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Paving the Way: A New Program in California Could Be a Model for LTSS Rebalancing Around the Nation

By Jason Bloome

As states seek to rebalance their long-term support and services (LTSS) delivery from expensive to skilled nursing facilities (SNFs) to more affordable home- and community-based services (HCBS) alternatives, a new program in California, if successful, could offer a model worth emulating around the nation.

The California Advancing and Innovating Medi-Cal (CalAIM) program, a five-year $6 billion initiative which began in January 2022, uses state contracted managed care organizations (MCOs) to rebalance LTSS and streamline care delivery to Medicaid recipients. CalAIM will pave the way for statewide Managed Long Term Support and Services (MLTSS) in 2027.

CalAIM has two components: Enhanced Care Management (ECM) and In Lieu of Services (ILOS). ECM will address clinical and nonclinical needs of the highest-cost and -need enrollees through intensive coordination of health and health-related services. ILOS gives MCOs the option of offering eligible members at the SNF level of care community support alternatives (eg, assisted living homes) “in lieu of” expensive state plan services (eg, Medicaid payments to SNFs). The expectation is ECM and ILOS will enable CalAIM MCOs to provide medically appropriate and cost-efficient quality care, offer HCBS alternatives to SNFs and save state and federal Medicaid dollars by reducing unnecessary hospital admissions, emergency department visits and SNF long-term placement.

Capitated Rate Erosion
Historically, California set capitated rates, a per member per month payment paid to MCOs, by using the data from utilization and cost of services rendered from the prior year. Consequently, MCOs that wanted to offer more cost-efficient care delivery systems that were more affordable than state services were disincentivized by suffering capitated rate erosion: The more cost-efficient the care, the less money they would receive when capitated rates were readjusted for the following year. To mitigate capitated rate erosion and to encourage MCOs to develop fiscally efficient ECM and ILOS programs, CalAIM incorporates new tools: incentives, reimbursable ILOS, blended capitated rates, and shared risk/shared saving programs.

Incentive payments
DHCS will pay performance incentives to CalAIM MCOs, starting in 2022, based on quality-improvement measures in LTSS and other cross-delivery system metrics, including the following:

• building appropriate and sustainable ECM and ILOS capacity;
• driving MCO investment in necessary delivery system infrastructure;
• incentivizing MCOs to use ILOS;
• bridging current silos across physical and behavioral health delivery;
• reducing health disparities and promoting health equity; and
• achieving improvements in quality performance.

Reimbursable ILOS
CalAIM will eventually replace the California Coordinated Care Initiative (CCI), a demonstration program for managed care delivery to Medicaid recipients, which began in 2014. CCI has many systemic flaws, including capitated rate erosion and nonreimbursable ILOS: CCI MCOs are allowed to offer ILOS to their members, but the state does not reimburse them for the ILOS expenses. As of January 2022, all CalAIM MCOs (which include the current CCI MCOs) will be reimbursed for their authorized ILOS expenses through the annual capitated rate setting process.

Blended Capitated Rate
CalAIM uses a new blended capitated rate model that includes costs for members in SNFs on LTSS and for those on HCBS. The blended rate will provide financial protections in case of significant differences between actual and projected enrollment and is intended to incentivize CalAIM MCOs to promote ECM and ILOS and to eliminate the costly steps for unnecessary hospital, emergency, and SNF stays.

Shared Savings/Shared Risk
CalAIM MCOs that develop successful ECM and ILOS systems that save the state and federal government money will receive part of the Medicaid shared savings. DHCS will use historical cost and utilization data (beginning in 2023 when sufficient historical data is derived from ILOS and the delivery of LTSS) to determine Medicaid shared savings. CalAIM will also incorporate shared risk: the state and MCO share the fiscal risk for high-cost, high-care needs members.

Shared Savings for SNF Transition From SNFs to RCFEs
CalAIM authorizes the use of 14 ILOS. CalAIM MCOs that choose not to offer a particular ILOS in 2022 have the option of offering it in subsequent years. In 2022, six CalAIM MCOs have chosen to offer the ILOS for SNF Diversion/Transition to Residential Care Facilities for the Elderly (RCFEs). In California, RCFEs are either large 100-plus bed assisted living homes or small six-bed board-and-care homes. This ILOS is available for members at the SNF level of care who are medically appropriate to reside in RCFEs. Although RCFE rates vary around the state, in Los Angeles, the largest metropolitan area in California with the largest number of older adults, RCFEs and SNFs, the average cost for a RCFE is $3,500/month (approximately one-half the cost of a Medicaid reimbursed SNF). CalAIM MCOs with successful SNF transition to RCFE programs will generate considerable Medicaid shared savings. For instance, for every 100 members that transition from SNFs to RCFEs, the state and federal government saves approximately $4.2 million Medicaid dollars each year.

Example #1:

SNF Medicaid rate: $84,144/year or $7,012/month

Average RCFE cost: $42,000/year or $3,500/month

1,000 residents in SNFs costs payers: $84,144,000/year

Transferring 100 of these residents from a SNF to a RCFE:

900 in a SNF: (84,144 x 900 =75,729,600) + 100 in a RCFE (42000 x 100 = 4,200,000) = 75,729,600 + 4,200,000 = 79,929,600

State Annual Medicaid Savings for transferring 100 LTSS members from SNF to RCFEs: $84,144,000 - $79,929,600 = $4,214,400

Shared Savings for SNF Diversion to RCFEs
According to the Center for Medicare and Medicaid Services, 20% of Medicare recipients return to the hospital within one month of discharge and, among this population, are dual-eligibles (members on Medicare and Medicaid) who have a much higher hospital readmission rate than have their Medicare-only counterparts. Dual-eligibles with insufficient care at home repeatedly cycle from home-hospital-SNF-home with some eventually becoming SNF LTSS residents. For some of these dual-eligibles, the ILOS pathway for SNF diversion to RCFEs will result in less frequent admission to hospitals, emergency departments, and SNFs. Fewer steps along the care continuum will result in less money spent on Medicare and Medicaid services factored into shared savings calculations.

Useful data to predict shared savings can also be derived from California’s In Home Support and Services (IHSS) program, which allows Medicaid to pay for care services at home. Every year, IHSS recipients exit the program to become SNF LTSS residents. For example, in 2018, 5,112 IHSS recipients exited IHSS to become SNF LTSS residents: diverting 10% (500) of this population from SNF to RCFEs—with annual costs savings of $4.2 million for every 100 people diverted from LTSS in SNF (See Example #1 above)—would result in recurring annual Medicaid cost savings of $21 million.

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