Federal and State Initiatives to Integrate Acute and Long-Term Care

CRS Report for Congress
Received through the CRS Web
Federal and State Initiatives to Integrate Acute
and Long-Term Care
Edward Alan Miller
Analyst in Social Legislation
Domestic Social Policy Division
Congress has considered many approaches to improve the financing and delivery
of long-term care services to vulnerable populations. These approaches have included
ways to improve the delivery of care to persons who qualify for both Medicare and
Medicaid acute and long-term care services, or “dual eligibles.” Because persons who
are dual eligibles are especially vulnerable and costly, both the federal and state
governments are interested in finding more effective ways of serving them. This report
characterizes the dually eligible population and describes the problems associated with
meeting their health and social service needs. It briefly describes federal and state
programs that seek to integrate acute and long-term care services for this population.
Policy implications are also discussed. This report summarizes the more in-depth CRS
Report RL30813, Federal and State Initiatives to Integrate Acute and Long-Term Care:
Issues & Profiles and will not be updated.
Dual Eligibles Defined
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 (i.e., the “dual eligibles”). Compared to other
beneficiaries, dual eligibles are especially vulnerable and costly to serve. Not only are they
disproportionately poor, but they are more likely than other Medicare beneficiaries to be
age 85 or older, disabled, non-white, female, living alone, in only fair or poor health,
cognitively and functionally impaired, and/or suffering from many chronic ailments and
diseases (see Table 1).
Not surprisingly, dual eligibles use a disproportionate share of resources relative to
their numbers. Although they constituted only 16% of Medicare beneficiaries in 1995,
dual eligibles accounted for approximately 30% of total Medicare expenditures ($53

Congressional Research Service The Library of Congress

billion).1 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. Based on demographic projections that indicate
significant growth among the “oldest old,” those 85 years and older, and growing ranks
of the population that will be chronically ill and disabled, Medicare and Medicaid
expenditures for long-term care services for the elderly are projected to double between2
2000 and 2025. It is likely that an increasingly disproportionate share of these resources
will be consumed by dually eligible individuals, since they are more likely to be among the
populations requiring long-term care.
Table 1. Comparison of Medicare Beneficiaries by
Dual Eligibility Status, 1998
Characteristics Duals Non-Duals
Total beneficiaries7.0 million39.8 million
Income less than $10,00073.8%18.3%
Age 85 and older18.1%9.9%
Under Age 65 but disabled28.8%9.4%
Non-White (Hispanic, Black, other)38.5%14.1%
Female 63.2% 54.6%
Living alone if in community39.4%29.2%
Fair/poor self-reported health53.4%25.1%
One or more ADL or IADL limitations76.4%42.9%
Mobility limitation68.8%42.7%
Urinary incontinence33.6%20.5%
Multiple chronic conditions81.3%70.5%
Pulmonary disease19.4%13.2%
Stroke 14.8% 10.0%
Alzheimer’s disease12.0%2.8%
Source: HCFA (now Center for Medicare and Medicaid Management (CMS)). Analysis of the 1998
Medicare Current Beneficiary Survey
IADL=Instrumental Activity of Daily Living (e.g., shopping, housework, telephoning)
ADL=Activity of Daily Living (e.g., bathing, dressing, eating, toileting, transferring from bed to chair)
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

1 Health Care Financing Administration (HCFA). (Now the Center for Medicare and Medicaid
Management, (CMS)). A Profile of Dually Eligible Beneficiaries. Prepared for the National Health
Policy Forum, May 6, 1997.
2 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, DHHS, 2000.

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 and3
therapeutic care for the treatment and management of chronic conditions.”
Different programs and levels of government have been assigned primary
responsibility for financing, planning, and administering the care that dual eligibles require.
Dual eligibles 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 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 Center
for Medicare and Medicaid Management (CMS) (formerly the Health Care 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, its coverage of long-term
care is especially significant because dual eligibles rely on Medicare as the primary payer
for acute care services.
A variety of other federal and state programs also support long-term care services.
Federal programs include 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. Though not nearly as large as Medicare or Medicaid, these 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. Their varying administrative structures,
eligibility requirements, and available services make care coordination even more difficult.
Divided Responsibility:
Implications and Reform Goals
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, barriers to
more effective care, and incentives to shift costs from one payer to the other.
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:

3 A Call for Action, The Pepper Commission: U.S. Bipartisan Commission on Comprehensive
Health Care. Final Report, September 1990. p. 90.

!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);
!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 reimbursement systems.
Federal and State Initiatives
The federal government and several states have developed a number of pilot
initiatives aimed at integrating acute and long-term care services for Medicare-Medicaid
dual eligibles. Examples include:
!Federal initiatives such as the Program for All-inclusive Care of the4
Elderly (PACE), which uses a managed care approach and capitates
Medicare and Medicaid, as well as the EverCare demonstration and Social
Health Maintenance Organization Demonstration (S/HMO) which
capitates Medicare only;5
!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.
Implementation of dual eligible programs such as these require CMS 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

4 “Capitation” refers to the payment of all health and long-term care services under an arrangement
where providers are reimbursed for clients served on a pre-set amount per patient. Capitation
payments may be adjusted by various factors, such as health and disability status and demographic
characteristics of the population to be served, as well as geographic variations in cost of services.
In the long-term care context, the purpose of capitating payments to providers is to create an
incentive for them to delay or prevent the need for institutional care by maintaining patients in
community-based settings, by coordinating health and social services through effective case
management, and to use services efficiently.
5 The S/HMO program also has the authority to capitate Medicaid covered benefits, though this
only occurs in limited circumstances.

kinds of programs. These waivers are usually referred to according to the section of the
Social Security Act under which they are authorized. States have traditionally sought
waivers of federal law when considering mandatory Medicaid managed care programs and
home and community-based service expansion. Those explicitly incorporating Medicare
services into their managed care efforts have also sought 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 CMS.
Though extant initiatives use varying approaches and combinations of waiver
authorities, general similarities exist in their strategies for integrating financing and service
delivery (see Table 2). 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.6
Table 2. Examples of the Way Programs Pursue
Medicare/Medicaid Integration
ProgramFinancialService deliveryintegration
Program for All-InclusiveMedicare and MedicaidCommunityOne set of encounter-a
Care of the Elderlycapitation;organizations;level data to HCFA
(PACE)Acute and long-term careProvider teams
Social HMO (S/HMO)Medicare capitation;HMOs and
DemonstrationMedicaid capitation (wherelong-term care----------
applicable); Acute and someorganizations;
long-term careCase managers
EverCare Medicare capitation;HMOs; ProviderMedicare only
DemonstrationAcute care onlyteams; Case managers
Minnesota Senior HealthMedicare and Medicaid HMOs and GeriatricSingle contract,
Options (MSHO)capitation;care systems;enrollment process,
DemonstrationAcute and most long-term careCare coordinatorsand data reporting
Wisconsin PartnershipMedicare and MedicaidCommunity
Program Demonstrationcapitation;organizations;----------
Acute and long-term careProvider teams
Continuing Care NetworkMedicare and MedicaidIntegrated network;
(CCN) Demonstrationcapitation;Provider teams----------
Acute and long-term care
Arizona Long-term Medicaid capitation;County and private
Care SystemLong-term care and some acutehealth plans;----------
(ALTCS) DemonstrationcareCase managers
Oregon Health PlanMedicaid capitation;Health plans;
(OHP)Some acute careCare coordinators----------
Florida’s Community-Medicaid capitation;HMOs;
Based Diversion ProjectLong-term care and some acuteCase managers----------
a Encounter level data refers to diagnoses and service utilization data for a managed care patient visiting a health care
provider (comparable to the claims data collected for a fee-for-service patient).

6 For more information on these approaches, see CRS Report RL30813, Federal and State
Initiatives to Integrate Acute and Long-Term Care: Issues & Profiles, by Edward Alan Miller.

Policy Implications
Congress has considered a variety of proposals to improve the financing and delivery
of long-term care services, but has primarily taken an incremental approach, including
development of federal and state initiatives to integrate acute and long-term care services.
Though these programs serve a comparatively small number of the nation’s dual eligibles,
they provide models that Congress may want to consider when formulating long-term care
policy in the future. 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. Many worry that incentives under managed care to control
utilization may have deleterious effects on patient welfare and quality–especially for frail
recipients. However, there is currently a dearth of evaluation evidence to support or reject
this claim definitively. Nevertheless, 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. 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.
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 care experts.
!Streamlining or eliminating the CMS waiver approval process;
!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;
!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 disabled beneficiaries;
!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;
!Supporting the development of Medicare- or Medicaid-based care
management options independent of capitation.