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Managed care: a call to action.

Long-term care faces its next great challenge

All of health care is in turmoil with traumatic change occurring at a rapid pace. While this change is most publicized in acute care medicine, profound change is occurring in long-term care, as well. During the next few years long-term care will experience the kind of dramatic change that has previously occurred with farming, automobile manufacturing, the airlines and banking. There is no status quo. The future is going to be painful, and perhaps shocking.

Clearly the primary motivator of change in the American health care system is cost. The Fall 1996 issue of Hospital & Health Services Administration stated that policymakers are being forced to address the organization and funding of long-term care because of the growing demands on the Medicare program for funding and the projected increase in the elderly population.

Concern over health care costs now exists in both the public and private sectors of the economy. Neither business nor government, the major payers of health care, is willing to pay for future increases in health care spending at the same rate as in the past. Instead they are both attempting to control costs by reducing spending growth and/or insurance coverage.

Because of relative flat growth in the economy in the recent past, employers have scaled back health insurance coverage, while demanding that employees share more of the cost, and in some cases dropping coverage entirely. Government, at all levels, is neither willing nor able to increase spending at the same pace as it has during the past two decades. This is in large part because of the resistance of taxpayers to continued increases in taxes that fund such programs. Clearly payment for health care services will not continue to increase at its previous rapid rate.

Two measures of health care cost that deserve examination are: the percent of the Gross Domestic Product (GDP) devoted to health care, and a comparison of health care cost increases to income growth.

In 1965, the health care share of the Gross National Product (GNP) (now the Gross Domestic Product [GDP]) was about 6%. Today it has passed 15%. This represents an increase of 150% in the share of the GDP devoted to health care (table 1). In the 1970s health policy experts said, "If we don't do something, health care is going to consume 10% of the GNP." We didn't do anything and it reached 10%. Then in the 1980s they said, "If we don't do something, it is going to be 15%." We didn't do anything and it became 15%. Today many of the same experts are predicting that the proportion of the GDP devoted to health care will reach 20% by the year 2000 or shortly thereafter.

This continuing cost escalation has given rise to a new question: "How much is too much?" While there is not a consensus on the answer, it appears that many policymakers believe that we have passed that point.

Historically the annual growth in the cost of health care was higher than the growth of personal income, but it wasn't so much more that people screamed too loudly. In the last five years this has changed. Annual increases in health insurance premiums continue to exceed medical inflation, growth in workers' earnings and the overall inflation rate (table 2).

Income growth has been flat and is expected to remain that way while health care costs continue to increase, although at a somewhat slower pace (table 3). With the development of a more global economy, many American factories have closed or moved out of the country. This has resulted in the elimination of high-paying jobs. People are working for lower wages, often with fewer or no benefits, and increasingly in the services sector. Economically many American workers are falling further behind each year, with health care costs a major contributing factor.

Meanwhile, the pressure from payers to reduce costs is resulting in major changes in how we pay for acute health care services, as well as to whom the payments are made. The business community is encouraging the formation of coalitions to bypass health insurance companies and contract. Additionally major changes in how the Medicare program pays for care are being considered by the U.S. Congress.

However, the greatest immediate threat to long-term care financing is coming from changes in Medicaid at the state level. Today most states are having financial trouble and simply cannot afford to allocate more money to Medicaid. As a result, most states are moving to Medicaid managed care and limiting what they spend on Medicaid in other ways, as well. Whether or not the U.S. Congress intervenes, it is probable that most states, in one to three years, will place at least part of their Medicaid population into capitated plans in which providers are paid a flat fee per member per month (PMPM) - or capitation - no matter how much care is rendered.

One of the major developments resulting from this upheaval is the emergence of larger and larger systems. The American health care system of the next century will be completely revolutionized, with changes from "mom-and-pop" operations to gigantic organized delivery systems; from acute in-patient care to a continuum of care; and from "fee-for-service" payment to capitation. Long-term care is probably going to have to find ways to get "bigger," through affiliation, forming coalitions, and building and maintaining relationships that will keep providers informed and competitive.

Hospital administrators used to worry about their market share, and about tilling their empty beds. However, now (or soon) they worry (or will worry) about how many "covered lives" they have, and whether care is provided at the appropriate (i.e., cheapest) level. There will continue to be reductions in the total number of acute care hospital beds, accomplished by downsizing, closing or converting beds to other uses, such as subacute care, post-acute rehab, and even long-term, high-intensity chronic care.

In order to plan for the changes that are coming in health care, it is important to review developments in managed care and assess their impact on the long-term care industry. An excellent definition of managed care is the "use of a planned and coordinated approach to providing health care with the goal of quality care at a lower cost. It usually emphasizes preventive care and is often associated with an HMO."

Managed care systems designed specifically for long-term care, such as San Francisco's On Lok project and the nationwide network of replication sites called PACE (Program of All-inclusive Care for the Elderly), have shown promise, but they are as yet untested outside urban centers and accommodate relatively small groups (180-300 people per site).

HMOs, however, are another story. In 1980, fewer than 10 million people were enrolled in HMOs. Now there are 50 million, with a projected enrollment of 100 million by the year 2000. While some of this projected enrollment growth will include people who work for large employers, it is predicted that there will be a tremendous increase in the number of small employers switching to HMOs, as well as growth in Medicare and Medicaid HMO enrollment (table 4).

With today's emphasis on controlling costs, certain services are being "carved-out" and provided by "niche" companies or organizations. HMOs are finding that such single-purpose organizations can often provide a service cheaper than a comprehensive organization. Some of the most frequently "carved-out" services are mental health and substance abuse. This approach flies in the face of the development of a continuum of care, and is certainly anathema to long-term care providers, who try to address the total needs of a person over a span of time. Nevertheless, this is a trend that will continue over the short run.

Meanwhile, as indicated, many providers on the acute care side will go from being paid predominantly on a fee-for-service basis to being paid through capitation. Capitation is defined as "a method of payment for health services in which a provider is paid a fixed, per capita amount for each member enrolled without regard to the actual number or nature of services provided to the member."

Under capitation, hospitals and physicians are paid so much PMPM for a defined population. Regardless of the services provided, the payment does not vary during the contract period. Over 30% of the populations of California and Massachusetts are currently enrolled in capitated plans. What do these changes mean for long-term care? The honest answer to that question is that "nobody knows." What we do know is that, thus far, long-term care has been nearly exempt from this discussion, both as a subject and as a participant. This state of affairs, in all likelihood, will not continue for very long.

Significant change is coming to long-term care, as it has to acute care. It will almost certainly be rapid, dramatic and profound. The forces that have reshaped American banking, airlines, and now acute care, are ready to strike long-term care. Farming offers a good analogy: most traditional family farms have not survived, and larger and larger farms and farming corporations have taken over much of the land that is in cultivation in this country.

During this transition, long-term care facility operators will increasingly find themselves caught in the middle. On one side, hospitals will try to get into long-term care as a way to survive having fewer acute care patients. On the other hand, more community-oriented service organizations will arrive on the scene and try to divert patients from nursing facilities.

Payers will now direct intense pressure on long-term care providers to cut costs while, at the same time, enhancing outcomes. Facilities will face increased accountability. Many individual facilities and even smaller chains may be bought up or even squeezed out. Payers will demand that facilities take increasingly sicker residents at declining rates of reimbursement, while other providers continue to develop alternative facilities/services to take those residents.

It is true that there has been a tendency among state governments to exempt long-term care from Medicaid managed care plans, focusing instead on acute care. Why? This is in part because acute care accounts for over half of health care dollars, and in part because there is less understanding about how to effectively apply managed care principles to long-term care. (Historically, HMOs were designed to address coordination of acute care needs and services.)

However, the average long-term care facility depends on Medicaid for over 50% of its revenue. In comparatively poorer states like Kentucky, this figure is as high as 80%. As Medicaid dollars become more attractive to hospitals, physicians and others in the health care field, long-term care will no longer be able to assume that its funding is safe. Doctors and hospitals were traditionally not very interested in Medicaid, but because of the continued ratcheting down of payments by commercial insurance companies, Medicaid is viewed by many providers as a more attractive payer than in the past.

In most states, there has been a willingness to carve-out long-term care and to continue the existing payment process. This has allowed, even encouraged, hospitals and physicians to "fight it out" over how to divide capitated funding, while long-term care has watched from the sideline. This will not last. As ceilings are placed on acute care through capitation, long-term care will come under increased scrutiny and pressure to also be "capped."

It appears likely that, within the next three to five years, long-term care will see block grants, a global budget, capitation or some sort of payment limitations within Medicaid. Government will try to get control, determine a set amount to spend, and force the operators to live with the budgeted amount. As with acute care, the strategy will be to shift risk to the provider of care.

What Is To Be Done?

There are a number of things that people in the long-term care field can and should do to protect themselves and to get ready for managed care, in whatever form it takes. Each will be discussed more fully, but basically these include:

* Looking for warning signs

* Developing the worst-case scenario - the worst that can happen in your community, to your facility, etc.

* Lobbying - selling yourself, program(s) or facility to decisionmakers

* Communicating, networking and coordinating - and listening, really listening

* Self-educating - getting familiar with the concepts, payers and their favorite buzz words

* Marketing preventive services to a niche you can service

* Contracting very carefully

To explain:

Looking for warning signs. Many people in acute care ignored early warning signs that were clearly visible. They could, and should, have seen that the continued growth in the share of the GDP that acute care was taking could not continue. Both business and government sent signals that change had to occur, and the industry could have "fixed itself" five or ten years ago, but did not. The long-term care industry needs to heed the warning signs that are now visible and start making adjustments from within before change is forced on it from without.

Developing the worst-case scenario. Ask yourself questions that will force you to see your market clearly. Is there a shortage of nursing home beds? Are area hospitals in trouble? Are there hospitals with empty beds? How much has capitation penetrated your market?

Ask yourself the "what if" questions. What happens if the state changes how they reimburse us through Medicaid? As an owner, should I initiate contact with somebody and try to sell my facility? How long can I go it alone? Should I wait and see what happens?

One thing you can say about a well-developed worst-case scenario: All of your surprises should be pleasant ones.

Lobbying. Lobbying is absolutely essential. You must lobby constantly to survive. You need to be talking to legislators and governmental policy makers on a regular basis. While you will, no doubt, want to lobby to keep the current payment mechanism from Medicaid as long as possible, it is essential that you recognize that payment processes are going to change. Your goal should be to attempt to insure that the changes are as sensible as possible.

In short, you can't prevent change but you can influence it. If you don't know your legislators, you need to get to know them right now. Educating legislators, not only in Washington but at the state level, is critical.

Communicating, networking and coordinating. Communication with other people in the long-term care industry and even in other parts of the health care industry in general is essential. Instead of continuing to "go it on your own," you may find it to be in your interest to look for new partners as a way to solve problems, resolve issues, develop a continuum of care and broaden your base. You might take a lesson from acute care hospitals: today all over the country, hospital administrators who have "hated" each other forever are talking to each other and, in some cases, merging their facilities. Finally, don't neglect your trade and professional associations as sources of information and support. Participate in both and attend meetings and seminars sponsored by both in your area.

Marketing preventive services. Long-term care providers know more about the elderly and how to take care of them than any other part of the health care system, including HMOs. There should be numerous services that might be marketed to HMOs, hospitals or Integrated Delivery Systems (IDSs). Find out what services they want, determine how you can provide them, and develop a strategy to market them.

Contracting very carefully. It appears very unlikely that long-term care will soon, if ever, go into the kind of capitated plan that is growing so rapidly on the acute care side. It seems more likely that the opportunity will be available to provide contracted services for capitated plans. Though contracting will be necessary, it must be entered into without a sense of panic. Philip Beard, a well-known health care management consultant who conducts seminars on negotiating capitation contracts, notes that HMOs in negotiations have one basic question: "How low can we go before they say no?" Be prepared to walk away.


Long-term care providers have the "brain power" to find better answers regarding the future of their industry than anyone else in this country. By taking the initiative, they can have an impact on their own future. Without such action, within two to five years, long-term care will be in the same situation in which acute care finds itself today - an environment of manipulation by Wall Street investors and venture capital companies.

Anything can happen, and probably will. You are probably in for a very wild ride, as is everyone else in health care. Taking the initiative is critically important. After you have thought about what could happen and figured out what is going on in your market, make a list of things to do and start doing them.

Keith R. Knapp, MHA, CFACHCA, is Immediate Past Chairperson of the American College of Health Care Administrators (ACHCA) Board of Governers, and is Vice President of the Broadhurst Group, the management arm of the Christian Church Homes of Kentucky, Louisville, KY. Robert L. Slaton, EdD, is Associate Vice President of the University of Louisville, Louisville, KY, and is former Commissioner of Health for the Commonwealth of Kentucky.
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Copyright 1997, Gale Group. All rights reserved. Gale Group is a Thomson Corporation Company.

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Title Annotation:transformation of long-term care
Author:Slaton, Robert L.
Publication:Nursing Homes
Date:Sep 1, 1997
Previous Article:Removing powerlessness from the nursing home.
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