Effect of PACE on Costs, Nursing Home Admissions, and Mortality: 2006-2011. I. INTRODUCTION


The Program of All-Inclusive Care for the Elderly (PACE) established as a permanent Medicare benefit by the Balanced Budget Act of 1997, attempts to help nursing home (NH) eligible seniors avoid institutional care by providing them with a rich mix of acute and long-term care services in the community. PACE is a Medicare managed care program and a Medicaid state plan option with the great majority of PACE enrollees being dually eligible, that is, enrolled in both Medicare and Medicaid.1 Therefore, PACE organizations receive two capitation payments per month for their enrollees, and assume full financial risk for all the health care services that participants use.

Individuals who are 55 or older, certified by their state of residence as being eligible for NH level of care, and live in the service area of a PACE program are eligible to enroll in PACE. Designed for the frail elderly or disabled individuals, PACE programs are centered around: (1) the adult day health center where participants receive medical and social services; and (2) an interdisciplinary team comprising of physicians, nurse practitioners, social workers, nutritionists, therapists, personal care attendant, and drivers. The typical PACE enrollee tends to be over 75 years old and female with multiple chronic conditions, as well as two or more limitations in activities of daily living (ADLs) (MedPAC 2012; Hirth et al. 2009). Currently, there are 88 PACE sites across 29 states serving over 25,000 enrollees (National PACE Association 2012), most of whom are dually eligible.

PACE is a comprehensive care model that aims to not only meet the health care needs of frail and NH eligible seniors in the community, but also integrate and coordinate care in an efficient manner that avoids fragmentation in care delivery and reduce the use of expensive and potentially avoidable acute and long-term care services. Through the provision of integrated care and with complete flexibility to use the capitation amounts in any manner deemed essential, PACE programs are intended to improve care quality and beneficiary satisfaction, while cutting down on wasteful health expenditures.2 Hence, one of the key questions central to the success of PACE as a publicly funded and capitated comprehensive care program, is how the capitation payments compare to what costs would have been for these enrollees had they been in fee-for-service (FFS) Medicare and Medicaid? Our study aims to address this question using secondary data and a nonexperimental research design.

Trying to answer this question, however, leads to a second and equally important question of how we estimate what those FFS costs would have been; that is, who or what comprises the right comparison group for PACE enrollees? Among alternative strategies, some prior studies based on administrative claims data have relied on using a comparison group of enrollees in home and community-based services (HCBS) 1915(c) waiver programs, who, similar to PACE enrollees, are required to be certified by the state as being eligible to receive NH care (Foster, Schmitz, and Kemper 2007). This is a reasonable comparison group strategy in the absence of any evidence suggesting that dual eligibles who choose to enroll in PACE have different health care needs on average than dual eligible recipients of HCBS waiver services. Even if service use and chronic conditions prior to enrollment in PACE is similar to service use prior to receipt of HCBS, PACE enrollees could have higher (or lower) expected need for services in the future than those who choose to receive HCBS in their homes. While people who choose to receive their care at a PACE day center might be expected to be frailer on average than those receiving HCBS, some HCBS recipients are home bound, and therefore even more functionally impaired than those who are able to attend a day center. A few other studies have either used multiple comparison groups of HCBS waiver enrollees and NH residents (Mancuso, Yamashiro, and Felver 2005) or have combined those two groups together to define a broader comparison group consisting of both waiver enrollees and NH residents (Wieland et al. 2012). Using such an expanded definition of the comparison group has the advantage of addressing the belief of some PACE proponents that many or most beneficiaries enrolling in PACE would have entered a NH in the absence of the program. Hence, a comparison group consisting of both HCBS waiver enrollees and NH entrants seems to provide a well-balanced counterfactual of beneficiaries residing either in the community or in a NH for evaluating PACE programs.

Being constrained by project resources to rely on administrative claims alone, we adopt a similar approach in this study. The treatment group (PACE) in our study sample, therefore, consists of NH eligible seniors, and are well-matched on other baseline characteristics, chronic conditions, as well as Medicare service use and costs to the comparison group, consisting of a matched group of NH eligible seniors who were either enrolling in HCBS or new entrants to a NH, as described in subsequent sections of this paper.3 In line with the approach used in some prior studies, we also use a second matched comparison group comprised of HCBS waiver enrollees alone to examine all outcomes.

Not surprisingly, a review of existing evaluations of PACE (Ghosh, Orfield, and Schmitz 2013) shows that there are significant challenges in evaluating PACE, including the reliance on quasi-experimental research designs for such evaluations and difficulties in defining an appropriate comparison group. Most previous studies examining the effect of PACE on expenditures do not meet the standards for a rigorous nonexperimental evaluation--either due to the absence of a comparison group or due to the inability to establish baseline equivalence between PACE enrollees and comparison group beneficiaries. In the two studies that do meet these criteria, only one examined Medicare costs. That study found that the PACE capitation payments from Medicare were very similar to the Medicare FFS expenditures that these enrollees would have experienced in the absence of PACE (Foster, Schmitz, and Kemper 2007). However, PACE was associated with Medicaid expenditure that were several hundred dollars per beneficiary per month (PBPM) higher than a comparison group consisting of HCBS waiver enrollees only, with the gap in expenditures between PACE and comparison group members diminishing over time (Mancuso, Yamashiro, and Felver 2005; Foster, Schmitz, and Kemper 2007). Medicaid expenditures under PACE were similar to that of a comparison group consisting of NH residents (Mancuso, Yamashiro, and Felver 2005).4

These findings from prior evaluations looking at potential cost savings under PACE are likely to be outdated, given changes to the PACE financing structure over time, especially for Medicare capitation payments, as calculated under the Medicare managed care program, also known as Medicare Advantage.5 Currently, the base Medicare capitation rate for PACE is a risk-adjusted payment, based on the Centers for Medicare and Medicaid Services (CMS)-hierarchical conditions category (HCC) risk adjustment model. Moreover, since 2008, the base rate is multiplied by a plan-specific frailty factor, rather than the uniform frailty factor used previously.6 See Appendix A for details on how changes in the Medicare capitation payment for PACE evolved over time.

The Medicaid monthly capitation rate is negotiated between the PACE organization and the state Medicaid agency and is contractually specified. Medicaid capitation rates for PACE plans are subject to an upper payment limit (UPL) based on the cost of a comparable FFS equivalent population. The UPL is determined separately by each state. Most states calculate the UPL by using a blend of FFS costs for NH residents and HCBS waiver enrollees. The monthly capitation rate to PACE plans is then set as a percentage of the UPL, for example, between 85 and 95 percent. However, states are experimenting with alternative approaches to setting capitation rates--for example, using risk-based models. Finally, states vary in their approaches for adjusting rates for trends and for frailty and health status.

Given the changes in Medicare's payment methodology for PACE, prior studies investigating potential cost savings under PACE need to be updated by new studies that examine Medicare and Medicaid costs for PACE under the current capitation system relative to the prevailing FFS model. In particular, it is important to pose the question as to whether the shift towards a better calibrated Medicare capitation rate has generated cost savings for Medicare, and whether changes in Medicaid payment rates have led to gains or losses for Medicaid.

The primary goal of this study, therefore, is to determine whether the previous findings of cost neutrality for Medicare expenditures and overpayment (relative to FFS) for Medicaid expenditures under PACE, is still the case, and if not, how it has changed. We focus on more recent cohorts of PACE enrollees to capture the effects of the changes in the Medicare capitation payment as well as any changes in Medicaid capitation rates. Specifically, we use data from eight states on dually eligible beneficiaries newly enrolled in PACE during 2006-2008, along with data on two different comparison groups: (1) a matched comparison group of beneficiaries either enrolling in Medicaid HCBS waiver programs or entering a NH around the same time and in the same states; and (2) a matched comparison group of beneficiaries entering Medicaid HCBS waiver programs alone around the same time and in the same states. Both groups are followed from their sample entry point through 2011. However, the change in payment methodology is not the only reason to expect that the cost impacts of the program may have changed. Secular changes have also been occurring in long-term care, with greater emphasis on community-based services and less on NH care (often referred to as "re-balancing" long-term care spending). These changes have been supported or driven by the large Money Follows the Person program, by states' NH diversion programs, and by the increasing availability of NH alternatives such as assisted living facilities and group homes. Hence, it is important to obtain updated estimates for cost savings under PACE.

It is important, at the outset, to emphasize two critical points so that the methods and aim of the paper are clear. First, expenditure comparisons between PACE enrollees and members of selected comparison groups do not depend in any way on the behavior of PACE plans. Rather, they are constructed as contrasts of PACE capitation rates, set by Medicare and Medicaid policy, with the (regression-adjusted) FFS expenditures that they are predicted to have incurred had they not been in PACE and remained in FFS Medicare. That prediction is based on the experiences of comparison group members with the same diagnoses and characteristics. We stress this point here to remind readers not to ascribe findings of net "saving" or net "cost" associated with enrollment in PACE to efficient or inefficient behavior by PACE plans. The contrasts provide information about the degree to which payments made to PACE plans result in higher or lower costs than the Medicare and Medicaid programs would likely have incurred for PACE enrollees had the PACE option not existed.

The second caution is to bear in mind that, because this study relies exclusively on administrative data, it does not compare important dimensions of patient outcomes related to quality of care and quality of life. It would have been preferable, were greater resources available to this project, to accompany cost comparisons of PACE to care in NHs or other community-based care with an examination of the effect of PACE on enrollees' health outcomes, support for ADLs, feelings of security and well-being, and control over their own lives. The all-inclusive nature of PACE care and the dedication of PACE to comprehensive care planning might well have strong effects on health and well-being. Were this to be established, then comparative effectiveness of the PACE intervention would be a natural subject for future studies.

Along with program effects on costs, we examine effects of PACE on the use of nursing facility services7 and differences in mortality between PACE and matched comparison group members. We specifically address the following research questions in this paper. Comparing PACE enrollees to a matched comparison group of enrollees in FFS setting:

  • Do PACE participants have lower Medicare and Medicaid expenditures?

  • Do PACE participants have a lower likelihood of NH admission, fewer days in NH, and also lower likelihood of being in a NH for at least 30 days or at least 90 days during each followup interval?

  • Do PACE enrollees have lower mortality rates?

  • How do these differences vary by length of enrollment in the program and by state?

The remainder of this paper is organized as follows. In Section II, we describe the study design, data, and methods. Results are presented in Section III, and Section IV concludes with a discussion of the findings, study limitations, and possible direction for future research in this area.

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