The Generation Project






Issues of cost and quality

A briefing paper for FSSA Secretary Mitch Roob regarding the features of an ideal long term care system in Indiana


March 14, 2005


Date:  March 14, 2005



Mitch Roob, Secretary

Indiana Family and Social Services Administration



John Cardwell, Director

The Generations Project


Re:  a request for a description of an ideal long term care system issues of cost and quality


Opening Comments

On January 25, 2005 you emailed the following request to me: “...imagine you are living in an alternative universe where all things were the same save the LTC system.  Can you think about cost and quality in that world and compare it to the one we inhabit?”

This most interesting request could be answered at many levels of detail and complexity.  I’ve opted to play to my strengths by staying simple.  Nonetheless, the recommendations that follow in this briefing advisory are very serious.  With the implementation of 493 pending, and with significant changes being carried out by Governor Daniels and his administration, Hoosiers who depend on publicly financed home and community based services (HCBS) for their survival are very anxious regarding what the future holds for their lives.  My advisory comments are intended to reflect those concerns while offering positive suggestions for action.

An item of great significant since your request, was the announcement by your agency that it will seek RFPs for a dramatic change in case management administration across the state.  Consequently, note the sections in this briefing paper that address the unique case management functions performed by AAAs for HCBS clients.  The duties performed by AAA case managers different substantially from case management functions that are performed elsewhere in the state’s human services system.  At the end of this briefing advisory you will find a special addendum regarding the FSSA case management RFP announcement.  Please give that careful attention.

A LTC System Out of Balance

The current long term care system for senior citizens and persons with physical disabilities is wildly out of balance.  Indiana’s investment in nursing facilities (a.k.a. NFs, NHs, and nursing homes) is very substantial with an expenditure of $791.5 million in SFY 2004.  That contrasted with a far smaller SFY 2004 investment in HCBS:  $48.7 million in the CHOICE program and $39.7 million for Medicaid waivers.  (An estimated $7.9 million for the aged and disabled waiver came from the aforementioned CHOICE budget.)  The above numbers for institutional and non-institutional LTC services do not include funding for DD, MH and related populations regardless of the care setting, because those populations are not the focus of this advisory brief, nor do they include a wide array of AAA community based services simply because I was unable to get those numbers in time for this report. 

The current system has a daily Medicaid NF population census of over 30,000 while up to 27,000 people are on waiting lists for HCBS,  depending on the set of numbers that are used to calculate the latter. (The waiting list number, by some calculations, reaches over 35,000 when the DD population is included.)

From a consumer perspective the current system needs to be re-balanced to create a system in which 40 to 60 percent of the combined Medicaid and CHOICE long term care budget is spent on HCBS.  The failure to make this change will result in continued rapid inflation in the state’s Medicaid budget while waiting lists remain large or keep growing.  The failure to make this change will also result in Indiana being unprepared to meet the LTC needs of the baby boom generation in the next several years.

The rest of this paper is about the alternative LTC system that is needed by the state and its citizens in order to address the growing Medicaid budget crisis, and the clear and present crisis facing Hoosiers who need HCBS as reflected in the growing official waiting lists for that care.

A Better LTC System Is At Hand

Let’s start with two major observations and  recommendations.

First, we already have the answer for structuring an ideal LTC system and that is Senate Enrolled Act 493 that was passed by the 2003 General Assembly.  493 is a highly versatile law that can be applied within the context of FSSA’s structure as it existed through 2004 or in a variety of new state management regimes including managed care.  This is true because the essential focus of the law is on the services that are ultimately provided to eligible consumers, the rights of consumers, and on accessing the state’s total long term care budget for financing services.

Second, the immediate focus of any LTC system change in Indiana should be “re-balancing” the spending of dollars and the provision of services.  493 is designed to facilitate the re-balancing process, and provides the broad legal authority needed to do that, but it does not contain the full package of specific mechanisms that can be used in that process.  To reduce the state’s gross over investment and over dependence on nursing homes several other actions can be taken in addition to the full implementation of SEA 493.

For example, the NF case mix rate formula can be adjusted to greatly discourage the enrolling of low need individuals into nursing homes.  At the same time the NF formula can be adjusted to raise the level of direct care for high need individuals.  The state can also examine the merits of nursing home bed Medicaid decertification and utilize the bonding provision of  493 to promote facility conversions to assisted living and adult day care.  Concurrently, the state can take proactive steps to grow the publicly funded assisted living and adult foster care options through the private sector that are required components of 493.  These components are found in any successful state re-balancing program in the nation.  (It should be noted there are significant players in Indiana’s nursing home industry who are in general agreement with the above ideas.  These include NH industry leaders who believe we should have fewer, but better, facilities in the state.)

Per the discussion in the above paragraph, I strongly recommend talking to Judith Becherer, a former long term care director for OMPP and the primary author of the Moving Forward study that was recently published by The Generations Project.  Judith can be reached at her office in Indianapolis (846-9521, extension 343) or via her cell phone at 445-8593.  During her tenure at OMPP Judith negotiated the details of Indiana’s case mix system with the nursing home industry.  She is universally respected by providers and consumer advocates for her abilities and integrity.

It is also clear that a serious re-examination of all LTC rates and reimbursement standards should take place for all populations served by FSSA.  In a new LTC financing and management system designed around 493 and the CHOICE program, rates and reimbursement policies should be designed to produce quality services in a consumer driven environment.  Achieving this requires a better understanding of what dollars are being applied to direct care and what constitutes a reasonable return for providers of all types.  In this regard, state laws that block a complete accounting of the full income of LTC providers (including private, state and federal dollars), need to be reviewed if the question of what constitutes a reasonable rate of return is to be answered.

Money, where it comes from and how it is used, is another major consideration in the implementation of an ideal system under 493.  Where does the money come from for re-balancing the system?  Once the system is changed, what will be the fiscal dynamics of the new structure going forward?

An obvious place to start is the nearly one billion dollars Indiana spends each year on nursing home care apart from institutional care for DD and MH populations.  Can this large expenditure be reduced, and if so, by how much?

Based on what we know about LTC re-balancing in other states, Indiana’s NF Medicaid daily census population, which we believe is between 30,000 and 31,000 people, may be twice as large as it should be.  (Recently, I discussed the daily census level with staff at Myers and Stauffer after reviewing a recent report on their website, but was unable to confirm an exact number.  The range that is used here may be low.)  That means serving over 15,000 people each day of the year in the most expensive LTC venue who could be served in a lower cost setting.  If these dollars were to be “freed” for other Medicaid LTC services the impact on the system in terms of addressing the unmet need for HCBS and for a better but smaller nursing home industry would be dramatic.  This is the essential fiscal logic of 493 and it has been used by all states that have re-balanced their LTC systems to address the dual crisis of Medicaid costs and human need.

Using $900,000,000 in NF Medicaid expenditures per year as a hypothetical modeling assumption, with zero inflation, what happens if a state with a daily census population of 30,000 Medicaid nursing home residents, and a true average cost of $30,000 per year per person, can reduce that population by 3,000 per year through a program of expanded HCBS?  In year one the “freed” dollars could theoretically be as high as $45,000,000.   In year two the freed dollars could be as high as $135,000, in year three $225,000,000, in year four $315,000,000, and in year five $415,000,000.  In year six, and each year thereafter, the freed dollars would be $450,000,000. 

The above model could obviously be applied to a longer period of time, such as seven years.  Using this approach for re-balancing does have several advantages.  First, it forces the state to do budgetary and programmatic planning beyond the two and four year time frames used in the past due to our biennial budgeting and gubernatorial election cycles.  Second, it allows for a rational approach for building out and figuring out the funding, infrastructure and provider base required by re-balancing.

From a modeling perspective, could this simple approach save money?  The answer is yes since some states have used LTC restructuring to actually effect reductions in overall Medicaid expenditures from one year to the next.  However, what re-balancing should do is make dollars available in the existing Medicaid budget for the heretofore unmet need for HCBS waivers and upgrading the care in the nursing homes that remain.  Re-balancing is the means for paying for publicly funded assisted living and adult foster care, the services with housing that Indiana must absolutely have if we are to reduce the daily census population in nursing facilities.  Re-balancing  is also a proven mechanism for reducing the rate of increase in state Medicaid expenditures for the long term once the initial process of building out the system and reordering consumer usage patterns  has been completed.

From a fiscal and programmatic planning perspective it is important for Indiana to make its LTC re-balancing transition in the next five to seven years.  This will take a substantial effort but it is necessary because after that the Baby Boom phenomenon will begin to work into our system.  We need to make the 493 related changes now and learn how to do so efficiently before that wave hits the state.  State Senator Greg Server says it best when he states: “Implementing SEA 493 is about decreasing the increase in Medicaid costs while providing the care that people need.”

The above chart starts with $791.5 million for nursing home care and $80.5 for HCBS based on the SFY 2004 data presented on page 2 of this advisory report.  If the hypothetical model described above were applied in Indiana it could theoretically produce aggregate spending patterns like those represented on the chart.  Introducing a wider array of institutional and HCBS cost categories could change the numbers but the spending patterns on the chart would probably stay the same.  At some point in the future with the on-set of the Baby Boomer phenomenon both cost lines would probably begin to rise.

In an ideal LTC system built around 493 and the CHOICE program the service options identified in 493 would be readily available and there would be no waiting lists beyond the time it takes to normally enroll a person into services after eligibility has been established.  A re-balanced system, regardless of its financing mechanisms and administrative structure, can manage the total volume of people receiving services in extraordinary times, if need be, by adjusting eligibility standards. However, states with fully re-balanced systems have rarely had to do that.

The cost of HCBS in a re-balanced system can be calculated with reasonable sureness.  Service population and cost estimates can be made based on the Washington state experience because that state has gone through the full re-balancing process and its population demographics are very similar to Indiana’s.  The baseline calculation is simple enough: the number of people to be served per setting times the true average cost per person per setting including administrative costs of all types.

Applying this straight forward calculation to the waiting lists for HCBS in context against Indiana’s population demographics and Washington’s re-balancing experience and demographics should suggest what the overall costs will be for re-balancing, what the targets should be for bringing new HCBS clients into the system each year, and how many years it will take to get to zero persons on the waiting lists.  This approach also identifies the service infrastructure that must be in place each year as the HCBS build-out goes forward.

It must be noted that managing the flow of clients into HCBS is as important as reducing the number of people utilizing nursing facilities.  First, HCBS options must be available as needed in order to stop the flow of inappropriate NF placements.  If this is not done the fiscal benefit of moving people out of nursing homes is greatly diminished.  Second, the full mix of HCBS must be available in order to optimize savings.  If assisted living is available, but adult foster care is not, then people migrating from NFs may be forced to use AL at a greater cost to the state than AFC, and people who could be otherwise diverted from a nursing home might be forced to go there anyway without the AFC alternative.  Third, the distribution of people among the full array of LTC services must be monitored throughout the year and year-by-year so any trend toward the disproportionate use of any service can be detected and addressed.  Fourth, a dedicated multi-discipline team, that could include highly trained volunteers such as local disability advocates, should be operating with each AAA to go into NFs and work with the residents with the expressed purpose of getting them out of the facility and into a HCBS setting.

As of today, the state of Washington has the following enrollments in LTC Medicaid services: 13,000 people in nursing homes, 5,000 in assisted living, 4,300 in adult foster care, and 25,000 in home care. We believe these numbers are suggestive of the distribution that could be achieved in Indiana and they represent the present day results of a re-balancing process started by Washington in 1995 after a legislative mandate.  Three weeks ago the director of Washington’s HCBS system, Penny Black, wrote me regarding what that state’s Aging and Disability Services Administration was able to achieve in the first two years of their re-balancing program: “ADSA began working aggressively at identifying nursing home residents who could live in the community and arranging their transfer to community based settings.  Reducing the nursing facility census has been key to obtaining funds to expand home and community based services.  In the first two years the Adult Family Home caseload grew by 68 %, the Assisted Living caseload grew by 106%, the nursing facility caseload declined by 10%, budget targets were met.”  With a concerted effort we believe FSSA and the state of Indiana could match the Washington performance.

In 2003 and 2004, when FSSA officials met with representatives of the Indiana Home Care Task Force every six weeks or so to discuss 493 implementation issues, we repeatedly recommended bringing in proven talent from Oregon, Washington, Colorado, or other states with successful records in implementing comprehensive LTC re-balancing.  That advice was only followed in a very limited context.

The failure of FSSA to act on recommendations to implement re-balancing in Indiana is historic.  In 1996 and 1998 the CHOICE board made formal recommendations to expand HCBS options, and renewed those recommendations with the passages of 493.   In the late 1990s until early 2003 FSSA had intermittent communications with Dick Ladd,  a consultant for AARP and the Indiana Home Care Task Force.  Dick directed Oregon’s pioneering re-balancing efforts in the 1980s.  Before his death in 2003 Dick asked the agency: “Why do you ask me to talk to you if you never act on my advice?”  In 2004 the agency had limited discussions with Dann Milne, a consultant for AARP who played a major role in Colorado’s LTC re-balancing efforts in the 1990s, and who is currently assisting AARP Indiana and the Task Force.  No person or team was ever hired by FSSA specifically for the purpose to lead a 493/re-balancing process and the agency was never authorized by its former secretary, the budget agency, and the Governor’s office to do so.  Consequently, over time FSSA proved incapable of acting decisively to implement the significant pieces of that law.  It would be important for an implementation team to have at its command state level staff dedicated to the implementation process plus the authority to use resources as needed from elsewhere within USA.  AAAs would also be expected to have staff dedicated to the implementation process.

Quality and Outcomes

A very important HCBS issue is quality.  Quality assurance and quality improvement mechanisms are vital in any publicly funded LTC regime.  It is also important to have the means to measure quality and consumer satisfaction.  The Moving Forward study contains a good discussion of quality system design, assurance and improvement issues.  (See pages 67 to 74 of the Moving Forward study.)

Quality assurance, improvement, and measurement also bring us to the issue of case management and the local administration of publicly funded HCBS.  Indiana has been widely praised at the national level for its single entry point system for the elderly and persons with physical disabilities.  CHOICE is a single entry point program and 493 is structured to be compatible with that approach.  The Area Agencies on Aging provide the single entry point function in our system.

By law the Area Agencies on Aging cannot self-deal or provide home and community based services through the CHOICE program.  They must enrolled private providers for that purpose except in the very rare instances where private providers are not available for a specified service or contracting period.  However, the case management/gate keeper work that is performed by the AAAs is probably the most critical step in the state’s LTC system.  AAA case managers conduct the in-take process for HCBS programs, eligibility assessments, and needs assessments; develop care plans in cooperation with clients and their families; broker and arrange consumer services from private providers; act as advocates for clients enrolled in HCBS; and help insure provider accountability, reliability, and quality.  When working as designed, which is not always the case, the conduct of the CHOICE and Medicaid waiver programs through the AAAs provides a systems that responds to and protects consumers and the legal and fiduciary interests of the state.

Unlike independent case managers, AAA case managers do not receive any personal financial benefits for the number of clients they serve.  Unfortunately, most AAA case managers have case loads that are much too high.  High case loads compromise a case manager’s ability to broker the best and most cost effective package of services from providers in the community.  At a community forum sponsored by the Indiana Home Care Task Force in Anderson in 2004 three AAA case managers respectively reported their case loads to be 90, 105, and 110 clients.

Experienced AAA case managers typically know in detail the providers in the region they serve.  From unlicensed individuals to large licensed agencies that may be attached to larger institutions, good case managers are like good street cops: they know who all the good providers are in their locality and that knowledge helps to insure quality and fiscal accountability. 

For an examination of quality measures, consumer satisfaction, and outcomes I strongly urge you to examine the studies on the CHOICE program conducted by Indiana University in 1989, 1991, and 1998.  Although somewhat dated, in the 1989 and 1991 studies, consumers in the CHOICE program felt their conditions improved or stabilized as a result of the services they received.  In the 1998 study, which was conducted as the result of a legislative mandate, extensive client satisfaction data was collected from people receiving CHOICE and A&D waiver services.  The results showed a very high level of client satisfaction overall.  Eleanor Kinney at the IUPUI Law School was involved in all three studies.  

However, the most important data to review is the client satisfaction, medical health, and service quality data that is gathered on an ongoing basis by AAA case managers and reported to the state.  Each year a QIP survey (Quality Improvement Protocol) is administered to 10 percent of all clients receiving HCBS.  Clients are asked about service quality and reliability, which can involve life and death issues in home care.   Information is also gathered through the surveys regarding the honesty/integrity of providers in order to identify fraud and corruption.  In addition to the QIP, each client receives a full medical and care re-assessment every year.  These are updated on a quarterly basis.  The assessments provide direct information regarding client ADL impairments and medical health.  Pat Casanova should be able to tell you how and where to access this information.  Duane Etienne would be the person to contact to gather this information from CICOA.

In 2004, AARP and The Generations Project discussed HCBS management, fiscal, and quality issues with FSSA.  (Pat Casanova and Emily Hancock took part in a majority of these discussions.)  In those discussions we specifically suggested the following.

To improve overall AAA performance as related to fiscal management, provider enrollment and oversight, service quality, consumer satisfaction, consumer protection, and improved outcomes we recommend developing performance standards and performance based contracting for the Area Agencies on Aging.  After going through a process to develop the standards, with the AAAs, consumers, and providers having the opportunity for direct input, we recommend giving the sixteen AAAs a year from the point of adoption to reach the performance levels set in the new standards.  After that entertain the possibility of bidding out those functions in the areas of the state where the AAAs are under performing.  The bidders could be other AAAs, other qualified entities, or the AAA in the region in question if it can demonstrate tangible changes in its practices and performance. 

From a consumer perspective three things are important in the aforementioned process.  (1), continue the neutral client protection and advocacy function performed by the AAAs; (2) maintain a single point of entry into the publicly funded LTC system; and (3) remain in compliance with the statutory provisions of CHOICE and SEA 493.  Given these factors we believe it would be generally wiser to work with the AAAs to improve the overall quality and efficiency of their operations.  Having said that there is no need to keep under performing entities in the business of local HCBS administration and oversight.  Hence the need for performance standards and accountability.

Finally, please give the Moving Forward report and its conclusions another review.  That study, which received high praise from long term care administrators in other states, examines all aspects of SEA 493 and how they can be applied in the real world.  It provides an excellent discussion of the critical and utilitarian features of the law including the 300 percent of SSI eligibility standard for Medicaid HCBS waivers, self-directed care, and securing needed HCBS capacity through an additional 20,000 waiver slots.  Without these features 493 will not be able to deliver its intended fiscal savings and systems change outcomes. (See pages 84 through 87 of the report for its conclusions.)


(1) CHOICE and SEA 493 are the ideal systems for HCBS  in Indiana.  We know CHOICE works well for consumers and that it is incredibly cost effective and efficient.  The CHOICE program is warmly embraced by Hoosiers and its quality features are found throughout SEA 493.

(2) Cost out all the forms of LTC that are currently provided by the state through Medicaid, CHOICE, and other state and federal funds, and cost out the Medicaid waiver services that are currently not being provided but which are required by SEA 493, based on demographic extrapolations and comparisons with the state of Washington (or other states).  These numbers will produce working targets, when combined with implementation time lines, for numbers of people to be served, when, at what cost, and net dollars saved.

(3) Fully implement 493 and re-balancing steps that are not specified in that law, but which logically follow from it.  They are the keys to addressing our wasteful use of LTC Medicaid dollars, for resolving the HCBS waiting list crisis, and for improving nursing home care.  These things can be done within the confines of Indiana’s LTC Medicaid budget as required by the 493 statute.

(4) Prioritize building out the system: invest in the state staff, local administrative infrastructure, and the full array of services that are needed to make 493/re-balancing work as advertised.  The necessary array of services include, but are not limited to, assisted living, adult foster care, self-directed care, and adult day care.

(5) Seriously re-examine rate structures for nursing homes and all institutional services, and the rates and charges for all LTC, to see if they are moving providers to provide the care consumers want (and which the state needs) to cost effectively re-balance the LTC system.

(6) Acquire the expertise to implement the ideal system based on CHOICE and 493 by bringing into your administration people with demonstrated track records for implementing re-balancing programs in states like Oregon, Washington, or Colorado.  This step would also enhance FSSA’s ability to address quality and outcome issues.

(7) Upgrade the AAAs by employing clear performance standards, expectations, and consequences based on meeting the standards.  However, this should be done with the objective of improving the single point of entry system that presently exists and in retaining the expertise of the AAAs per the brokering of local services, client advocacy, provider oversight, and overall HCBS knowledge.

(8) Establish an ongoing team of consumer advocacy leaders, AAAs, and providers to meet with FSSA and the Division of Aging on an ongoing basis to facilitate and smooth the re-balancing process, and to troubleshoot whatever problems that may arise. 

(9) Review the conclusions of the Moving Forward report.  Those recommendations are fully compatible with the issues and recommendations that are made in this short advisory paper.  They also address issues of critical importance, such as implementing the 300 percent of SSI eligibility standard for HCBS, self-directed care, and needed service capacity through the law’s provision for an additional 20,000 waiver slots.

Here are persons with expertise in state long term care systems and re-balancing:

Penny Black, Director of the Division of Home and Community Services, State of Washington, P.O. Box 45600, Olympia, WA 98504-5600.  Email:  Telephone: (360) 725-2312 to reach Katheryn Plant, her administrative assistant.

John Luehrs, National Coordinator of Health and Long Term Care, AARP, 601 E Street, NW, Washington, D.C. 20049.  Email:   Telephone: (202) 434-3938.

Dann Milne, Ph.D., Health Policy Consulting, 785 Saint Paul Street, Denver, CO 80206.  Email:  Telephone: (303) 399-6736.

An Addendum of Critical Importance: The RFP Regarding Case Management

Since the request for this briefing advisory was made in January, FSSA has announced it will ask for RFPs to provide case management services across the state.  In the request the public has been told one to eight case management service providers will be selected.  We believe this request raises several questions regarding the viability and manageability of the state’s LTC system and its services going forward.  From a consumer perspective, we believe these questions potentially have life and death significance.

First, we believe the effectiveness and ineffectiveness of the current system needs to be thoroughly vetted before sweeping change is implemented.  The current system does have significant problems but the current system also does a number of things very well, as indicated above in the briefing advisory.  Ultimately, more review and discussion now could serve the reform interests of the state far better in the days ahead.  We strongly recommend bringing together a representative cross section of affected Hoosiers to review this matter.

Second, within the aging and physical disabilities arena there are a number of things that are done very well by AAAs and there are clearly areas in which AAA performance is weak.  However, as the above briefing advisory indicates, and as Indiana law requires, the AAAs perform a number of case management functions that are designed to protect clients and the legal and fiduciary interests of the state.  Those functions should be improved but not discarded.  As the briefing paper indicates, upgrading AAA performance wherever possible has many positive benefits because of the unique knowledge and hands on expertise of their case managers and administrators.

Third, the single point of entry system that is locally administered by the AAAs is very important.  It makes the system work and viable for consumers who literally cannot afford to go from point to point without putting their health and their finances at real risk.  The RFP, as described to the public, would mix aging, DD, physical disability, and children’s case management functions.  Past experience of this sort has been very problematic for consumers and providers alike.  Consequently, turning AAA case management over to a yet to be determined entity, or entities, is highly threatening to the people who depend on it for their lives.  By any measure, putting vulnerable people at risk is not efficient and is not in the public interest.

We would appreciate and expect your most serious consideration regarding these issues of such life and death importance to Hoosiers.  Thank you.