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States Turn to Managed Care To Constrain Medicaid Long-Term Care Costs | AHRQ Innovations Exchange

States Turn to Managed Care To Constrain Medicaid Long-Term Care Costs | AHRQ Innovations Exchange

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States Turn to Managed Care To Constrain Medicaid Long-Term Care Costs

Larry Polivka, PhD, Executive Director of the Claude Pepper Center and Scholar in Residence at the Claude Pepper Foundation at Florida State University
Lynda Flowers, JD, MSN, RN, Senior Strategic Policy Advisor for the Health Team of AARP’s Public Policy Institute

States Turn to Managed Care To Constrain Medicaid Long-Term Care Costs

By the Innovations Exchange Team

At least 26 States now contract with managed care organizations (MCOs) to provide long-term services and supports (LTSS) for older adults and people with disabilities. MCOs receive a monthly payment per member to provide comprehensive care and assume the risk of managing the cost of care within that capitated rate.

The goal of managed LTSS is to improve the quality of care for people who need these services while containing costs. In addition, many of these programs create financial incentives for MCOs to keep individuals in their communities rather than in more expensive institutional settings such as nursing homes. In fiscal year 2011, Medicaid spent $136 billion on LTSS, representing one-third of all Medicaid spending. While Medicaid spending on noninstitutional LTSS has increased in recent years, institutional LTSS represents 72 percent of Medicaid LTSS spending, including $52 billion spent on nursing home care in fiscal year 2011.1 

To learn how States are implementing managed LTSS and developing alternative approaches, the Innovations Exchange interviewed two experts:

  • Lynda Flowers, JD, MSN, RN, Senior Strategic Policy Advisor for the Health Team of AARP’s Public Policy Institute
  • Larry Polivka, PhD, Executive Director of the Claude Pepper Center and Scholar in Residence at the Claude Pepper Foundation at Florida State University
Innovations Exchange: What is the impetus for States to establish managed LTSS? 

Lynda Flowers: The effort is being driven by the need to improve coordination of long-term care and acute-care services, produce better care outcomes for consumers, and reduce costs.

What is the goal of providing alternatives to nursing home care such as community-based services?
Flowers: In setting up managed LTSS, the aim is to keep more people in their homes and communities, which is generally what consumers prefer. Many States use financial incentives in managed care contracts to encourage MCOs to keep consumers in their homes and out of nursing homes. For example, if an MCO moves an enrolled individual from a community-based setting into a nursing home, the MCO might receive the same capitated rate despite the higher cost of nursing home services.

Has the pendulum swung too far toward community-based services at the expense of necessary institutional care? 

Larry Polivka: I have been a supporter of home- and community-based services (HCBS) for the past 25 years and of the use of aging networks to develop these services. Aging networks are mainly nonprofit service systems that have existed since the early 1980s. State Medicaid waivers increased the use of aging networks to create HCBS programs, especially in-home programs.

Based on my literature review and experience with aging networks in Florida and other States, they have done a good job of developing the HCBS infrastructure that was implemented by most States through Medicaid HCBS waiver programs. This has led to a rebalancing of care in which services are provided to people within their communities without restricting access to institutional care when needed.

There was a concern 15 years ago that by increasing HCBS, people would be neglected and isolated in their own homes. I don’t think that has happened. I hope progress on delivering HCBS will continue as baby boomers age and the need for long-term care services increases and puts a strain on resources.

 Most elderly people want to stay in their homes rather than receive nursing home placements. The AARP Public Policy Institute’s goal is to ensure that consumer protections are established to enable the elderly to stay in their homes and receive the services they need.

How do States ensure that they are ready to implement new managed LTSS contracts? 

Flowers: In a recent Public Policy Institute report, we identified five key common themes from our research on five States (Arizona, Minnesota, Tennessee, Texas, and Wisconsin)2:
  • Robust information technology systems to provide critical support for care coordination and help ensure provider network adequacy
  • Partnering with MCOs while maintaining robust State oversight of the plans
  • Continuous involvement with care coordinator training
  • Developing benchmarks for provider adequacy
  • Viewing MCO readiness as an ongoing process that requires continual State oversight
What core capacities do States need to monitor State Medicaid managed care contracts?

Flowers: Our research in eight States (Arizona, Massachusetts, Minnesota, New Mexico, New York, Tennessee, Texas, and Wisconsin) identified five core capacities3:
  • The ability to monitor contracts and performance improvement
  • Ensuring provider network adequacy and access to services
  • The ability to maintain quality assurance and improvement programs
  • Member education and consumer rights
  • Adequate rate setting
What are the potential pitfalls of using the capitated managed care model to deliver LTSS? 

Polivka: To operate and stay within a capitated rate, which is an essential budgetary feature of both nonprofit and for-profit HMOs, there may be a disincentive to provide the full complement of needed services. HMOs must balance containing costs with carefully assessing and meeting the health and long-term care needs of beneficiaries.

How do States provide effective oversight of managed care contracts? 

Flowers: States can provide oversight in various ways, including contracting with external quality review organizations to review and validate the data provided by managed care plans, hiring ombudsmen to protect consumer interests and provide oversight and feedback to the States, and contracting with consumer groups to monitor State LTSS programs.

Do managed care companies contract with adequate numbers of providers to deliver LTSS? 

Flowers: Most of the five States interviewed for our report recognized that it is not always possible for MCOs to achieve network targets right away, especially if the State already has a shortage of fee-for-service LTSS providers. In such cases, the State can require the MCO to stop enrolling consumers until it expands its provider network. State officials in Wisconsin said that they “closely monitor the MCOs as enrollees are phased in to ensure the provider network is sufficient to meet enrollees’ needs.” Alternatively, States could require the MCO to allow people to go outside of the MCO’s provider network to receive needed services that the network cannot provide. This alternative requires having adequate numbers of fee-for-service LTSS providers available to consumers.

How do States use information technology systems to manage LTSS?

Flowers: Four of the five States we interviewed (Arizona, Tennessee, Texas, and Wisconsin) said that a fully functioning information technology system plays a vital role in the delivery of high quality managed LTSS. Care coordinators use IT systems to order services for consumers; administrators use them to pay providers. IT systems also enable managed care plans to know in real time when Medicaid enrollees are eligible to receive services.

Are there alternatives to using managed care provider networks to deliver LTSS?

Polivka: Aging networks with local agencies and service providers offer low-cost, community-based LTSS. This is due to aging networks’ low overhead and low provider fees, some of which haven’t been increased in 10 or more years. Because aging networks have been effective in shifting institutional care to HCBS, I was interested in the mid-1990s in seeing whether more long-term care efficiencies were feasible. My idea was to convert aging networks to a managed care framework, with capitated rates for both institutional and noninstitutional long-term care.

I worked with several colleagues from the Florida Aging Network to design an aging network–based long-term care system, which we presented as a proposal to the State legislature in 1995. Although the proposal failed to gain the necessary support in Florida, the idea was implemented in Wisconsin and became Wisconsin Family Care (WFC) in 1995 and 1996. WFC is a nonprofit, managed long-term care system that involves an aging network and other organizations. The program serves the Medicaid-eligible elderly population, disabled adults, and developmentally disabled populations (9,300 total participants in 2005).4 A 2005 evaluation found that the program had changed the kinds of services provided, generated significant savings, and produced high consumer satisfaction.4 A 2013 assessment prepared for the Wisconsin legislature came to the same conclusion.5

What States have been using aging networks to deliver LTSS? 

Polivka: Others States, including Hawaii, Minnesota, Oregon, and Washington, have developed effective long-term care systems that rely extensively on aging networks. Based on the evidence, including a 2012 AARP Report on State LTSS programs,6 a strong case can be made that aging networks can develop and provide cost effective LTSS.

Does the research show that aging networks can expand long-term care to Medicaid-eligible populations while also constraining costs? 

Polivka: The research over the past 25 years indicates that aging networks provide cost-effective services in communities to many people who otherwise would be in expensive nursing homes. As a result, aging networks have achieved a higher quality of care in terms of consumer satisfaction and lower costs.

About Lynda Flowers, JD, MSN, RN

Lynda Flowers, JD, MSN, RN, is a senior strategic policy advisor with the Health Team of AARP’s Public Policy InstituteExternal Link. The Health Team conducts research and policy analysis and brings together thought leaders to advance AARP’s public policy agenda on health care. Previously, Ms. Flowers held senior policy positions with the National Academy for State Health Policy and the Medicaid office of the government of the District of Columbia and advised State legislators and legislative staff on Medicaid and immigration issues at the National Conference of State Legislatures. She has more than 20 years of clinical experience as a registered nurse in areas such as critical care, burn treatment, and hematology/oncology.

About Larry Polivka, PhD

Larry Polivka, PhD, is the executive director of the Claude Pepper CenterExternal Link at Florida State University. The center uses information from multiple sources to help inform policymakers, researchers, teachers, the media, and the general public about challenges confronting the Nation’s older citizens, including health, long-term care, and income security. Dr. Polivka also is scholar in residence with the Claude Pepper Foundation, which promotes policies and programs to improve health, provide economic opportunity, and contribute to social justice for all Americans, with a special emphasis on the betterment of life for elderly Americans.

Disclosure Statements: Lynda Flowers and Larry Polivka reported no financial interests or business/professional relationships relevant to the work described in this article other than their affiliations listed below.

Additional Resources

AHRQ Health Care Innovation Exchange. State Uses Financial Incentives To Fund Nursing Home–Initiated Quality Improvement Projects Through Competitive Bidding Process, Leading to Better Care.

AHRQ Health Care Innovation Exchange. Long-Term Care Facilities Cede Control of Immunization Policies to Regional Pharmacy, Significantly Increasing Influenza Vaccination Rates Among Workers.


1 Eiken S, Sredl K, Gold L, et al. Medicaid expenditures for long term services and supports in 2011 (Prepared by Truven Health Analytics under Contract No. HHSM-500-2010-000261). Baltimore (MD): Centers for Medicare & Medicaid Services; October 2013. Available at: http://www.medicaid.gov/Medicaid-CHIP-Program-Information/By-Topics/Long-Term-Services-and-Support/Downloads
 (If you don't have the software to open this PDF, download free Adobe Acrobat Reader® software External Web Site Policy.).
2 Flowers, L. Ready, set, go! the readiness review process for care coordination and provider network adequacy in five states. Washington, DC: AARP Public Policy Institute, Spotlight 3; December 2013. Available at: http://www.aarp.org/health/medicare-insurance/info-12-2013
External Link.
3 Lipson, DJ, Libersky J, Machta R, et al. Keeping watch: building state capacity to oversee Medicaid managed long-term services and supports. Washington, DC: AARP Public Policy Institute, Research Report, July 2012. Publication No. 2012-06. Available at:http://www.aarp.org/content/dam/aarp/research/public_policy_institute/health
External Link.
4 Polivka L, Zayac H. The aging network and managed long-term care. Gerontologist. 2008;48(5):564-72. Available at: http://gerontologist.oxfordjournals.orgExternal Link.[PubMed]
5 Wisconsin Department of Health Services, Joint Committee on Finance. Long-term care expansion report. December 2013. Available at:http://www.dhs.wisconsin.gov/publications/P0/p00590.pdf.
6 Houser A, Fox-Grage W, Ujvari K. Across the states 2012: profiles of long term services and supports. Washington, DC: AARP Public Policy Institute; September 2012. Available at: http://www.aarp.org/home-garden/livable-communities/info-09-2012
External Link.

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