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Using In Lieu of Services to Generate Medicare and Medicaid Savings and a Nationwide Model Worth Following From California

By Jason Bloome

To control Medicaid expenditures and health outcomes, more than 27 states use Managed Long-Term Support and Services (MLTSS) where Managed Care Plans (MCPs) are paid monthly capitation rates to provide and coordinate long-term support and services (LTSS) for their members.

CMS offers MLTSS MCPs a new tool called In Lieu of Services (ILOS), which allows them to provide members with cost-efficient alternatives to traditional Medicaid services “in lieu of” skilled nursing to prevent unnecessary hospitalization, skilled nursing facility (SNF) admission, and emergency department stays. The services are optional for MCPs, but if offered, the cost of the ILOS is incorporated into managed care rates as well as fiscal incentives, which could include substantial Medicaid shared cost savings.

CMS has clarified that ILOS cost effectiveness does not need to be measured on an individual basis but in the aggregate when the proposed services across a group would avoid more costly medical care. States would monitor ILOS delivery, which CMS would review when states submit the data along with their proposed annual managed care rates.

An ILOS nationwide template worth following could come from California, which in 2022 began the country’s first large-scale ILOS program—the California Advancing and Innovating Medicaid (CalAIM)—which allows MCPs to offer members a menu of 14 ILOS, referred to in California as community supports (CS). Among these are senior housing deposits, personal care and homemaker services, medically tailored meals, asthma remediation, respite services, and home modification. Another CS offered by many CalAIM MCPs is for SNF Diversion/Transition to Assisted Living for members currently in SNFs or in the community at risk of premature institutionalization.

To be eligible, an MCP member must be willing to participate in the program, medically appropriate for the CS, and safely able to reside in a community-based assisted living home. In addition, SNF transition participants must have resided in an SNF for at least 60 days and be on LTSS, and SNF diversion participants must be at the SNF level of care and/or at risk of premature institutionalization.

The CS has two components: the “room and board” portion paid by the member and the “assisted living” portion paid by the MCP. State studies show care provided in assisted living homes is approximately half the cost of Medicaid reimbursed SNFs. The estimated annual Medicaid cost savings for CS SNF transition participants is approximately $42,000 ($3,500 x 12 months) or $4.2 million for every 100 program participants. 

Although precise Medicaid cost savings is harder to measure for SNF diversion participants, CMS has clarified that the CS does not need to be an exact substitute for traditional Medi-Cal services but could also include preventive services that delay SNF admission, emergency department use, or inpatient hospital stays. Additionally, SNF diversion does not always involve the use of new Medicaid dollars since many CS candidates at risk of premature institutionalization already receive Medicaid funding to pay for at home caregiving programs.

The CS could generate Medicare cost savings as well. Every day, patients on Medicare after a three-day hospital stay transfer to SNFs for rehabilitation services. Although Medicare can pay for rehabilitation for up to 100 days (20 days at 100% and 80 days at 80%), most patients are typically discharged within three to four weeks. Medicare is the cash cow for many SNFs operators since it pays a higher rate—on average more than $500/day—vs the lower-paying $250/day Medicaid rates. Billing for more Medicare days results in higher profits for SNF operators. 

Half of the 65 million Medicare recipients in the United States are enrolled with Medicare Advantage (MA) plans; the federal government pays MA plans a monthly rate for each enrollee no matter how much care the member requires. These plans are attractive to many recipients because MA plans usually offer more services (eg, fitness programs, hearing, and dental services) than are offered by traditional Medicare. MA plans are required to offer, at a minimum, the same services as traditional Medicare, which include rehabilitation at home or in SNFs. Unlike traditional Medicare, however, where the SNF medical staff determine the SNF rehabilitation length of stay, MA plans contain Medicare costs by having their health teams decide the total amount of billable rehabilitation days.

Nationwide ILOS programs enable MA plans that work in conjunction with ILOS MCPs to offer their members who require short-term rehabilitation and long term care (eg, require too much care to return home) the option of moving directly from the hospital to an assisted living to receive rehabilitation from a home health agency in the same setting where they will continue to reside as a permanent resident. Reducing care transitions to one setting (hospital to assisted living) instead of two (hospital to SNF to assisted living) will appeal to many members and, for many, the preferred setting will be small four- to six-bed assisted-living homes with 1:3 staff to resident ratios—attractive alternatives to institutional SNFs, which are frequently cited by CMS for inadequate staffing and poor infection control measures. 

State administrators considering ILOS should see big movement coming from California when, in January 2024, Kaiser Permanente—the nation’s largest private, not-for-profit health plan in the country—begins offering eligible members the CS for SNF Diversion/Transition to Assisted Living.

— Jason Bloome is the owner of Connections – Care Home Consultants, an information and referral agency for care homes for the elderly based in Southern California.