Nursing homes work to ‘rebalance’ Medicaid spending without managed care

The Pence administration is using a carrot-and-stick approach to push the nursing home industry to fix a long-standing problem: The state spends too much money on nursing homes.

The state has shown it’s willing to hire private insurance companies to conduct a managed care plan to control the spending of the Indiana Medicaid program. Just a year ago, the state hired private insurers to manage its spending on aged, blind and disabled Hoosiers—but that program specifically excluded long-term care services.

The prospect of extending that program to long-term care scares most nursing home owners and operators because it could wipe out extra federal funding most of them now receive. Nursing home providers also think managed care would add more regulatory burdens on them.

That’s the stick.

But right now the state is holding out a carrot—allowing the nursing home industry to make progress on reducing spending at nursing home facilities and saying, if they do, that managed care won’t be necessary.

That’s the carrot.

“Managed care is one tool that many states have utilized to rebalance Medicaid long-term care expenditures. Indiana is currently not planning to implement managed care as long as we are achieving our rebalancing goals,” Dr. John Wernert, secretary of the Indiana Family and Social Services Administration, wrote in an email last week. Wernert’s agency, known as FSSA, operates the Indiana Medicaid program.

FSSA will host a day-long event on Wednesday about “rebalancing” the percentage of dollars that flow to nursing homes, as opposed to other kinds of care for the elderly, such as home health care or community-based care in retirement villages.

The Indiana Medicaid program spends $2 billion a year on nursing home care, compared with only $1 billion on home- and community-based care, according to fiscal year 2014 data collected by the Kaiser Family Foundation.

That proportion going to nursing homes—66 percent—ranks fifth-highest nationally, according to the Kaiser data, and far higher than the national average of 47 percent.

Over the next five to eight years, state officials want to move to a 50-50 split between spending for nursing facilities versus spending for home- and community-based care.

While the state shoulders only one-third of the $3 billion annual tab for long-term care (the federal government picks up the rest), that’s still a big number.

And it's one that will certainly rise. The oldest baby boomers turn 70 next year, whereas the average age of a nursing home resident is 79.

“Demographics push it,” said Rep. Tim Brown, R-Crawfordsville, who is chairman of the House Ways and Means Committee and has to fit the growing spending on long-term care into the state’s budget. “We’ve talked about this, I think, for 20 years: How do we make home and community based services more attractive?”

Brown said some options being looked at include higher reimbursement rates for home-health care and community-based care providers.

The average occupancy rate at Indiana’s nursing homes is about 76 percent—well below the national average and below the optimal rate of 90 percent, on which the state’s funding formula depends.

“Three or four years ago, I thought we needed managed care to drive rebalancing,” Brown said. But today, he added, “I think maybe we could do it without doing managed care.”

Traditionally, Indiana has funneled far less of its Medicaid spending into managed care programs. In fiscal year 2014, Indiana spent only 20 percent of its Medicaid funding via managed care programs, ranking it No. 34 out of 40 states for which Kaiser gathered data. The average among those states is 34 percent, according to Kaiser, and some states, such as Kansas and Hawaii, spend 80 percent of their Medicaid funds via managed care.

Indiana has seen some success with the growth of assisted living communities—which is one form of community-based care.

Some of that credit may not be showing up in the Kaiser data, though, noted Zach Cattell, president of the Indiana Health Care Association, a nursing home trade group. That's because some of the payments to nursing homes help pay residents to stay at an assisted living unit at that facility.

Cattell, whose members in general don’t want a managed care program, said it’s hard to see how managed care would save much money. That’s because the programs typically try to achieve savings by avoiding expensive hospitalizations. But since most nursing home residents are 65 or older, their hospital stays are paid for by the federal Medicare program, not the state Medicaid program.

“We want to be part of the solution,” Cattell said, adding that his organization and other health care trade groups are having “good discussions” with the Pence administration and the state Legislature on how to ensure “high quality care” that is “responsibly funded.”

“Members are concerned about managed care,” he added, “because it’s very difficult to operate managed care.”

Indeed, Jack Horner, CEO of Major Hospital in Shelbyville, which owns 39 nursing homes managed by other companies, said he fears managed care will just add regulatory costs and burdens without much benefit in terms of quality or cost-savings.

He thinks the state can “rebalance” its Medicaid spending without using managed care for long-term care, referred to as LTC.

“I know that several states do have managed Medicaid in the LTC world and it has not done much for fiscal savings and only increased paper work for providers,” Horner wrote in an e-mail.