill and disabled individuals
Friedland, Robert B., and Judith Feder. Managed care for elderly people with disabilities and
chronic conditions; Managed Care and Older People: Issues and Experiences. Generations,
v. 22, no. 2, 1998. p. 51.
For additional information see CRS Issue Brief IB98017, Patient Protection and Managed
Care: Legislation in the 106th Congress, by Jean P. Hearne.
to specialist and other services.44 The following discussion briefly reviews relevant
research findings pertaining to issues of resource use, costs, quality of care, and
Resource Use and Costs. Though not in perfect agreement with the
S/HMO evaluation, which highlighted plan losses and comparatively high
expenditures levels for certain high risk groups, findings from the PACE and ALTCS
evaluations, as well as an evaluation of the Medicare HMO program, indicate that
managed care plans serving the elderly typically use fewer resources and operate more
cheaply than traditional fee-for-service arrangements. While PACE and Arizona
recipients had higher rates of ambulatory care utilization, for example, enrollees in
both programs experienced lower hospital and nursing home use.
These findings are consistent with the results of the Medicare HMO evaluation,
which found that although HMOs had the same number of hospital admissions and
home health clients as fee-for-service Medicare, they had a lower average length of
stay and 50% fewer home health visits.45 Overall, the evaluators concluded that
Medicare HMOs spent 10.5% less for hospital, physician, home health and skilled
nursing care than what would have been spent for the same enrollees in Medicare’s
fee-for-service system. While Medicaid capitation payments under PACE were
higher, moreover, Medicare capitation payments were found to be much lower than
what would have been spent had members not enrolled. This latter result is reflected
on the Medicaid side in Arizona, where Medicaid payments were significantly less
than what would have occurred had a typical Medicaid program been in operation.
Quality of Care. Although existing evaluations indicate that managed care
plans serving the elderly often operate less expensively and use fewer resources,
quality of care findings have been mixed – often no different, but sometimes worse.
While evaluators concluded that S/HMOs performed well for the healthy and acutely
ill, for example, results indicated that they did not perform well for the impaired or
acutely ill with chronic impairments. While no significant difference was found
between Arizona’s managed care-based system and New Mexico’s traditional
Medicaid program with respect to certain nursing home outcomes (e.g., patient falls
or fractures resulting from the use of psychotropic drugs), Medicaid nursing home
residents in Arizona were more likely to experience unfavorable results such as a
decubitus ulcer, fever, and catheter insertion. Even the PACE evaluation, with its
generally positive findings (with respect to mortality, self-perceived health status, and
function), revealed that the project’s impact on health outcomes tended to be more
fleeting than its effect on utilization.
Results from the Medicare HMO evaluation and other studies are also mixed.
For example, evaluators found that, depending on the indicator, the performance of
Medicare HMOs with respect to joint pain, colon cancer, chest pain, and stroke were
sometimes better but more often no different or worse than fee-for-service
Friedland and Feder, 1998.
For results from the Medicare HMO evaluation, see: Brown, R.S., D.G. Clement, and J.W.
Hill. Do Health Maintenance Organizations Work for Medicare? Health Care Financing
Review, v. 15, 1993. p. 7-23.
Medicare.46 Others found that elderly HMO enrollees were more likely than fee-forservice beneficiaries to report a decline in physical health outcomes over a 4-year
study period,47 while another study concluded that the outcomes of home health care
were better for Medicare fee-for-service than HMO patients when adjusted for case
Satisfaction. Although researchers have generally found that elderly people
rate their overall satisfaction with both HMO and fee-for-service care highly, HMO
enrollees sometimes report being more satisfied with financial and coverage aspects
than fee-for-service beneficiaries and less satisfied with other dimensions. While
unimpaired S/HMO enrollees reported higher satisfaction than fee-for-service
beneficiaries in all areas except interpersonal relations (where there was no
difference), impaired enrollees reported lower satisfaction in all areas but finance and
benefits (where they were more satisfied).
Compared to their counterparts in New Mexico, moreover, SSI recipients in
Arizona’s Medicaid program reported being less satisfied with their overall medical
care as well as with particular aspects of care such as waiting time, information giving,
evening and weekend availability, courtesy and consideration. Alternatively, Arizona
respondents reported being slightly more satisfied with ease and convenience and
costs paid out of pocket. Similarly, a comparison of Medicare HMO and fee-forservice beneficiaries found the former to be less satisfied with care processes, plan
access, provider choice, and perceived quality and outcomes, but more satisfied with
costs and less likely to report lacking coverage for needed services.49 PACE
enrollees, on the other hand, had a higher probability of being satisfied with their
overall care arrangements compared to people who applied to PACE but later
declined to enroll.
Lack of Plan Availability
In 1999, 28% of Medicare beneficiaries lived in areas not served by Medicare
HMOs. Though 99% of beneficiaries living in central urban areas had a choice of
plans, almost 90% of beneficiaries living in rural areas had no choice. Thirteen states
also had virtually no Medicare HMO enrollment. The number of organizations
participating in the Medicare+Choice program declined from 346 to 261 by
September 2000. Since the implementation of the program, a large number of
managed care plans have withdrawn or reduced the size of their service areas. In
1999, 907,000 Medicare+Choice beneficiaries were affected by plan withdrawals and
Brown, et al., 1993; Clement, D.G., S.M Retchin, and R.S. Brown, et al., 1994. Access and
Outcomes of Elderly Patients Enrolled in Managed Care. JAMA, v. 271. p. 1487-1492.
Ware, Jr., J.E. M.S. Bayliss, and W.H. Rogers, et al., 1996. Differences in 4-Year Health
Outcomes for Elderly and Poor, Chronically Ill Patients Treated in HMO and Fee-for-Service
Systems: Results from the Medical Outcomes Study. JAMA, v. 276. p. 1039-1047.
Shaughnessy, P.W., R.E. Schlenker, and D.F. Hittle. Home Health Care Outcomes Under
Capitated and Fee-for-Service Payment. Health Care Financing Review, v. 16, 1994. p.
Brown, et. al., 1993.
service area reductions. In 2000, another 327,000 beneficiaries were affected. For
2001, the estimate is 934,000, although some plans may choose to return to the
program as a result of the passage of the Medicare, Medicaid, and SCHIP Benefits
Improvement and Protection Act of 2000.50 Declining plan participation due to
mergers and withdrawals has taken place in the Medicaid managed care market as
well. Though the total number of participating risk plans grew from 275 in 1994 to
375 in 1998, the average number of plans per state with comprehensive risk plan
enrollment declined 15%, from 9.8 to 8.3.51
At this point in time, there are questions about the ability and willingness of
Medicare+choice plans to serve sparsely populated areas with low numbers of
potential subscribers and undeveloped provider infrastructures. Plan withdrawal from
both the Medicare and Medicaid managed care markets, on the other hand, is hard to
interpret, though two interrelated issues come to the forefront: risk selection and
Evidence of Risk Selection and Concerns About Inadequate
Evidence indicates that managed care plans serving the elderly experience
favorable selection or the disproportionate enrollment of beneficiaries who are
healthier, on average, than fee-for-service beneficiaries. Favorable selection has been
extensively documented for Medicare HMOs.52 It has also been documented with
S/HMO and PACE (at least with respect to people who applied to PACE but later
declined to enroll). To the extent that favorable selection takes place, it may stem
from a reluctance on the part of sicker individuals to disrupt long standing
relationships with providers in the community. Although Medicare law prohibits
favorable selection on the part of participating plans, they may encourage enrollment
of healthier beneficiaries through selective marketing, or avoid enrollment of frail
beneficiaries, by, for example, downplaying their reputation for serving chronically ill
Given evidence of favorable selection, HCFA believes that it has overpaid
Medicare HMOs. Despite such perceived overpayment, however, health plans exhibit
a continued reluctance to serve Medicare beneficiaries. There are a number of
possible reasons, including fears by health plans of unlimited liability for care, weak
demand, and underpayment by HCFA for frailer than average Medicare beneficiaries.
For further information, see CRS Report RL30707, Medicare Provisions in H.R. 5661:
Medicare, Medicaid, and SCHIP Benefits Improvement and Protection Act of 2000 by Hinda
Chaikind, Sibyl Tilson, Jennifer O’Sullivan, Carolyn Merck, and Madeleine T. Smith, and
Kaye, et al. Medicaid Managed Care. March 1999.
For example, see: Lichtenstein R. Thomas J.W., J. Adams-Watson, et al. Selection Bias in
TEFRA At-Risk HMOs. Medical Care 1991, v. 29. p. 318-31. Brown, R.S., and J.W. Hill.
The Effects of Medicare Risk HMOs on Medicare Costs and Service Utilization. In Luft,
H.S., ed. HMOs and the Elderly. Ann Arbor, Michigan, Health Administration Press, 1994.
Riley G., Tudor, C., Y. Chiang, et al. Health Status of Medicare Enrollees in HMOs and Feefor-Service in 1994. Health Care Financing Review, v. 17, 1996. p. 65-76.
Dissatisfaction with the way capitation rates are set is a significant factor underlying
all these concerns.
To ensure that the federal government is not overpaying for healthier than
average Medicare beneficiaries and that plans are receiving adequate payment to care
for frailer than average ones, capitation rates can be adjusted for beneficiary risk.
The mechanism for doing so is called risk adjustment, which is a process of setting
capitation rates that reflect health status – paying plans more to care for ill
beneficiaries and less to care for healthy ones. Prior to the BBA, HCFA adjusted
Medicare’s capitation rates to managed care plans using certain demographic factors.
In particular, HCFA used the the average adjusted per capita cost (AAPCC)
methodology. Under the AAPCC, Medicare’s rates were based on county level feefor-service expenditures adjusted for age, sex, disability status, institutional status,
Medicaid eligibility, and working aged status. It is widely acknowledged that these
factors do an extremely poor job of adjusting for risk. In fact, it has been shown that
demographics explain only 1% of the variation in individual beneficiaries’ health care
costs.53 Because demographic factors are poor predictors of future health care use,
inadequate risk adjustment has led to overpayments for healthier than average
Medicare HMO enrollees and underpayments for frailer than average ones.
Recognizing certain inadequacies in payment methodology, the BBA mandated
that HCFA develop and implement a method for risk adjustment based on health
status. The new methodology, 54 which HCFA began to phase in January 2000,
adjusts Medicare capitation payments using enrollee’s inpatient hospital diagnoses in
the previous year, if any, as well as traditional demographic factors.55
Though the new risk adjustment system may perform much better than the old
system, there are still concerns that it, nonetheless, may underestimate the costs of
caring for people with disabilities and overestimates the costs of caring for people
without disabilities. As a consequence, DHHS has temporarily excluded plans
participating in programs enrolling frail populations from implementing the new risk
adjustment system. Six of these plans are profiled in this report, including PACE,
S/HMO, EverCare, MSHO, Wisconsin Partnership, and CCN. These will continue
to be reimbursed under special arrangements established before the new
reimbursement methodology went into effect.
Medicare Payment Advisory Commission. Report to the Congress: Medicare Payment
Policy. Volume I: Recommendations. March 1998.
The new methodology is known as the Principle Inpatient Diagnostic Cost Group (PIPDCG) model. PIP-DCG and its eventual successor are known as claims-based models since
they used diagnostic information from claims submitted by providers to estimate the expected
costs of enrollees. Under the Balanced Budget Refinement Act of 1999, transition to health
status-based risk adjustment will be based on a blended percentage of 10% risk adjusted
payment and 90% demographically adjusted payment in 2000 and 2001, and not more than
20% risk adjusted in 2002.
For additional information, see: CRS Report RL30587, Medicare+Choice Payments, by
Hinda Chaikind, and Madeleine Smith.
Currently, some plans choose not to serve vulnerable populations because they
do not want to take on the full risk of caring for potentially resource intensive groups
such as the dually eligible elderly. This observation has raised interest in partial
capitation, which pays plans using a blended capitated/fee-for-service arrangement in
exchange for providing or arranging to provide covered services.56 Under partial
capitation, plans receive a percentage of the full capitation rate for each enrollee along
with a percentage of the fee-for-service rate for each service delivered. Plans, for
example, may contract with Medicare or Medicaid at 60% of their usual full capitation
rates and receive 40% of the Medicare and Medicaid fee schedule for each service
provided to enrolled beneficiaries. By reducing financial risk, some believe partial
capitation may encourage more plans to serve dual eligibles as well as blunt any
incentives to risk-select or under-provide appropriate services. Because partial
capitation still contains fee-for-service elements, however, it does not contain as
strong an efficiency incentive as fully capitated systems. It also does not provide as
large a prepaid pool with which to fund extra services often needed by this
Statutory and Regulatory Issues Regarding Integration
Before plans can decide whether to participate in managed care programs aimed
specifically at Medicare-Medicaid dual eligibles, the federal and state governments
must first create these programs. States have been particularly enthusiastic in this
regard, believing that they must be allowed to manage the care of dual eligibles if they
are going to control health care costs. To overcome many administrative
inefficiencies associated with using multiple payers in an uncoordinated system, state
policymakers believe that such management needs to include Medicare as well as
Medicaid. Though integrating acute and long-term care through managed care has
indeed been one of three noteworthy strategies pursued by states to control Medicaid
long-term care spending,57 states cite a number of statutory and regulatory barriers
that have severely hampered the development and implementation of MedicareMedicaid integration programs. Many of these perceived obstacles relate to Medicare
and Medicaid program rules.58 They include:
(1) Medicare Freedom of Choice: Medicare beneficiaries currently have a
statutory right to choose the providers from which they receive care. If
states want to integrate Medicare into a managed care program for dual
eligibles, therefore, enrollment must be voluntary, at least for the Medicare
portion of their benefits.
For a more extended discussion, see: Newhouse, J. Reimbursing Health Plans and Health
Providers: Efficiency in Production Versus Selection. Journal of Economic Literature,
September 1996. p. 1236-1263.
Wiener, Joshua M. and David G. Stevenson. Long-Term Care for the Elderly and State
Health Policy. New Federalism: Issues and Options for States Series A, no. A-17. The
Urban Institute, November 1997.
For a recent discussion on these and other implementation issues, see: U.S. General
Accounting Office. Implementing State Demonstrations for Dual Eligibles Has Proven
Challenging. GAO/HEHS-00-94. Report to the Special Committee on Aging, U.S. Senate.
(2) Medicare Lock-In: Currently, dual eligibles electing to receive their
Medicare benefits in a managed care plan may choose to leave that plan on
a month-to-month basis. Guaranteed beneficiary enrollment of only 1
month makes Medicare participation less desirable for managed care plans
than if beneficiaries had to remain enrolled (i.e., locked in) for longer
periods of time. States, on the other hand, may establish longer lock-in
periods under Medicaid. Medicare, however, will move toward a 3-month
annual open enrollment period with effective plan lock-in for 9 months
beginning in 2003. It is expected that longer guaranteed enrollment or
lock-in periods for both Medicare and Medicaid should increase the number
of plans willing to participate in both programs simultaneously.
(3) Medicare Cost-Sharing: As noted earlier, only three states (Arizona,
Oregon, and Minnesota) have received permission from HCFA to limit their
Medicare cost-sharing obligations to services delivered through their
Medicaid plans. All other states are required to provide for Medicaid
payment of Medicare cost-sharing (i.e., premiums, deductibles, and
coinsurance) whether or not dual eligibles who qualify for full Medicaid
benefits elect to obtain care through their state’s Medicaid network of
providers. If a dually eligible Medicaid recipient obtains Medicare covered
services from a primary care physician unaffiliated with their state’s
Medicaid network, for example, most states are still required by HCFA to
cover Medicare coinsurance and deductibles. Because HCFA allows
Arizona, Oregon, and Minnesota to limit Medicare cost-sharing to services
provided by their Medicaid networks, dual eligibles in those states have
strong incentives to use the same providers for both Medicare and
Medicaid since they would have to pay more out-of-pocket to use nonMedicaid affiliated providers. HCFA has expressed an unwillingness to
allow any more states to do the same, since the agency now believes it
infringes on Medicare beneficiaries’ freedom-of-choice. For the foreseeable
future, therefore, all other states must continue to meet their Medicare
cost-sharing obligations no matter where dual eligibles receive their
Independent Medicare and Medicaid Budget Neutrality: Waiver
rules require that managed care programs serving the dual eligible
population be budget neutral (i.e., they cannot cost the federal
government more than traditional fee-for-service programs). If both
Medicare and Medicaid waivers are sought for an initiative, the Office of
Management and the Budget (OMB) requires that they be neutral with
respect to Medicare and Medicaid independently. It is not enough to
show budget neutrality for both programs combined. Critics argue that
evaluating federal spending for Medicare and Medicaid separately ignores
the interaction between Medicare and Medicaid costs and limits state
flexibility to design cost-effective programs.59 They argue that OMB
should look at combined Medicare and Medicaid costs to assess whether
National Chronic Care Consortium. Regulatory Barriers to Integration. Serving the Dually
Eligible Tool Kit. 1999.
a program is cost-effective for society and not focus on budget neutrality
for separate programs.
Waiver Process: Many states have found the process of obtaining
waivers difficult and time-consuming. Unclear waiver authority for dual
eligible demonstrations, they argue, has resulted in inconsistencies in
granting waivers as well as protracted waiver discussions between HCFA
and a number of states – some lasting upwards of 3 years. They propose
that federal policy in this area be clarified, including the implementation
of a 90-day review process and support for a broad range of cost-effective
demonstrations tailored to the market conditions of particular states.60
Care Management in the Fee-for-Service System:
An Alternative to Capitation
Concerns about capitation along with other barriers to managed care have led
some observers to focus on care management as a way to integrate acute and longterm care services for dual eligibles. Care management may be defined as a process
that coordinates the provision of acute and long-term care services across health and
social service professionals and settings of care, including, but not limited to: needs
assessment, prior approval, care communication, coordination, and risk assessment.61
To varying degrees it is used to coordinate care by most health care organizations,
including hospitals, medical groups, insurance companies, home health agencies,
community-based social service agencies, public agencies, senior housing
communities, and health plans.
Although the various managed care initiatives discussed in this paper use a
variety of financing and service delivery arrangements, all rely on some form of care
management. PACE, EverCare, Wisconsin Partnership, the Continuing Care
Network Demonstration, and the lone second generation Social HMO site all use
teams of providers to manage patient care. The Oregon Health Plan, on the other
hand, employs Exceptional Needs Care Coordinators to coordinate Medicaid acute
and long-term care benefits, while Florida’s Community-Based Diversion Pilot project
requires that case managers coordinate care regardless of funding source. Minnesota
Senior Health Options, first generation Social HMOs, and the Arizona Long-term
Care System also assign case managers to program recipients.
Part of the advantage of combining care coordination with Medicare-Medicaid
capitation, supporters argue, is that it provides case managers with the necessary
authority and flexibility to develop and implement care plans that effectively meet the
U.S. Congress. Senate. Special Committee on Aging. Testimony by Mark Meiners before
the Senate Committee, April 29, 1997.
Case Management for the Frail Elderly: A Literature Review on Selected Topics.
Developed by the National Chronic Care Consortium in cooperation with the Minnesota
Department of Human Services, Senior Health Options Project under a grant from the Robert
Wood Johnson Foundation, 1997.
medical and social service needs of individual clients. Some observers argue,
however, that greater coordination need not involve capitation of all Medicaid and
Medicare benefits, nor need it involve enrollment in managed care organizations.
The BBA illustrated these differing views by enacting provisions sympathetic to
both philosophies. While the BBA promoted capitated arrangements with PACE and
Medicare+Choice, it also authorized the Medicare Coordinated Care demonstration
to evaluate private-sector models of care coordination. Because care coordination
has not traditionally been a large part of fee-for-service Medicare, the aim of this
demonstration will be to assess the cost-effectiveness of making monthly payments
for coordinated care services that manage fee-for-service expenditures under Parts A
and B of Medicare.62 Demonstration design and applications procedures were
published on July 28, 2000.63 HCFA plans to announce selected projects by early
The 4-year demonstration, which is to include nine sites (five urban, three rural,
one in Washington, D.C.), is based on a review of 29 private-sector programs chosen
because they serve chronically ill adults and show evidence of reductions in hospital
admissions or total medical costs.64 The review, which was submitted to HCFA on
March 22, 2000, identifies two main types of coordinated care, including disease
management, which target patients whose main problem is a particular medical
diagnosis, and case management, which targets patients who suffer from social and
medical vulnerabilities that place them at a high risk for costly, adverse medical events
and poor health outcomes. The authors note that none of the programs required
physicians to hire new staff, install new equipment, or reorganize their practices. Nor
did they lock patients into predefined networks of providers. All included the
following three steps:
(1) Assessing and Planning: Involves identifying all important problems and
goals and drawing from a comprehensive arsenal of proven interventions
to produce a clear, practical care plan that addresses these problems and
lists these goals;
Implementing and Delivering: Involves (a) operationalizing and
delivering the interventions included in the plan, (b) building ongoing
relationships with providers, patients, and their families, and (c) educating
patients about their conditions and appropriate self-care; and
Reassessing and Adjusting: Involves (a) performing periodic
reassessments to determine if interventions are working, (b) promptly
Health Care Financing Administration. Medicare Coordinated Care Demonstration.
HCFA. Medicare Program; Solicitation for Proposals for the Medicare Coordinated Care
Demonstration. Federal Register, v. 65, no. 146, July 28, 2000. p. 46466-46473.
Chen, Arnold, Randall Brown, Nancy Archibald, Sherry Aliotta, and Peter D. Fox. Best
Practices in Coordinated Care. Submitted to the Health Care Financing Administration.
Contract No: HCFA 500-95-0048 (04). Mathematica Policy Research, Inc., March 22, 2000.
modifying the plan of care in response to any new barriers or problems,
or in response to patient improvement or decline, and (c) making oneself
accessible to patients for either routine or urgent issues.65
It is expected that demonstration sites will develop care coordination procedures
based on the findings of this report. Although the demonstration does not expand on
Medicare’s covered benefits – other than the provision of coordinated care services
for targeted beneficiaries – project sites may use a portion of the payments received
for care coordination services to offer additional services designed to remove barriers
to prompt medical care, including but not limited to community-based services,
transportation, medications, non-covered home visits, and equipment.
Though few of the programs studied for HCFA’s review may have had trouble
executing their care coordination programs, it is generally reported that case managers
and physicians often find it difficult to establish meaningful working relationships.
There are a variety of reasons why it may be difficult to promote physician
participation, including but not limited to independent physician working styles, lack
of face-to-face communication, time pressures, and general unfamiliarity with care
Though it is only recently being considered in the context of fee-for-service
Medicare, care management has been applied to fee-for-service Medicaid for more
than 20 years. Some analysts suggest taking advantage of state experience in
managing Medicaid-covered benefits under their primary care case management
(PCCM), 1915(c) home and community-based service (HCBS) waiver, and other
programs. As discussed earlier, states may use 1915(b) “freedom of choice” waivers
to establish PCCM programs that pay individual health care providers a small monthly
fee in return for managing health care services for a defined population. Under
PCCM programs, primary care providers act as gatekeepers, authorizing access to
additional Medicaid services. Under a Section 1915(c) waiver, on the other hand,
states may offer optional Medicaid-financed HCBS to individuals with long-term care
needs. One of the services states may choose to provide under an HCBS waiver is
case management, which they often use for purposes of developing care plans and
overseeing the quality of care provided under their waiver programs. In 1998, close
to 60% of 230 HCBS waiver programs surveyed included case management, making
it among the most common service for all major targeted populations, including the
elderly, developmentally disabled, children and adults with disabilities, and people
Another impediment in achieving integration under the current system is that
Medicaid case manager authority is restricted to Medicaid benefits. They do not have
For more information, see: Case Management for the Frail Elderly: A Literature Review
on Selected Topics. Developed by the National Chronic Care Consortium in cooperation with
the Minnesota Department of Human Services, Senior Health Options Project under a grant
from the RWJ Foundation, 1997.
Home and Community-Based Waivers: A Look at the States in 1998. Washington Memo.
American Public Human Services Association, 1999.
the authority to authorize Medicare-covered services. Though they may use their
own initiative to develop care plans that make use of certain types of Medicare
services, they have no control over Medicare provider behavior and thus cannot
ensure that services delivered are consistent with what was ordered. One option
would be to create service delivery networks especially designed for the diverse needs
of dual eligibles that would grant Medicaid case managers the authority to develop
care plans involving Medicare services, to authorize Medicare as well as Medicaid
services, and to substitute non-covered services for Medicare services if found to be
cost-effective.68 One analyst suggests that such an approach may be one way to hold
Medicare providers accountable for meeting the needs of dual eligibles, while
protecting states and beneficiaries from incentives to shift costs to Medicaid by
inappropriately institutionalizing dual eligibles in need of long-term care.69
Alternatively, the Medicare program may benefit from the appropriate substitution of
low-cost for high-cost settings and the reduced use of expensive acute care services
as a result of case manager familiarity with the health care needs of chronically ill dual
eligibles. However it may be operationalized, care coordination without capitation
is another option considered by advocates of integrating acute and long-term care
services for dual eligibles.
Congress has considered a variety of proposals to improve the financing and
delivery of long-term care services. While comprehensive reform has been
considered, Congress has primarily taken an incremental approach when addressing
long-term care issues, including the development and implementation of federal and
state initiatives to integrate acute and long-term care services for frail elders and
disabled adults. Though programs such as PACE, S/HMO, and MSHO serve a
comparatively small number of the nation’s dual eligibles, they may provide models
that Congress may want to consider when formulating long-term care policy in the
Before taking action in this area, however, Congress may want to consider a
variety of issues, including doubts about managed care’s appropriateness for serving
vulnerable populations. In particular, many worry that incentives under managed care
to control utilization may have deleterious effects on patient welfare and
quality–especially for frail recipients. Given the recent nature of most integration
programs, however, there is currently a dearth of evaluation evidence to support or
reject this claim definitively. Of the nine programs reviewed for this report, for
instance, only the PACE, first generation S/HMO, ALTCS, and OHP programs have
been evaluated thoroughly. While innovative state programs such as MSHO and
Hausner Tony, Julie Gaus, and Mary Larkson. Managed Long-Term Care. HCF LongTerm Care Work Group, October 31, 1994.
Feder, Judith. Medicare/Medicaid Dual Eligibles: Fiscal and Social Responsiblity for
Vulnerable Populations. Kaiser Commission on the Future of Medicaid. Washington, DC,
Wisconsin Partnership have yet to be independently evaluated, other programs, such
as CCN, are only now being implemented.
Despite the lack of a rich body of evaluation research, proponents strongly
believe in the efficacy of using managed care to integrate acute and long-term care
financing, service delivery, and administration under Medicare and Medicaid. In
particular, they see managed care as a way to eliminate fragmentation, develop
community service options, make benefits more flexible, promote quality of care
improvements, and control costs. At the same time, however, they also point to a
number of statutory and regulatory requirements inhibiting the development and
implementation of these programs. These include requirements to obtain federal
waivers that allow states to enroll dual eligibles in managed care programs that are
budget neutral to the Medicare and Medicaid programs independently.
Given the concerns expressed by both advocates and opponents to using
managed care to integrate acute and long-term care for Medicare-Medicaid dual
eligibles, congressional action in this area might include an examination of one or
more of the following possibilities put forward by various health policy experts.
! Streamlining the waiver approval process, or eliminating the need for states
to obtain waivers altogether;
! Allowing states to show budget neutrality for Medicare and Medicaid
combined rather than each program individually;
! Restricting the right of some Medicare beneficiaries to choose the providers
from whom they receive care;
! Accelerating the implementation of longer Medicare lock-in provisions;
! Allowing all states, and not only a few (Oregon, Arizona, and Minnesota) to
limit Medicaid payment of Medicare cost-sharing to dual eligibles who elect
to obtain care through their state’s Medicaid networks of providers;
! Promoting the development of care coordination mechanisms, including case
management and centralized data systems;
! Facilitating unified Medicare and Medicaid program administration, including
contracting, enrollment, and oversight;
! Using alternative payment mechanisms, such as partial capitation, which reduce
plan risk, thereby promoting participation in programs targeted toward
potentially resource-intensive groups;
! Spurring the development of better risk adjustment methodologies to guard
against overpayment for healthy beneficiaries and underpayment for frail and
! Developing incentives that encourage health plans to participate in both
Medicare+Choice and Medicaid managed care simultaneously;
! Continuing and expanding existing federal initiatives such as PACE, S/HMO,
and EverCare until more research evidence becomes available;
! Directing additional resources toward evaluation of existing programs; and
! Supporting the development of Medicare- or Medicaid-based care management
options independent of capitation.
Appendix A. Summary of Federal and State Initiatives for Integrating Acute and Long-Term
Care for Medicare-Medicaid Dual Eligibles
No. Serves 7
No. Sites in 10
markets in 7
Aged 55 or
eligible nursing Medicaid
receive long-term home residents. eligible
care in first
facility care. generation
65 or older.
S/HMOs, must be
aged 65 or older
and eligible for
3 S/HMO-I and 1 6
4 HMOs that
mainly free S/HMO-II sites. demonstration subcontract
Uses both HMOs and 3 nonwith Geriatric
demonstration Care Systems
HMOs run by that provide
United-Health for the
All Medicare All Medicare
All Medicare All Medicare
and Medicaid basic benefits,
and 180 days
No. Sites in
Comprehensive State Demonstrations
No. Sites in 4
Capitated Medicaid Demonstrations
Continuing Care Arizona LongOregon Health
No. Sites in
No. Serves 5
care. Aged 55
or older, or 1865 & disabled.
No. Serves only
Medicare only or
Age 65 or older.
300% of SSI
Aged 65 or
care. Must also
3 community 1 plan,
2 county plans 15 fully
3 HMOs (2 of
organizations. ViaHealth, that (1 of which is
capitated plans which are also
2 serve 55+
also a Medicare (4 of which are Medicare+
acute and long- + Choice plan) also Medicare+ Choice plans).
1serves 18 to term care
and 5 plans
65 population, providers in its
All Medicare All Medicare
and Medicaid acute care. Most acute and long- acute care.
acute and longacute and long- Medicaid acute term care.
Medicare acute acute care if
care for dual
care if sought
care if sought
from enrollee’s Medicaid plan. from enrollee’s
Medicaid plan. Long-term care Medicaid plan.
remains fee-forlimited chronic
Comprehensive State Demonstrations
EverCare Senior Health
Capitation= Uses 4 rates.
Medicaid, and 105.3% X
2.39 X Rate for Medicare+
Medicare+ Medicaid, and
Choice Rate. 100% (or 2.39)
nursing facility care paid by Choice Rate.
Premiums where eligibility in
Medicaid or After 180 days,
care paid for on
Uses adult day In S/HMO-I,
Emphasizes Requires that
care & intercare
have access to a
used for nursing practitioner care
home certified teams and
S/HMO-II, used managers.
for high risk
Legal Authority Section 1115
222 waiver. 1915(a)/(c) and
waivers. BBA waivers.
Had an 1115.
1971: On Lok. 1985: S/HMO-I. 1987: 1st site. Enrollment
1997: S/MO-II. 1994: 1st
began in 1997.
Capitated Medicaid Demonstrations
and 2.39 X
Uses 4 rates.
rate adjusted for
only enrollees can
Arizona Longterm Care
Capitation paid by
recipient enrolls in
usually fee-forservice but
in a Medicare+
access to case
relies on multidisciplinary teams
222 waivers. 222 waivers.
usually feefor-service but
enrolls in a
Enrollment set for 1982: Acute Care. 1994: OHP.
capitation in 2001.
1995: Added the began in
Long-Term Care. elderly/disabled. 1998.
Medicare costsavings; Higher
Plan losses and
Comprehensive State Demonstrations
Part of HCFA
sponsored multistate evaluation
due in 2005.
due in 2005.
Part of HCFA
sponsored multistate evaluation
due in 2005.
Capitated Medicaid Demonstrations
Arizona Longterm Care
and nursing home
process of care
for some but
Appendix B: Detailed Program Profiles
Program for All-inclusive Care of the Elderly (PACE)70
PACE is modeled on the system of care developed by On Lok Senior Health
Services in San Francisco, California during the early 1970s.71 PACE is a fully
capitated managed care program that provides a comprehensive array of acute and
long-term care services to frail elderly persons living in the community. To be eligible
an individual must be age 55 years or older, reside in a PACE program service area,
and meet state criteria for nursing home eligibility. PACE is a voluntary program in
which most enrollees are eligible for both Medicare and Medicaid. Prior to the
expansion provided in the Balanced Budget Act (BBA) of 1997, there were 12
program sites in addition to On Lok. At the present time, there are 26 sites in 14
states serving approximately 7,000 individuals under combined Medicare and
Medicaid capitation payments. There are also eight pre-PACE sites that operate
under Medicaid capitation only. Most sites are sponsored by freestanding
community-based organizations. All operate as not-for-profit entities. All emphasize
onsite geriatric care in adult day care centers. Site-by-site enrollment tends to be low,
ranging from 45 to 748, with a median enrollment of 142.
Fully operating PACE sites are financed through prepaid, capitated payments
from Medicare and Medicaid. Together, these payments are required to be less than
what would have otherwise been paid for a comparable frail population not enrolled
under a PACE program. The monthly capitation paid by Medicare is equal to 2.39
times the Medicare county rate amount for Medicare+Choice plans. Calculation of
monthly Medicaid rates varies by state and are subject to negotiation between each
PACE provider and the state Medicaid agency. In establishing rates, most states first
identify a population hypothetically similar to PACE (e.g., nursing home residents,
waiver program participants) and calculate that group’s average per capita fee-forservice spending. This amount is subsequently discounted to reflect anticipated
savings from improved care coordination and timely provision of primary care and
Contacts: Janet Samen, Technical Advisor, Division of Chronic Care Management, Chronic
Care Policy Group, Center for Health Plans and Providers. 7500 Security Blvd., Mail Stop
C5-05-27, Baltimore, MD 21244-1850. Phone: 410-786-9161. FAX: 410-786-0594. E-Mail:
Christine van Reenan, PhD, Director, Public Policy, National PACE Association-DC
Office, P.O. Box 31203, Washington, DC 20007. Phone: 703-671-3130. FAX: 703-6710565. E-Mail: [email@example.com]
On Lok started providing services in 1971 and was established as a federal demonstration
in 1972. In 1983, it received a federal demonstration waiver allowing it to receive monthly
capitation payments from Medicare and Medicaid (P.L. 98-21, Section 603). The
Consolidated Omnibus Reconciliation Act of 1985 made On Lok’s program permanent (P.L.
99-272, section 9220). The Omnibus Reconciliation Act (OBRA) of 1986 authorized On Lok
replication projects at up to 10 sites (P.L. 99-509, Section 9412) with the first replication site
being implemented in 1987 in East Boston. OBRA 1990 subsequently increased the number
of PACE demonstration sites to 15 (P.L. 101-508, Section 4744). The Balanced Budget Act
of 1997 made PACE a permanent benefit category under Medicare and an optional benefit
states can offer under Medicaid (P.L. 105-33, Sections 4801, 4802, and 4803).
other services. In 2000, monthly capitation rates ranged from $1,902 to $4,589 for
Medicaid, with a median rate of $2,371, and $972 to $1,713 for Medicare, with a
median rate of $1,234. Medicare beneficiaries who are not eligible for Medicaid pay
monthly premiums equal to the Medicaid capitation amount. No deductibles,
coinsurance or other type of Medicare or Medicaid cost-sharing may be applied.
In exchange for Medicare and Medicaid capitation payments, PACE sites are at
full risk for all primary, acute, and long-term care services covered by these programs.
At its core, the PACE model features the provision of adult day, health care and
interdisciplinary case management. Adult day care, in particular, is the key service
used for monitoring plan participants and coordinating and delivering all medical and
social service benefits. These services are managed by interdisciplinary teams of
physicians, nurses, social workers, dieticians, physical and occupational therapists,
activity coordinators, and other health and transportation workers. The specific
functions of these teams include assessing enrollees’ needs, developing care plans in
consultation with patients and their families, and delivering services across acute and
long-term care settings. Some sites also manage subsidized housing developments
though housing is not funded under either the Medicare or Medicaid capitation.
BBA 1997 made PACE a permanent benefit category under Medicare and a state
plan optional benefit under Medicaid. It also authorized the total number of PACE
sites to grow from 15 to 40 in the first year after the law’s enactment, with an
additional 20 sites authorized in each succeeding year. Since authorizations are
cumulative – unused authorizations carry over from 1 year to the next – 80 PACE
sites are authorized under current law. Though only public and non-profit entities
may qualify as PACE providers, the BBA also authorized up to 10 for-profit entities
to serve as PACE sites during a 4-year demonstration project. No later than 4 years
after the law’s enactment, the Secretary of the Department of Health and Human
Services (DHHS) is required to report to Congress on the quality and cost of
providing services through PACE. This report is due in 2001.
Prior to the BBA, PACE sites operated under dual Section 1115/222
Medicaid/Medicare waivers. On Lok and the original 12 replication sites have 3 years
from the day the HCFA issued its regulations (November 24, 1999)72 to make the
transition to permanent status (November 2002). Newer sites, implemented after the
BBA but before HCFA issued its regulations, have 2 years (between August 1999 and
HCFA’s evaluation contractor found that compared to people who applied to
PACE but later declined to enroll, PACE enrollees were less affluent, more familiar
with adult day care facilities, and more willing to change providers to enroll in a
program that provides for all health care needs. Though PACE enrollees were more
dependent in instrumental activities of daily living, they were, nonetheless, less costly
as indicated by lower health expenditures in the 6 months prior to their application to
Federal Register, v. 64, no. 226. p. 66234-66304. 42 USC 1302 and 1395. 42 CFR Parts
460, 462, 466, 473, and 476.
the PACE program. This last finding indicates that PACE sites may be experiencing
favorable selection of healthier than average applicants.73
Compared to people who applied to PACE but later declined to enroll, PACE
enrollees have experienced a lower probability of hospital and nursing home use, an
increased probability of survival, a higher probability of reporting being in good or
excellent health, a higher probability of finding life to be satisfying, a higher
probability of being very satisfied with overall care arrangements, and a lower
probability of having a functional impairment. Though statistically significant impacts
were found with respect to each of these outcomes, PACE’s impact on medical
utilization tended to be longer lasting than its impact with respect to self-reported
health status, satisfaction, and function. The authors contrast these generally
favorable findings with the lack of significant impacts identified for home and
community based services programs generally.74
HCFA’s evaluators also found that the capitated payments made by Medicare
were much lower than costs would have been had PACE enrollees continued to
receive care in the fee-for-service sector. In particular, capitated payment was 38%
less than projected fee-for-service reimbursement in the first 6 months following
enrollment and 16% lower than projected reimbursement in the 7 to 12 months
following enrollment.75 Building on these results, a forthcoming study, currently
under review at HCFA, concludes that in the first year following enrollment, projected
fee-for-service Medicare costs were considerably higher than the Medicare portion
of PACE’s capitated payment, while projected fee-for-service Medicaid costs were
lower than the Medicaid portion of the capitation rate. Overall, however, no
statistically significant difference was found between combined Medicare and
Medicaid fee-for-service costs and the total Medicare plus Medicaid capitation rate
received by PACE.
Social Health Maintenance Organization Demonstration
Using capitated financing and varying degrees of care coordination, the S/HMO
demonstration adds chronic care and other services to the traditional Medicare
benefits package. In particular, S/HMOs, like other Medicare HMOs, provide
coverage for all standard acute care services in addition to expanded benefits, such
as prescription drugs and eyeglasses. What distinguishes S/HMOs from other
Medicare HMOs is the package of long-term care services that they provide, including
limited nursing home benefits and a wide range of home and community-based
Contact: Thomas Theis, Social Science Research Analyst, Health Care Financing
Administration, Demonstration and Data Analysis Group, Division of Demonstration
Programs, 7500 Security Boulevard, C4-17-27, Baltimore, Maryland 21244-1850. Phone:
(410) 786-6654. FAX: (410) 786-1048. E-Mail: [Ttheis@HCFA.gov]
services, such as homemaker services, adult day care, personal care, and medical
Two generations of S/HMOs have been authorized by Congress.77 The firstgeneration (S/HMO-I), which began operating in 1985, included four sites, two of
which were HMOs that added long-term care services to their existing service
packages and two of which were long-term care providers that added acute-care
services. Three of the original first-generation sites continue operation, including one
HMO-based plan, Senior Advantage II in Portland, Oregon, and two long-term carebased plans, ElderPlan in Brooklyn, New York and Senior Care Action Network
(SCAN) in Long Beach, California. A fourth Minneapolis-based plan ceased
operations in 1994. Though HCFA awarded planning grants to six prospective
second-generation sites (S/HMO-II) in 1995, only one of these, Senior Dimensions,
in Las Vegas, Nevada, achieved operational status. For a variety of reasons, including
lack of infrastructure, loss of personnel, and reluctance to adopt a risk-based payment
methodology, the remaining plans chose not to participate.
As of July 2000, total enrollment in the S/HMO demonstration was 84,004,
including 48,592 in the three remaining S/HMO-I sites and 35,412 in the single
S/HMO-II site. Like PACE, enrollment in a S/HMO is voluntary and members may
disenroll at anytime. Unlike PACE, which focuses almost exclusively on frail elderly
individuals dually eligible for Medicare and Medicaid, S/HMOs serve a broader crosssection of the healthy and functionally impaired elderly living in their service areas.
In fact, in order to reduce financial risk, first-generation S/HMOs were initially
allowed to use health status screening to limit the number of nursing home certifiable
enrollees to the proportion found in the general population. Individuals applying
above that level were placed in a queue and enrolled as space became available.78
S/HMOs serve very few dual eligibles.
While all S/HMO members are eligible for Medicare’s basic package of primary
and acute care benefits, as well as any expanded benefits that plans choose to provide,
access to care coordination and chronic care benefits are more restricted. In firstgeneration S/HMOs, in particular, these latter benefits are limited to nursing home
certifiable enrollees only. S/HMO-II plans, on the other hand, target these services
on the basis of individual need rather than nursing home eligibility status. All three
The Deficit Reduction Act of 1984 (P.L. 98-369, Section 2355) authorized the firstgeneration of Social HMOs. The authority for these sites was subsequently extended through
1992 with the Omnibus Budget Reconciliation Act (OBRA) of 1987 (P.L. 100-203, Section
4018(b)), through 1995 with OBRA 1990 (P.L. 101-508, Section 4207(b)(4)), and through
1997 with Section 5079 of P.L. 103-66. OBRA 1990 also authorized a second- generation
of Social HMOs (P.L., 101-508, Section 4207(b)(4)). The Balanced Budget Act of 1997
(P.L. 105-33, Section 4014) further extended it through 2000, while the Balanced Budget
Refinement Act of 1999 (incorporated in to P.L. 106-113, Section 531) extended the program
Kane, Robert L., Rosalie A. Kane, Michael Finch, Charlene Harrington, Robert Newcomer,
Nancy Miller, and Melissa Hulbert. S/HMOs, The Second Generation: Building on the
Experience of the First Social Health Maintenance Organization Demonstrations. Journal of
the American Geriatrics Society, v. 45, 1997. p. 101-197.
S/HMO-I sites – Senior Advantage II, ElderPlan, and SCAN – place annual caps on
their chronic care benefits of $12,000, $7,800 and $7,500 respectively. Custodial
nursing home benefits under all four plans are quite limited.
In exchange for assuming risk for all covered services, S/HMOs receive monthly
Medicare capitation payments equivalent to the Medicare county rate amount
augmented by an additional 5.3% which is supposed to cover the long-term care
services that S/HMOs provide. Plans in both S/HMO generations adjust these rates
for high risk enrollees. Payments to S/HMO-I sites are adjusted for the demographic
characteristics of the enrollee, e.g., higher capitation payments are made for persons
in nursing homes than for those in the community. S/HMO-II plans, on the other
hand, receive risk-adjusted payments based on impairments in activities of daily living,
instrumental activities of daily living, and prevalence of medical conditions. For dual
eligibles, S/HMOs also receive payments from Medicaid. Premiums and co-payments
are also allowed and may be paid out-of-pocket by beneficiaries or by their Medicare
supplements. The S/HMO–I sites also have the authority to capitate Medicaid
covered benefits, though this occurs in limited circumstances. Currently, only one site
has a formal agreement with the state to receive Medicaid capitation payments for
dually eligible enrollees.
To varying degrees, both S/HMO generations rely on care coordination to
manage patient care. At S/HMO-I sites, however, care coordination has been limited
to identifying, allocating, and managing long-term care services for members whose
disabilities make them eligible for additional chronic care benefits. By their exclusive
focus on nursing home certifiables and resulting systematic lack of geriatric attention
toward other populations, some believe that the ability of case managers to coordinate
care across the continuum of services in first-generation plans has been limited.79
Taking these lessons into account, the lone second-generation site employs a more
geriatric-oriented care model, including greater reliance on interdisciplinary teams of
primary care physicians, specialists, pharmacists, dieticians, geriatricians, and nurse
case managers. Moreover, these services are targeted more broadly toward those
with high-risk conditions, evidence of impending disability, or who are at high-risk for
hospitalization. Case managers are also encouraged to coordinate more closely with
primary care providers for whom protocols have been developed to ensure adequate
attention to geriatric problems.
Congressional authorization for the S/HMO program has been extended several
times, with the most recent series of extensions beginning with the BBA of 1997,
which extended the program through 2000. The BBA also expanded the number of
persons who could be served at each site from 12,000 to 36,000 and directed the
Secretary of DHHS to submit to Congress a plan for making S/HMOs an option
available to beneficiaries under the Medicare+Choice program, a report which HCFA
expects to deliver to Congress by the end of 2000. The Balanced Budget Refinement
Act (BBRA) of 1999 further extended the program’s authorization. It is now
scheduled to end 18 months after the Secretary submits the transition report required
by the BBA (sometime in 2002). The BBRA also extended the due date for the final
report on the second generation S/HMO project to 21 months after submission of the
transition report to Congress (again, sometime in 2002), and it increased the
aggregate maximum limit on participants at all sites to 324,000 individuals.
Between 1985 and 1989 the S/HMO-I demonstration was evaluated for HCFA
by researchers associated with the University of California, San Francisco. While
S/HMO-I succeeded organizationally in offering long-term care to frail enrollees, it
reportedly failed to achieve an adequate degree of coordination between acute and
chronic care services. This was attributed largely to lack of communication between
physicians and other participants, including case managers and community-based
long-term care providers. Even at the end of the 5-year evaluation period, many
physicians serving S/HMO enrollees were unaware of the program’s package of
chronic care benefits.80 This finding is one reason why the lone second generation site
uses multidisciplinary teams of providers to assess, plan, and manage care. Financial
losses and high expenditures during the program’s early years among a number of
high risk groups (relative to fee-for-service Medicare) also led investigators to
suggest a need to refine S/HMO operations.81
Like PACE, S/HMO-I sites experienced favorable selection. Using prior
utilization and health status, the evaluators found that S/HMO enrollees tended to be
healthier than those in traditional fee-for-service Medicare. They also found evidence
of favorable disenrollment, where frail and impaired members were more likely to
disenroll than healthier members.82
The impact of S/HMO-I on outcomes was mixed, with more favorable results
experienced by healthier enrollees and less favorable results experienced by frail and
chronically ill enrollees. Manton and colleagues, in particular, concluded that
S/HMOs performed HMO functions well for the healthy and acutely ill as indicated
by similarity in outcomes for certain case-mix groups between S/HMO enrollees and
fee-for-service beneficiaries who joined an HMO during the course of their study.
Alternatively, they concluded that S/HMOs did not perform well for impaired or
acutely ill enrollees with chronic impairments. Though there was no difference in
case-mix standardized mortality rates between S/HMO enrollees and fee-for-service
Medicare beneficiaries, frail individuals had a higher probability of dying in S/HMOs
than in fee-for-service Medicare.83 While unimpaired S/HMO enrollees reported
higher satisfaction than unimpaired fee-for-service Medicare beneficiaries in all areas
except interpersonal relations (where there was no difference), impaired enrollees
reported lower satisfaction than impaired fee-for-service beneficiaries in all areas but
finance and benefits (where they were more satisfied). They also reported lower
satisfaction levels than unimpaired S/HMO enrollees.84
Harrington, et al. Medical Services in Social Health Maintenance Organizations, 1993.
Newcomer, et al., 1995.
Harrington, et al. A Comparison of S/HMO Disenrollees, 1993.
Manton, et al., 1993.
Newcomer, et al., 1994.
The EverCare program serves Medicare beneficiaries who are permanent nursing
home residents. Through physician-nurse practitioner teams, the program emphasizes
the delivery of primary, preventive and other outpatient services within the nursing
home as a way to: (1) save Medicare money by shortening or preventing hospital
admissions; and (2) reduce the medical complications and patient dislocation trauma
associated with hospitalization. EverCare is available in 10 markets in six states. The
demonstration replicates at six sites the original EverCare program, which began
serving the Minneapolis-St. Paul area in 1987. Replication sites include Boston,
Atlanta, Baltimore, Colorado (Denver and Colorado Springs), Arizona (Phoenix and
Tucson), and Tampa-St. Petersburg. In addition to these six demonstration programs,
two non-demonstration sites recently began operating in New York and Ohio.
EverCare was authorized as a demonstration in 1994 under section Medicare
222 waivers granted to EverCare, now a division of Ovations, a subsidiary of
UnitedHealth Group, Inc. (formerly United HealthCare Corporation). Enrollment in
the demonstration is voluntary and began in 1995 in four demonstration sites and
expanded in 1996 and 1997 two others. Together, demonstration and nondemonstration sites serve approximately 16,550 residents cared for by more than 500
primary care physicians and 160 nurse practitioners in more than 450 nursing homes.
Approximately 11,300 are being served by the six demonstration programs. EverCare
is being evaluated for HCFA by researchers at the University of Minnesota. Results
are expected December 31, 2001.
Particularly important to the EverCare model are geriatric and other nursing
practitioners and physician assistants who serve as primary caregivers and whose
functions include performing assessments, scheduling clinic and physician visits,
developing care plans, working closely and in consultation with physicians,
coordinating with nursing facility staff, and overseeing hospital admissions.
EverCare’s nurse practitioners also work closely with case managers whose functions
include determining eligibility and authorizing and ensuring that requested services fall
within the Medicare benefits package. Case managers also help nurse practitioners
find geriatric providers who are willing to care for residents within the nursing home.
Under the demonstration, EverCare receives a fixed capitation payment from
Medicare for each nursing home resident enrolled in the program. Capitation
payments, which began at 100% of the AAPCC at the start of the program, were
subsequently reduced to 95% and then 93% during the course of the demonstration.
Today, this translates to 97.8% of the Medicare county rate for Medicare+Choice
plans. Under its capitation, EverCare is responsible and at full risk for all Medicarecovered services, whether provided inside or outside of the nursing home. Room and
Contacts: Dennis Nugent, Social Science Research Analyst, Health Care Financing
Administration, Demonstration and Data Analysis Group, Division of Demonstration
Programs, 7500 Security Boulevard, C4-17-27, Baltimore, Maryland 21244-1850. Phone:
(410) 786-6663. FAX: (410) 786-1048 E-Mail: [DNugent@HCFA.gov]
William Vincent, Vice President Public Policy and Communication, Ovations, A
UnitedHealth Group Company, 8330 Boone Blvd., Suite 300, Vienna, Virginia 22182. Phone:
703-918-4019. FAX: 703-918-4149. E-Mail: [firstname.lastname@example.org]
board as well as the custodial costs of nursing home care are usually paid by Medicaid
or paid out-of-pocket by residents themselves.
To encourage more active physician involvement in patient care, EverCare often
reimburses at higher rates for nursing home than for office visits and pays for
physicians’ participation in care planning and family conferences. To promote care
within the nursing home, EverCare provides nursing facilities with additional
reimbursement, known as intensive service days (ISD) payments, for the added
personnel costs associated with caring for residents who otherwise would have been
transferred to a hospital. The EverCare demonstration is scheduled to run through
2001. HCFA expects to receive its evaluation results by December 31, 2001.
Minnesota Senior Health Options (MSHO)86
In April 1995, Minnesota became the first state to receive combined Medicaid
1115 and Medicare 222 waivers to implement an integrated service program for dual
eligibles. This program, Minnesota Senior Health Options (MSHO), combines
Medicare and Medicaid financing to integrate acute and long-term care services for
dually eligible seniors residing in the seven-county Minneapolis-St. Paul area. It is
offered as a voluntary option to Minnesota’s mandatory Medicaid managed care
program, PMAP (Prepaid Medical Assistance Program), in which elderly dual
eligibles are required to enroll for their Medicaid services. Not only do these waivers
allow the state to contract with entities not eligible to be Medicare+Choice plans,
including smaller HMOs and Community Integrated Service Networks, but they also
make MSHO the only program to receive approval from HCFA to consolidate all
Medicare and Medicaid managed care requirements into a single contract managed
and overseen by the state. In addition to helping to create a single point of
accountability, use of a single contract has allowed MSHO to reduce duplication and
resolve important differences across Medicare and Medicaid. For example, it has
enabled MSHO to merge the enrollment processes, membership materials, and
grievance procedures of the two programs.
MSHO currently contracts with three health plans, Metropolitan Health plan,
Medica, and UCare Minnesota. Under their MSHO contracts each health plan
receives separate monthly capitation payments from HCFA and the Minnesota
Department of Human Services for each member. In exchange for these two
capitation payments, MSHO plans are responsible for all covered services, including
all Medicare services and all Medicaid services, including all PMAP services, all home
and community-based waiver services, and 180 days of nursing facility care for
community enrollees. After 180 days, plans must still provide other needed services,
but nursing home reimbursement is handled on a fee-for-service basis outside the
capitated rates. To create incentives for plans to use residential and home and
community-based services rather than institutional services, MSHO employs multiple
Contact: Pamela Parker, Minnesota Senior Health Options, Department of Human Services,
444 Lafayette Road, St. Paul, MN 55155-3854. Phone: 651-296-2140. FAX: 651-297-3230.
rates for nursing home residents, nursing home certifiable conversions,87 as well as
nursing home certifiable88 and non-nursing home certifiable community participants.
On the Medicaid side, the Minnesota Department of Human Services provides
each MSHO contractor with a monthly per capita payment per enrollee, which
includes: (1) Medicaid covered acute and ancillary services; (2) 180 days of Medicaid
nursing facility care; and (3) home- and community-based waiver services for the
elderly.89 After 180 days of nursing facility care, nursing facility per diems are paid
through the present fee-for-service system directly by the state.
On the Medicare side, HCFA provides each plan with the Medicare county rate
for Medicare+Choice plans (equivalent to 95% of the AAPCC) for community and
institutional enrollees. For the frail elderly living in the community who meet criteria
for nursing home placement (i.e., nursing home certifiable conversions, and nursing
home certifiables), the Medicare+Choice rate is multiplied by the PACE risk adjuster
of 2.39. MSHO is currently exempted from Medicare’s new claims-based risk
MSHO has encouraged participating plans to develop new partnerships with
long-term care providers and counties in order to better serve seniors. As a result, the
program’s three plans have contracted with newly formed Geriatric Care Systems to
provide all or part of the MSHO benefit package. These systems have been
sponsored by long-term care providers who contract with clinics for primary care
services, as well as by health plans and hospital-based organizations which share risk
with long-term care providers. Several operate at full or partial risk.
MSHO requires that each enrollee have access to a ‘care coordinator’ whose
responsibilities include assisting with developing care plans, arranging access to
services, working closely with primary care physicians, and facilitating communication
among enrollees, family members, and providers. Coordinators may be social
workers, geriatric nurse practitioners, or registered nurses, and may be employed by
clinics, care systems, or health plans. Coordinators must balance their roles as
gatekeepers and patient advocates.
As of August 1, 2000, MSHO’s three participating plans served 3,569 dually
eligible seniors residing in the seven-county metro area. Enrollment in MSHO is
voluntary, and participants may disenroll after 30 days. Enrollment began in February
1997. As of May 1, 2000, HCFA granted MSHO’s request to transfer authority for
the Medicaid portion of its program from its 1115 Medicaid waiver to a joint
1915(a)/1915(c) combination. Pending HCFA approval, MSHO plans to expand its
focus to include dually eligible, disabled adults between the ages of 18 and 64 as of
January 1, 2001. MSHO is being evaluated for HCFA as part of a multi-state study
Individuals discharged into the community after nursing facility stays of more than 6 months.
Individuals deemed eligible to receive care in a nursing home according to state criteria, but
kept out due to the provision of community-based and other services.
More specifically, the monthly capitation includes the PMAP capitation for Medicaid acute
and ancillary services, a 180-day Medicaid Nursing Facility Add-on which covers the
historical rate of expected nursing home admissions, and the average or two times the average
Elderly Waiver payment, as appropriate per MSHO policy.
being conducted by researchers at the University of Minnesota. Results are due in
Wisconsin Partnership Program90
Wisconsin Partnership is a fully capitated program that integrates health and
long-term care services for qualifying older adults age 55 and older and disabled
individuals between the ages of 18 and 65 with chronic conditions and illnesses. It
emphasizes client involvement in decision making, including choice of provider,
services, and setting. It also emphasizes the use of interdisciplinary teams of
physicians, nurses, and social workers to develop care plans and to coordinate across
service modalities. Participants often keep their own physicians, who are typically
added to the program’s network of providers if they do not already belong. To join,
prospective enrollees must be Medicaid-eligible or dually eligible for Medicare and
Medicaid. Qualifying beneficiaries must also be certified as eligible for nursing facility
care. Enrollment in the program is voluntary, and participants may disenroll at any
Because the Partnership model emphasizes in-home service delivery, it employs
community-based organizations which have experience serving elderly and disabled
individuals living in the community. The program began phase-in operations in 1995,
and currently has four sites serving residents in five Wisconsin counties – with a
combined enrollment of 822 as of May 2000 (up from 598 the previous year). Two
sites, Elder Care in Madison and Community Care for the Elderly in Milwaukee, also
participate in the PACE program and serve older adults only. A second Madison site,
Community Living Alliance, focuses on physically disabled adults in the 18 to 65 age
range, though it continues to serve older enrollees who have aged in place (i.e., it
serves individuals over the age of 65 who enrolled prior to turning 65). A fourth site,
Community Health Partnerships in Eau Claire, enrolls both older adults and younger
disabled individuals. While Elder Care began operating as a fully capitated program
in January 1999, the other three programs were phased in over the first 5 months of
In October 1998, the Partnership Program received a combined Section
1115/222 Medicaid/Medicare waiver from HCFA, allowing Partnership sites to
receive capitation payments from both programs. Participating organizations,
therefore, enter into two separate contracts, a Medicaid managed care contract with
the Wisconsin Department of Health and Family Services, and a Medicare contract
with HCFA. The Medicaid rate is based on the cost of nursing home care plus the
average cost of additional Medicaid fee-for-service expenses for nursing home
residents in the target group (i.e., the elderly or physically disabled), discounted by
5% to assure that the state achieves cost savings. The Medicare rate is based on the
Medicare county rate for Medicare+Choice plans (equivalent to 95% of the AAPCC)
multiplied by the PACE risk adjuster of 2.39. In exchange for monthly capitation
payments for each enrollee, contracting organizations are responsible for all primary,
Contact: Steve Landkamer, Project Manager, Wisconsin Department of Health and Family
Services, Center for Delivery Systems Development, One South Pinckney Street, Suite 340,
PO Box 1379, Madison, WI 53701-1379. Phone: (608) 261-7811. Fax: (608) 266-5629. EMail: [email@example.com]
acute, and long-term care services covered by Medicare and Medicaid, including all
home- and community-based waiver services. To ensure a comprehensive service
delivery network, contracting entities may subcontract with hospitals, clinics, and
other providers. The Wisconsin Partnership program is being evaluated for HCFA
as part of a multi-state study being conducted by researchers at the University of
Minnesota. Results are due in 2005.
Continuing Care Network Demonstration, Monroe County,
Through combined Medicare and Medicaid capitation payments and integrated
service delivery networks, the Continuing Care Network (CCN) demonstration of
Monroe County, New York aims to integrate primary, acute, and long-term care
services. The program, which will operate under a Medicare 222 waiver, as well as
a 1915(a)/1915(c) Medicaid waiver combination was approved by HCFA in the fall
of 1999. Enrollment will begin in 2001.
Over the course of its 5-year demonstration period the program intends to enroll
at least 10,000 elderly beneficiaries, including 1,500 who had been certified for care
in a nursing facility. To participate, enrollees must be age 65 or over, eligible for
Medicare or Medicare/Medicaid, and reside in the program’s service area. Upon
voluntary enrollment in the demonstration, all participants will complete a screening
questionnaire used to identify high-risk individuals. Those identified as high-risk will
be assessed further using the DMS-1, a screening instrument that the State of New
York currently employs to determine nursing home certifiability.
The participating plan will contract separately with the New York State
Department of Health and HCFA for Medicaid and Medicare, respectively. In
exchange for monthly capitation payments from each, the plan will be responsible for
all services in the Medicare benefits package and most in the Medicaid package.
Prescriptions drugs, for example, will be paid by Medicaid on a fee-for-service basis
rather than through the capitation plan. To discourage biased selection the
demonstration will employ a risk adjusted, multi-level capitated reimbursement
system, which includes multiple rates for four population groups: community-based
nursing home certifiables, nursing home residents, nursing home conversions,92 and
unimpaired community residents. Rates will be adjusted for age, gender, and category
of Medicaid eligibility (for unimpaired enrollees) or functional status based on DMS-1
score (for impaired community-based enrollees) when appropriate. ViaHealth will
sponsor the contracting plan.
The base rate for Medicare will be the Medicare county rate for
Medicare+Choice plans. For impaired beneficiaries living in the community (i.e.,
nursing home conversions, nursing home certifiables), this rate will be multiplied by
1.75, 2.98, and 3.92, respectively, for individuals determined to be mildly, moderately,
Contact: Linda Gowdy, New York State Department of Health, Director, Bureau of
Continuing Care Initiatives, Office of Continuing Care, 161 Delaware Avenue, Delmar, New
York 12054. Phone: (518) 478-1141. Fax: (518) 478-1134. E-Mail:
Individuals discharged into the community after nursing facility stays of more than 5 months.
and severely impaired using the DMS-1 criteria. To compensate for the higher
adjustors used for impaired community-based enrollees, the demonstration will
employ lower adjustors for unimpaired beneficiaries living in the community.
Providers will receive rates lower than existing Medicare HMO rates for unimpaired
persons but higher rates that reflect the level of disability for those judged nursing
facility certified. Rates for nursing facility residents will be based on the existing
Medicare+Choice rate structure.
As with Medicare, Medicaid rates for community enrollees deemed eligible for
nursing facility care will vary for mildly, moderately, and severely impaired individuals
as determined by the DMS-1. Rates for unimpaired community-based enrollees will
be based on historical fee-for-service expenditures, while rates for nursing facility
residents and nursing home conversions will be based on facility-specific per diem
rates that have been adjusted for case-mix.
All participants will be eligible for the full package of Medicare benefits.
Medicaid participants will also be eligible for the full range of Medicaid acute and
long-term care services, and, based on care management’s assessment of need, could
be eligible for social and environmental supports, social day care, the personal
emergency response system (PERS), and congregate or home delivery meals. Nondual eligibles (Medicare only) will be eligible for a limited chronic care benefit of
$2,600 per year, with a $6,000 lifetime maximum. This benefit package will include
home delivered meals, personal care, social day care, emergency response system,
homemaker/chore services, and respite care. This group will also have the option of
purchasing extended chronic care benefits on a capitated premium or private pay, feefor-service basis. All enrollees will have 24-hour access to care management services.
Plans will also use multi-disciplinary care management teams to coordinate services
across providers, settings, and over time. These teams will be led by social workers
for those with moderate risks and nurse practitioners or nurse specialists for medically
vulnerable individuals. CCN is being evaluated for HCFA as part of a multi-state
study being conducted by researchers at the University of Minnesota. Results are due
Arizona Long-Term Care System93
Under the authority of a Section 1115 Medicaid “research and demonstration”
waiver, Arizona implemented its acute care program, the Arizona Health Care Cost
Containment System (AHCCCS) in October 1982. Following an amendment to this
authority, the state added long-term care services in December 1988 through the
Arizona Long-Term Care System (ALTCS), the only mandatory, statewide managed
care program for long-term care currently in operation. In addition to
developmentally disabled individuals, the ALTCS enrolls elderly and physically
disabled adults with incomes up to 300% of the SSI eligibility level and who meet
criteria for nursing facility care as determined by state assessment teams using
Arizona’s pre-admission screening instrument. The ALTCS covers acute care
services as well as care in nursing facilities for the mentally retarded and home and
As of June 2000, the ALTCS enrolled 28,993 individuals, including 17,898
elderly and physically disabled persons and 11,095 developmentally disabled persons.
Approximately 82% (14,755) of elderly and disabled enrollees were dually eligible for
Medicare and Medicaid, close to 30% of whom (4,378) were enrolled in a Medicare
HMO. To promote care coordination, each ALTCS member is assigned a case
manager after enrollment in the program. Case managers are responsible for
coordinating care with each member’s primary care provider and for identifying,
planning, obtaining, and monitoring appropriate services to meet each member’s
While the ALTCS capitates Medicaid coverage, it does not formally cover
Medicare services. For those who choose to receive their Medicare benefits in the
fee-for-service system, Arizona is only one of three states (Oregon and Minnesota are
the others) to receive approval from HCFA to limit its Medicare cost-sharing
obligations to services delivered through its Medicaid plans. All other states are
required to provide for Medicaid payment of Medicare cost-sharing whether or not
dual eligibles elect to obtain care through their state’s Medicaid network of providers.
Because Arizona only pays for Medicare cost-sharing for dual eligibles who obtain
Medicare covered services from its Medicaid network, dual eligibles have a strong
incentive to use the same providers for both Medicaid and Medicare. For those
ALTCS members who choose to receive their Medicare services through enrollment
in a Medicare+Choice plan, however, Arizona is still obligated to pay any beneficiary
cost-sharing that might be required.
Through a competitive bidding process, the ALTCS selects plans to serve each
county and pays them a capitated rate in exchange for assuming full risk for all
Medicaid-covered benefits, including primary and acute medical care, behavioral
health services, nursing facility care, and home- and community-based care (e.g.,
homemaker, personal care, respite, transportation, assisting living, adult day care,
home-delivered meals). Arizona’s Medicaid capitation includes a weighted average
of nursing facility and home- and community-based long-term care costs as well as
Contact: Alan Schafer, ALTCS Manager, AHCCCS, Office of Managed Care, 701 E.
Jefferson St., MailDrop 6100, Phoenix, AZ 85034. Phone: 602-417-4614. FAX: 602-2566421. E-mail: [firstname.lastname@example.org]
medical and acute care costs, behavioral health and case management costs. Rates are
based on Arizona Medicaid rates, program contractor financial statements, service
utilization data, and historical trends. Medicare is billed separately. Because of
concerns about the cost-effectiveness of home- and community-based care, HCFA
initially placed a cap on the percentage of the ALTCS budget that could be devoted
to home- and community-based services for elderly and disabled members. This cap
was gradually raised from 5% in 1988 to 50% in 1999. HCFA removed the cap on
HCBS for elderly and physically disabled members effective October 1, 1999.
At the present time, seven program contractors provide care to the elderly and
physically disabled in 15 Arizona counties, including two private plans and five
county-operated programs. Only one of these providers, Maricopa County, also
operates a Medicare+Choice plan. Originally, one contractor operated in each county
and members had to enroll with the contractor in their county in order to receive
services. While Arizona law mandated that the two largest counties, Maricopa and
Pima, serve as program contractors in their respective counties, all others counties
had the right of first refusal to participate as program contractors. If a county chose
not to participate, the ALTCS sought competitive bids from private plans to provide
the services within that county. As of October 1, 2000, all counties have contractors
selected competitively, while one county (Maricopa) provides enrollees with a choice
of plans (the county-based plan and two private plans). Starting October 1, 2001,
however, Arizona will consider contracting with more than one plan to serve Pima
County as well.
The ALTCS was evaluated for HCFA by researchers associated with Laguna
Research Associates. Evaluators found an approximately 16% average annual
reduction in what Arizona spent per capita for elderly and physical disabled long-term
care recipients from what would have been spent in a typical Medicaid program.
Most savings came from reduced hospital and nursing home use, which was less than
offset by higher ambulatory and administrative expenditures.94
Evaluators also found that nursing home residents in the ALTCS were less likely
to be offered an influenza vaccine than Medicaid nursing home residents in New
Mexico. Medicaid nursing home residents in the ALTCS, moreover, were more likely
to experience a decubitus ulcer, fever, and catheter insertion than nursing home
residents served by the neighboring program in New Mexico. No significant
differences, however, existed between Arizona and New Mexico with respect to the
incidence of patient falls or fractures resulting from the use of psychotropic drugs.95
Focusing on the acute care side of the Arizona Medicaid system the evaluators
found that SSI recipients in Arizona were less likely to report being very satisfied with
their overall medical care compared to their counterparts in New Mexico. Arizona
enrollees also reported being slightly less satisfied, on average, with waiting time,
evening and weekend availability, information giving, courtesy and consideration.
Alternatively, Arizona recipients reported slightly more satisfaction with ease and
convenience and the costs paid out-of-pocket for medical care received. No
McCall, et al., 1996.
difference in the receipt of preventive care was found between Arizona and New
Mexico SSI recipients.96
Oregon Health Plan97
Under the authority of a Section 1115 Medicaid waiver, the Oregon Health Plan
(OHP), a statewide, mandatory Medicaid managed care program, was implemented
in February 1994. OHP began enrollment of aged and disabled Medicaid recipients
in January 1995, including Medicare-Medicaid dual eligibles. Though enrollment in
Medicaid managed care is mandatory, Oregon provides beneficiaries with a choice of
plans, that, in exchange for monthly capitation payments from Oregon’s Office of
Medical Assistance Programs (OMAP), are responsible for all Medicaid primary and
acute care benefits. Unlike Arizona, long-term care services are not included in the
capitated plan and are instead provided on a fee-for-service basis. As of January 1,
2000, the Oregon Health Plan had 349,500 enrolled individuals, approximately 50,000
of whom were dually eligible elderly and disabled adults.
Under Oregon’s program, most Medicaid recipients receive their care through
prepaid health plans. Three major types of managed care entities are used, including
fully capitated health plans, dental care organizations, and mental health organizations.
Although OHP emphasizes enrollment in fully capitated plans, primary care case
management (PCCM) and fee-for-service coverage are also available on a case by
case basis. Individuals may be exempted from managed care enrollment for a variety
of reasons. These include: (1) availability of private supplemental insurance, typically
a Medi-Gap policy provided by a former employer, (2) disruption of a critical patientprovider relationship, and (3) Native American heritage. For elderly, disabled, and
other beneficiaries with complex care needs, local OHP enrollment counselors
employed by local agencies responsible for aging and/or disability services may
authorize PCCM or fee-for-service participation in Oregon’s Medicaid program. Feefor-service enrollment, is used as a last resort for those individuals whose existing
providers do not belong to a fully capitated health plan, and whose primary care
providers refuse to participate in the state’s PCCM program. In 1998, 65.1% of
dually eligible OHP beneficiaries were enrolled in a fully capitated Medicaid plan, up
from 8.1% in PCCM, and 26.8% in fee-for-service Medicaid.98
The Oregon Health Plan contracts with 15 fully capitated plans, of which four
also participate in the Medicare+Choice program. While Oregon cannot mandate that
Medicare beneficiaries receive their Medicare services through the state’s network of
Medicaid providers, dual eligibles who enroll in health plans with both Medicaid and
Medicare risk contracts can receive all of their health care through plans capitated
under both programs. In 1998, 34.6% of all dually eligible Oregon beneficiaries were
McCall, et al., 1989.
Contact: Joan M.. Kapowich, Policy and Programs Section Manager, Office of Medical
Assistance Programs, Department of Human Resources, 500 Summer Street, NE, 3rd Floor,
Salem, 97310-1014. Phone: 503-945-6500. Fax: 503-373-7689. E-Mail:
Mitchell and Saucier, 1999.
enrolled in Medicare HMOs with OHP contracts.99 For those who chose to receive
their Medicare benefits in the fee-for-service system, Oregon, like Arizona and
Minnesota, has received approval from HCFA to limit its Medicare cost-sharing
obligations to services delivered through its Medicaid plans. As a consequence, the
30.5% of dually eligibles remaining in fee-for-service Medicare but enrolled in a fully
capitated Oregon plan have strong incentives to use their plan’s Medicaid providers
for their Medicare services needs. The remaining 34.9% dual eligibles are in other
Plans are paid through actuarially determined Medicaid capitation rates based on
plan encounter data, with separate rate categories for the elderly and disabled and for
those with and without Medicare. These rates pertain to Medicaid primary and acute
services only. Nursing home and home- and community-based services are
reimbursed by Medicaid on a fee-for-service basis. How plans are reimbursed by
Medicare depends on whether they are also a Medicare HMO. When the contractor
is a Medicare HMO, the Medicare+Choice rate is used; otherwise, they are
reimbursed on a fee-for-service basis.
To help elderly and disabled beneficiaries navigate managed care and to promote
coordination between its long-term care program and the Oregon Health Plan, Oregon
requires its contractors to hire “exceptional needs coordinators” (ENCCs), whose
responsibilities include establishing a link between the state’s medical and social
service systems and acute and long-term care service providers. Other ENCC duties
include identifying members with disabilities or complex medical needs, providing
assistance to ensure timely access to providers and capitated services, coordinating
services with providers to ensure consideration of unique needs in treatment planning,
and assisting providers with coordination of capitated services and discharge planning.
On average, plans receive $6.02 per member per month to fund the ENCC role.101
An evaluation of the elderly and disabled portion of the OHP demonstration is
being conducted by researchers at Health Economics Research, Inc. (based in
Waltham, Massachusetts). Results are currently under review at HCFA and should
be made available in early 2001. Preliminary findings indicate that separate enrollment
of dually eligible beneficiaries in Medicare and Medicaid is extremely complex and
time-consuming, and represents the greatest source of frustration among OHP
plans.102 They also indicate that while the ENCC program has resulted in creative and
flexible service plans for some beneficiaries, the effectiveness of ENCC has been
limited by lack of consumer and provider awareness of the program and variations in
ENCC program operation as a result of latitude granted plans in implementing these
programs. Also the evaluators have pointed out that, “while some ENCC programs
engage in creative case management, flexible service planning, and active liaison with
Ibid. In addition, 5.2% of dually eligible beneficiaries in Oregon were enrolled in a
Medicare HMO and OHP fee-for-service, 8.1% in Medicare fee-for-service and OHP PCCM,
and 21.6% in Medicare fee-for-service and Medicaid fee-for-service.
Walsh, et al., 2000.
Mitchell and Saucier, 1999.
community agencies, others appear indistinguishable from traditional managed care
services and utilization review departments.”103
Florida’s Community-Based Diversion Pilot Project104
Through the integration of medical and long-term care services, the aim of
Florida’s Community-Based Diversion Pilot Project is to provide extremely frail
seniors with an alternative to nursing home placement. Florida’s program focuses on
dual eligibles 65 or older who reside in the project’s service area, have been certified
for nursing home care, and meet additional clinical criteria, including: (1) some help
needed with five or more activities of daily living limitations (ADLs); (2) some help
needed with four or more ADLs plus supervision or administration of medication; (3)
total help needed with two or more ADLs; (4) Alzheimer’s disease or other dementia
diagnosis, plus some help needed with three or more ADLs, and/or (5) a degenerative
or chronic condition diagnosis requiring daily nursing services.
After voluntarily enrolling in the program, participants are eligible to receive all
of their Medicaid acute and long-term care services through one of three participating
contractors, including two Palm Beach area plans (Beacon Health’s Independence
Plan and Physicians Healthcare’s Summit Care Plan) and one Orlando-based plan
(United HealthGroup’s Health and Home Connection). Since the two Palm Beach
area sites are also Medicare+Choice plans, project participants may receive capitated
Medicaid and Medicare benefits through the same provider, though the majority of
Palm Beach enrollees have opted to remain in fee-for-service Medicare.
In exchange for a monthly capitation payment from the state, participating plans
are at full risk for the following services: Medicaid nursing home care; 1915(c) homeand community-based waiver services (including adult day care, assisted living,
homemaker, and respite care); and acute care benefits not covered by Medicare
(including prescription drugs, Medicare cost-sharing, community mental health,
dental, hearing, and visual services). Florida’s capitation payments include a medical
and long-term care component equivalent to 75% of the fee-for-service nursing home
rate and 92% of average fee-for-service claims, respectively. The medical payment
component is developed using the Medicaid fee-for-service claims experience of
Medicaid recipients age 65 or older who were assessed as nursing home certifiable.
The long-term care component is developed using the statewide average cost of
nursing home care less patient cost sharing responsibility. Beneficiaries receive their
Medicare acute care benefits through separate enrollment in the Medicare program.
The project requires that participating plans employ case managers who perform
assessments, develop care plans, and facilitate enrollee access to needed services.
They are also responsible for developing and executing strategies to coordinate and
integrate the delivery of all acute and long-term care services, regardless of funding
source. Where project enrollees have elected to receive their Medicare services
Walsh, et al., 2000.
Contact: Judith Royce, Senior Management Analyst, Florida Department of Elder Affairs,
4040 Esplanade Way, Suite 235, Tallahassee, Florida 32399-7000. Phone: 850-414-2098.
FAX: 850-414-2008. E-Mail: [email@example.com]
within the fee-for-service system, for example, case managers must actively pursue
coordination with enrollees’ primary care physicians and other providers.
Authority for the Community-Based Diversion Pilot Project was obtained
through a Medicaid 1915(c) waiver in 1997, which allows the state to add community
based long-term care services to managed care organizations with existing Medicare
or Medicaid risk contracts. Enrollment began in December 1998. As of February
2000, 501 persons were enrolled. An independent evaluation mandated by Florida’s
legislature is still in the planning stages.
Appendix C: Waiver Authorities
Existing waiver authorities (and one non-waiver authority) that have been used
to authorize current federal and state dual eligible initiatives include:
(1) Section 1115 (of the Social Security Act) Medicaid waiver: A Section
1115 “research and demonstration” waiver allows states to test major
restructuring of the Medicaid program. It has been used for a variety of
purposes, including making Medicaid managed care enrollment mandatory.
States can use 1115 waivers to lock in enrollment in a managed care plan
for 12 months if they provide enrollees with a choice of plans. The
Balanced Budget Act (BBA) of 1997 granted states the flexibility to enroll
most Medicaid recipients in mandatory Medicaid managed care without
having to receive a waiver so long as they offer beneficiaries a choice
between at least two managed care organizations or a primary care case
manager. It explicitly excludes Medicare beneficiaries, children with special
needs, and members of federally recognized American Indian tribes from
mandatory managed care enrollment, however. As such, states will
continue to need a Section 1115 or other waiver to enroll dual eligibles in
mandatory Medicaid managed care. A Section 1115 waiver also allows
states to cover non-Medicaid services, offer different service packages or
combinations of services in different parts of the state, test new
reimbursement methods, change Medicaid eligibility criteria in order to
offer coverage to new or expanded groups, and contract with a greater
variety of managed care plans.105 This waiver is typically granted for
periods of up to 5 years at a time.
(2) Section 1915 (b) Medicaid waiver: A Section 1915 (b) “freedom-ofchoice” waiver allows states to implement mandatory Medicaid managed
care programs of both the risk-based (capitated) and primary care case
management varieties. It also allows states to use savings generated by the
waiver to fund expanded benefits for the populations served by these
programs. Freedom-of-choice waivers are approved for 2 years and may
be renewed at 2-year intervals.
(3) Section 1915 (c) Medicaid waiver: A Section 1915 (c) home and
community-based services waiver authorizes states to expand available
services to include non-medical, social, and supportive services that allow
individuals who otherwise would have required Medicaid- funded
institutional care to remain in the community. Home and community-based
waiver programs are initially authorized for 3 years and may be renewed at
(4) Section 1915 (a) Medicaid authority: Though technically not a waiver
authority, Section 1915 (a) of the Social Security Act allows states to
Prior to the BBA states had to obtain an 1115 waiver to engage in full-risk contracting with
managed care plans that did not meet Medicaid’s 75/25 rule, which required that private (nonMedicaid) members constitute at least 25% of plan enrollment. The BBA eliminated this
establish voluntary managed care programs and only require approval of
health plan contracts by HCFA’s regional offices. (All waiver requests, by
contrast, are reviewed in the central office). Under Section 1915 (a), health
plans may provide a range of Medicaid services in addition to services not
currently covered under states’ Medicaid programs. Section 1915 (a)
requests are not subject to the Office of Management and Budget’s
requirements that waiver programs be budget neutral to the Medicaid
program (i.e., that Medicaid managed care programs not cost the federal
government more than the traditional fee-for-service program).
(5) Section 222 Medicare waiver: A Section 222 waiver is the only Medicare
waiver available. It provides authority for Medicare demonstrations, and,
in concert with such demonstrations, waiver of Medicare payment and
administrative rules. A Section 222 waiver is required, for example, when
states wish to contract with plans that are not Medicare risk contractors.106
They are also required when states wish to alter the way Medicare risk
contractors are paid. The creation of the Medicare+Choice program under
the BBA expanded the array of service delivery options available for
Medicare risk contracting to include HMOs, PPOs, and PSOs, among
others, which may reduce the need for states to obtain Section 222 waivers
to implement joint Medicaid-Medicare managed care programs for dual
eligibles. The community-based long-term care organizations with which
many states would like to contract are not included among the plans
specified by the statute, however.
Prior to the BBA states had to obtain a 222 waiver to engage in full risk contracting with
managed care plans that did not meet Medicare’s 50/50 rule, which required that private
members compose at least 50% of plan enrollment. The BBA eliminated this requirement.