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As Medicaid budget pressures grow, more states are turning long-term care over to private managed care companies. USA Today reports that six states now require both frail elderly and younger adults with disabilities to enroll in insurance-run Medicaid managed care plans. Another 10 states are planning to either create or expand these programs, according to the story.

The reason, of course: money. States pay the insurance plans a fixed amount to care for these patients. And the private insurers say they can provide quality care for less cost through their use of care coordinators and by keeping many people at home. 

Tennessee, for instance, pays private insurers an average of $4,400 per patient per month to provide Medicaid long-term care services. Under this system, if the insurer can provide care for less, it makes a profit. If its costs are higher, the insurer is at risk for the difference. This is a big incentive to create a care plan built around home care, which for many beneficiaries can be far less costly than a skilled nursing facility.

USA Today reported that one Tennessee insurer, Amerigroup, spent about $3,000 per month to care for one patient at home. The cost for this patient in a nursing facility would have been almost $4,600 per month and a money-loser for the insurer.     

Medicaid managed care isn't new. States have been using it for acute care beneficiaires (mostly low income mothers and kids) for years. But long-term care patients are a very different challenge.

One one hand, more than any other population, the frail elderly need to have their care coordinated. They have complex medical needs, often suffer from multiple chronic diseases, and frequently take many medications. If a mix of care managers, personal assistance, nursing, and other services and supports can help them get the care they need at home for less money, that is great.

This flat fee, or capitated, payment model works well with programs such as hospice and PACE, for instance.   

On the other hand, many insurance companies badly damaged their reputations in the 1980s and '90s with managed care plans that seemed more intent on maximizing profits than care. It will be important to put protections in place to be sure that the frail elderly, who are often unable to advocate for themselves, are getting the care they require.

The other problem with Medicaid managed care is that these beneficiaries often receive their physician and hospital care through Medicare, not Medicaid. Because these two programs are so poorly coordinated, seniors who transition from, say, home to hospital to rehab and back to home may not get proper care as they cross settings.

This lack of coordination between Medicare and Medicaid also creates some perverse and dangerous incentives. If, for instance, a Mediciad managed care patient winds up in the hospital as a result of poor care, neither Medicaid nor the managed care firm is on the hook. The bill, instead, is paid by Medicare.

If managed care is going to work well, there will have to be much closer delivery and financial relationships between these two payers, as there is with successful programs such as PACE or through provider-based managed care mechanisms such as Accountable Care Organizations.           

In the decade between 1999 and 2008, almost 3,000 nursing homes closed while the number of skilled nursing facility beds shrunk by nearly 100,000, or about 5 percent, according to a new study in the Archives of Internal Medicine. In a nation with more nursing homes than McDonald's, and at a time when long-term care can be provided in other settings, that may not be a bad thing. These days, many frail elderly receive care at home or in assisted living facilities, settings they often prefer to skilled nursing facilities.

But the Archives study by Zhanlian Feng and coauthors also raised some serious concerns. The report concluded that many of these closures occured in minority and low-income communities, the same areas where other care alternatives may be unavailable.

Other studies have shown that relatively few assisted living facilities--which are overwhelmingly private pay--are located in these neighborhoods. In addition, while data are scarce, it appears that many low-income and minority serniors may have limited access to high-quality home care. In other words, for one segment of the population, good care may increasingly be unavailable. 

A study published last year in Health Affairs, David Stevenson and David Grabowski of the Harvard Medical School found that larger assisted living facilities (those with 25 beds or more) were far more likely to be located in higher income counties than in poor jurisdictions. 

As a result, low-income seniors who are unable to live at home--perhaps because there may be no one to care for them or because their home may not be suitable for someone with disabilities--have very few options. Many may move to small board-and-care homes--often a room they rent in a local home where assistance is provided by an unlicensed caregiver. Others may get no care at all.  

From the perspctive of the long-term care industry, the Archives paper reflects another troubling trend. Most long-term care in SNFs is paid by Medicaid, and reimbursements for these patients are often lower than the cost of providing care. By contrast, Medicare, which pays for post-acute and rehabilitation services, is far more generous. Medicare typically pays $500 or more per day for these services while Medicaid may pay just $125 for a long-term care bed (these payments vary by state and Medicare payments are adjusted to reflect patient needs).

The result: Growing industry consolidation and an increasing shift away from long-term care and towards more lucrative post-acute services. These choices make perfect economic sense. And they are often praised by advocates for the elderly, who argue that aging services should be provided in the community. However, for some seniors, including some with dementia or those with no family members to help provide care, nursing homes or assisted living facilities may be their only alternatives. Sadly, for many, those options are increasingly unavailable.           

The co-chairs of President Obama's bipartisan deficit commision have proposed a far-reaching plan to reduce the nation's massive deficit. It includes big changes for both current and future seniors. Among them: higher Social Security taxes and reforms in the design of benefits, reduced payments to Medicare providers and greater cost sharing by Medicare beneficiaries, and, perhaps most dramatic, a fundamental change in federal payments for Medicaid long-term care.

The chairs, Erskine Bowles--who was chief of staff to President Clinton, and Alan Simpson--a former Republican senator from Wyoming--released their draft plan today. Their proposal still must win the support of 14 of the 18 members of the bipartisan commission, which will be an uphill battle. If the group can reach a consensus, the panel's plan would be presented to Congress in early December.

The Bowles-Simpson plan makes cuts throughout government, including defense and most domestic spending programs. It also includes $750 billion in tax increases over 10 years. While much of what the co-chairs proposed will be hugely controversial, their plan shows what it will take to put the nation back on a firm fiscal footing.

In such an environment, long-term care services can't expect to be immune from cuts. Their biggest proposed change: capping the federal contribution for Medicaid long-term care.

Today, the federal government must automatically pay its share of the cost of these services, no matter how fast they rise. The feds contribute an average of about 60 percent of the cost of Medicaid, although the share varies from state to state. Bowles and Simpson would, for the first time, place a ceiling on the federal match for this joint state/federal program, reducing the federal contribution by about $90 billion from 2012 to 2020.

This would place a tremendous increased burden on states and likely result in both lower payments to nursing homes and home health agencies, and tougher eligibility standards and lower benefits for frail seniors and younger people with disabilities.

No doubt these proposals are harsh, but, like them or not, changes such as these are inevitable. They are a big reason why we must find a way to replace Medicaid long-term care with an insurance program.        

More than half of long-term care residents in skilled nursing facilities made at least one emergency room visit in 2006. A quarter had two or more. Even more troubling, 38 percent were admitted to the hospital at least once that year, and nearly half were admitted twice or more. In all, one-quarter of all hospitalizations for nursing home residents were potentially preventable.

These very troubling statstics are included in a new study released today by the Kaiser Family Foundation. Even more worrisome were the reasons why: Kaiser does not have good statistics on this, but it hired Lake Research Partners, a survey research firm, to ask physicians, nurses, social workers, and family members about these hospital visits. The responses are hair-raising--not because they show uncaring or greedy docs, or sleazy nursing homes, but because they expose the routine systemic problems that drive hospitalizations.

Among the reasons so many nursing home residents land in the hospital:

The Friday effect: Nursing homes don't have the staff to deal with medical issues, especially on weekends. So they send them to the ER.

Nursing facilities and family members prefer that residents die in the hospital.  

Docs would rather care for patients in the hospital, in part because it is more convenient  or because they get test results quicker.

Financial incentives: Physicians think they get paid more for caring for a patient in the hospital, and nursing homes may get paid more after a long-term care resident has been hospitalized for at least three days and returns to their facility.

Lack of a relationship between nursing homes staff and residents: It turns out that residents are more likely to get sent to the hospital in the first months of their nursing home stay.

Families consent.They don't object, perhaps because they believe their loved one will get better care in the hospital. This is especially true if the resident has no advance directive.

Malpractice fears. Docs were afraid they'll be sued if they don't hospitalize a sick resident. 

Dr, Cheryl Phillips, the immediate past president of the American Geriatrics Society and a member of the panel that discussed the studies at Kaiser today, described a typical situation. Imagine, she says, you are a doctor who has several patients in your waiting room. You see patients at multiple nursing homes and you get a call from a nurse at one. One of your patients--a resident in the facility--"is not doing well," the nurse says.She doesn't know quite what's wrong, but things are not right. You could leave your patients in the waiting room and drive to the nursing home. Or you could say, "Send her to the hospitall." It isn't hard to guess what happens.

Thse potentially needless trips to the hospital cost Medicare a bundle, and, most important, hospital stays can be bad for chronically-ill elders. The new health reform law will drive many patients out of the hospital sooner, and many are likely to be cared for in nursing homes. These important studies raise some important questions about whether those facilities are prepared to take on those sub-acute patients.   

Instead of admitting patients, hospitals are increasingly keeping them under "observation status." This decision results in lower Medicare payments to the hospitals and more out-of- pocket costs for patients. But it also means that Medicare is no longer paying for some admissions to nursing homes, and is instead shifting those expenses to residents and their families. 

What's going on? It is complicated. But here is the story: In the past, if a physician felt it was appropriate, a patient was admitted to a hospital for care. However, hospitals, which are under increasing pressure from Medicare to reduce costs, are becoming more cautious about formally admitting people who may not meet government criteria for in-patient care but are too sick to go home. 

These days, this decision is often not made by a doctor, but by a computer program called InterQual.Why InterQual? Because it is the software used by the Medicare inspectors, hospitals rely on it as well. Hospitals do this because if they do admit a patient and Medicare determines later that she should have been kept under observation, the hospital must return part of its Medicare payment to the government.  

The consequences of this situation reach far beyond hospitals, however. Medicare provides limited payments for nursing home care, and in fact is the biggest payer of post-hospitalization skilled nursing care. But it will pay only after a person has been in the hospital for at least three days. And time under observation does not count towards those three days. As a result, nursing homes are not being reimbursed by Medicare for these stays, and patients are being billed for their care, sometimes without advance notice.

A few weeks ago, Medicare held a meeting about all of this and got an earful--from hospitals, physicians, nursing homes, patients, and advocacy groups. Most agreed that time spent in a hospital under observation status should count against the three day rule.

This issue begs for clarification from Medicare. The agency needs to better explain the rules for admission and observation. It should rethink a system that relies on commerical software to make these determinations. And it should require nursing homes and hospitals to explain to patients in plain language who is paying for their stay, and why.    

Kudos to President Obama for making a "recess appointment" of Don Berwick to run the Centers for Medicare and Medicaid Services (CMS).

Berwick may be the ideal choice for the job. He is the right candidate at exactly the right time. The new health law makes possible broad reforms in the way we deliver health and long-term care. But it by no means guarantees these changes will be implemented. It will take a tough, commited head of CMS to break through the politics, inertia, and special interests to make the possible real.

As head of the private Insitute for Health Care Improvement (IHI), Berwick was a tireless advocate for high quality, cost-effective medical care. Under his leadership, IHI pressed hospitals to improve routine procedures aimed at saving lives. These included tasks such as routine handwashing and monitoring of mediciations as patients transfer from one care setting to another. Easy to support these ideas, but Berwick was convincing hospitals to actually implement them.  

Berwick has been an outspoken critic of our fragmented health system for years, pushing instead for more coordinated care. He has argued that as much as half of all health spending is wasted.  

At a time when politicians decry the high cost of health care but are afraid to make the decisions to manage these expenses, Berwick will be in a position to do something about them. As the biggest payers of health care, Medicaid and, especially, Medicare will be well-positioned to drive needed reforms.

Despite his credentials, and even though CMS has been without a permanent head for four years, Berwick's nomination was being blocked by Senate Republicans. In an effort to turn his choice into yet another partisan battle over health reform, they blasted Berwick as "Dr. Death" who would end care for elderly patients.

To listen to the GOP, Berwick would implement the fantastical death panels that health reform critics invented last summer. Their claim is absurd and irresponsible, to say nothing of offensive.  

Berwick will shake things up. He will surely struggle to manage the massive CMS bureaucracy where Medicare and Medicaid officials rarely even talk to one another. And his recess apointment will last only until the end of 2011. But if anyone can begin the process of making today's medicine more cost-effective while improving patient care, it is Berwick.   

For the first time since President Bush's ill-fated effort to privatize Social Security five years ago, the future of the nation's flagship retirement program is back on the policy agenda. For example, Social Security will almost certainly be an issue for President Obama's deficit reduction commission. 

Unfortunately, we may be headed for the same non-productive shouting match we had over the Bush plan in 2005. Critics of the current system tell us Social Secrity is "broke" and faces trillions of dollars in unfunded liabilities. Supporters argue the program is untouchable.

I'd like to make the case for a middle-ground. Largely as result of profound demographic changes (we are living longer and having fewer children), the Social Security system needs to be reformed. It does not need to be blown up. But it does need to be updated.  

Social Security is in no way broke. But over the long-run it will be paying more in benefits than it collects in taxes. The result is, without changes in the system, government will be able to pay only about three-quarters of promised benefits to future retirees. 

This is an unhealthy situation and, on top of much greater financial stresses of both Medicare and Medicaid (which pays the largest share of long-term care costs in the U.S.), it jeopardizes the secure retirement of future generations.

It is important to keep in mind that the debate over Social Security is about benefits for future retirees, not current seniors. There is no chance that reforms will reduce promised Social Security benefits for those already retired or, indeed, even for those 55 or older. Whatever changes we make will be phased in slowly over many years. 

So what to do? My choice is a mix of modest Social Security payroll tax increases and benefit changes. I'd raise the cap on wages subject to the tax. I would gradually increase the early retirement age of 62. After all,as the nature of work changes and we remain healthy well into our 60s, many of us can and should work longer. I'd also adjust the inflation index to which benefits are tied.

I'd also consider other changes in the design of the program, perhaps even reducing benefits somewhat for younger retirees (especially those over a certain income) while raising them for those over 80 or 85 and for low-income workers and widows.

Finally, government needs to encourage younger generations to save more for their own old age. This means boosting participation in retirement plans. The CLASS Act, a new national voluntary long-term care insurance program included in the health reform law, will also help people prepare for the risk of needing personal assistance in old age.

There are many ways to address these issues, but the goal should be clear: At a time of budget contraints, Social Security benefits should be targeted to those who need them the most, even as we all do more to prepare ourselves for what we all hope will be a long old age. 

The Senate Finance Committee has begun an investigation into four big home-health agencies that, it alleges, artificially inceased their home therapy visits to take advantage of higher Medicare billing rates. A May 12 letter from committee chairman Max Baucus (D-MT) and senior Republican Charles Grassley (R-IA) asked the four for-profit agencies--Amedisys, Almost Family Inc. Gentiva Health Services, and LHC Group-- for records and internal documents relating to these visits from 2006-2009. The firms all either deny the allegations or say they will cooperate fully with the investigation.

It will be interesting to learn whether this is a scam or not, but the probe misses the point: The Medicare payment system encourages this sort of thing all the time.   

The controversy, first reported in The Wall Street Journal,  involves changes Medicare made to its reimbursement rules for home therapy. In essence, The Journal alleged that when Medicare paid a $2,200 bonus to agencies that provided 10 visits, the firms boosted their number of visits to 10 so they could claim the bonus. When Medicare changed the payment triggers in 2008, the firms once again adjusted their visits to maximize their payments. 

I don't know if the firms (and the physicians who ordered the therapies) were manipulating these visits to squeeze the most revenue out of the Medicare reimbursement system. And I don't know if these practices are more widespread than just these four firms.

But if the allegations are true, my question for the lawmakers is: What did you expect? As we heard throughout the health debate, Medicare reimbursement is based on piecework. Most health providers get money for each separate visit, test, and procedure they do. We pay them like they are auto mechanics when we should be paying them a single rate to do what is necessary to fully treat an illness or injury in the most effective way possible.  

Today, docs are paid for each test they order. So, it should be no surprise that they order lots of tests. Some doctors will ask a Medicare patient to come to their office to learn the results of, say, a routine blood test. They could deliver the news by phone but don't. Why? Because they get paid for the office visit but not for the phone call.

Health providers are like the rest of us: They will maximize their profits within the bounds of business ethics. If Congress doesn't want home health agencies to add visits to earn a bonus, it should change the Medicare payment system to stop rewarding the firms for that extra visit. If it wants doctors to communicate with patients by phone or email it should change Medicare payments to encourage those practices.

The new health law includes some small steps in this direction. But this is about much more than home therapy visits. If The Journal's allegations are correct, they are just more evidence of how badly the entire payment system is broken.           

I           

A typical couple would have to save nearly $200,000 to pay for their out-of-pocket medical costs from the time they are 65 until they die, according to an important new study by the Center for Retirement Research at Boston College. Add in nursing home costs, and they are likely to need $260,000.

But that's only part of the story. About 5 percent of 65-year-old couples will face catastrophic medical and long-term care costs exceeding $570,000, according to researchers Anthony Webb and Natalia Zhivan.They estimate those expenses would have exhausted the total financial assets of 85 percent of all retirees even at the peak of the stock market in 2007.

These conclusions are similar to prior studies by others, including Paul Fronstin at the Employee Benefit Research Institute. But they are nonetheless hair-raising. It is especially important to keep in mind that these costs are for people who already have Medicare. Indeed, those expenses include premiums for Medicare Part B and Part D (the drug benefit), Medicare Supplement (Medigap) insurance, retiree health insurance. and copayments for services not fluly covered by Medicare.  

Lots to chew over here, especially as we think about health reform, the CLASS Act, and the need for private long-term care insurance.    

Mike Vitez at the Philadelphia Inquirer has done a great story on palliative care at a community hospital. Mike weaves the deeply touching story of Mary Tole, a 74-year-old woman who spent two months in the suburban Philadelphia hospital with an undiagnosed illness. She spent much of that time in an intensive care bed in a coma. 

Mike describes how the hospital's palliative care team and Mary's family struggled with how much treatment she should get, or whether she should be allowed to die as comfortably as possible. He also talks about the cost of her care--$775,000--Medicare's role, and Mary's out-of-pocket expense: $900.

This piece is an excellent antidote to all the foolishness and misinformation in the debate over "death panels" last summer. There is no more difficult or complex subject than end-of-life care. And Mary and her family still struggle to confront what happened to her, and what they will do when she again faces such a medical crisis.

As individuals, as family caregivers, and as a society, we need to address this issue head-on, and recognize there are no simple answers. Mike's story helps us do that. 

Congress made a horrible mistake when it allowed itself to be bludgeoned into dropping a provision of health reform that would have allowed Medicare to pay doctors to discuss end-of-life issues with patients.Mary's story is an example of the price we all pay for not having that conversation.