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How Medicaid Reimbursement Can Pay Off For Providers

October 29, 2012

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Written By: Kevin Tholke, Lancaster Pollard

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Medicaid reimbursement for assisted living is an option for seniors in 44 states. Learn how these programs work and why they benefit providers across the industry in an article written by Lancaster Pollard’s Kevin Tholke.

Reimbursement for assisted-living providers historically has been private pay. While that continues to be the case, over the last decade there has been an expansion in the number of states that contribute Medicaid dollars for some services.

Currently, 44 states offer some form of Medicaid reimbursement for assisted living (AL), according to the Paying for Senior Care website. Most of these states use one or more combinations of Medicaid waiver programs to provide AL coverage. It is important to note that this coverage varies because Medicaid options vary from state to state and are administered at the state’s discretion.

One such program is the home and community-based services (HCBS) waiver, which allows for the reimbursement of long-term-care services provided in a community setting. An HCBS waiver allows the state to test new methods of care delivery on a limited and temporary basis. This differs from a Medicaid plan amendment, which creates an entitlement and a permanent change to the program. An entitlement means that any person who meets the eligibility criteria is entitled to receive the benefit and the state cannot cap the number of beneficiaries.

Last spring, the Centers for Medicare and Medicaid (CMS) implemented the Medicaid Community First Choice option, which is a new state-plan option created as part of the Patient Protection and Affordable Care Act (ACA). The rule is final, but CMS is revising its definition of what constitutes “home and community-based” settings. The ruling is expected at any time regarding AL’s role in community-based care.

Who’s Eligible and What’s Covered by HCBS Waivers?

In general, participants must be elderly, require a level of care that typically is provided by a skilled-nursing facility (SNF) and meet financial eligibility requirements. Programs generally pay for personal-care services, such as medication assistance, housekeeping, laundry, social/recreational activities, transportation and supervision. Room and board is paid for by the resident.

To help pay for room and board, residents can use the Housing Choice Voucher (HCV) program as a supplement. This program is funded by the Department of Housing and
Urban Development (HUD) and administered by local public-housing agencies. Assuming a resident qualifies for both an HCV and an HCBS waiver, these programs can be used in conjunction with one another. In order to accept HCV residents, certain HUD restrictions will apply.

An HCBS waiver is assigned to the resident, not the provider. So while a facility must be approved to serve Medicaid residents, the waivers themselves are not “project based.”
The waiver will stay with the beneficiary if she or he decides to move. This gives the resident more control and allows for greater choice.

Reimbursement methods vary by state. They include flat monthly rates, tiered rates based on level of activities of daily living (ADLs) required, case-mix rates based on the acuity of the resident, fee-for-service rates or negotiated rates. The most common reimbursement schemes are tiered rate or flat rate. Usually, Medicaid reimbursement is less than the available private-pay rate, but some states pay near market rates.

HCBS waivers allow the state to cap the number of beneficiaries and limit services to specific geographies or groups of people; an authority that is not otherwise allowed under Medicaid. Additionally, the average cost per beneficiary must not exceed the average Medicaid nursing-home cost; it must be budget neutral. The preference toward HCBS waivers is expected to continue in the near term as states focus on short-term cost containment.

Political Environment

States are increasingly looking to stretch the dollars they have and allowing Medicaid recipients to receive care in assisted-living facilities (ALF) is a way to achieve that goal in the long-term. It costs significantly less to care for a resident in an ALF as opposed to a SNF. Lower-acuity residents who do not need the level of care offered by a SNF can be served in a lower-cost setting. In the long term, this would cause lower-acuity Medicaid residents to live in ALF’s, while higher-acuity residents would be served by SNF’s. It appropriately matches the resident’s acuity with the level of care. A well-crafted state plan could be a budget-reduction mechanism.

However, expanding Medicaid reimbursement of AL services could create a surge in the number of residents in the near term. Seniors who delayed seeking care because they did not want to live in a SNF may decide to enter an ALF. With intense pressure to cut government budgets in the near-term, anything that expands the Medicaid program could be viewed negatively by voters and be a nonstarter for politicians. While per-resident costs of providing care in an ALF are lower, adding more people to the system has the potential to increase total Medicaid expenditures in the near term. Further, there is concern that fiscal belt tightening at the state level may lead to cuts in overall Medicaid spending.

However, there are tailwinds supporting the expansion of Medicaid reimbursement for AL. The ACA created an incentive for states to spend a higher proportion of their Medicaid long- term-care funds on home and community-based services. This program, known as the Balancing Incentive Payment Program, provides a higher federal matching payment if a state uses more of its resources to increase access to HCBS.

There also are societal benefits. Some argue that AL is a more suitable setting to provide long-term care to the frail elderly and that living in a home-like environment may carry psychological benefits. States can help provide access to assisted living for those who otherwise could not afford it. A greater number of individuals could receive the care they need.

What’s the Upshot for Providers?

On a macro level, expanding Medicaid reimbursement for AL will result in higher demand across the board. Residents who previously had no other option but to live in a nursing home may now choose assisted living instead. As a result, some demand is shifting from SNFs to ALFs.

This is positive for the entire AL industry. Most state HCBS waiver plans have long waiting lists of residents looking to participate, so there is strong demand. The effect will be even greater in states that amend their Medicaid programs to create an entitlement as this makes the pie even bigger.

Providers who accept Medicaid stand to benefit from more stable occupancy. A Medicaid resident’s ability to pay is not dependent on income or assets. Medicaid demand is driven solely by the need for assistance with ADLs. While private-pay demand decreases in a down economy for financial reasons, Medicaid demand should remain steady. Consistent demand leads to less volatile occupancy and, therefore, lowers risk. Revenue diversification can soften the blow in the event of another shock to the real-estate market or the broader economy.

But there are drawbacks as well. While reimbursement varies by state, Medicaid rates are typically below the available private-pay rate. They also are subject to change at the whim of legislators, whereas private-pay rates are determined by the market. Additional regulatory and reporting requirements will accompany Medicaid residents. For example, facilities would have to meet quality-assurance standards, keep resident records and have a mechanism for feedback. A facility may be required to set aside a certain number of units for Medicaid residents. There also may be physical-plant requirements, such as a kitchenette, adequate common space and single-occupancy units. But many of these requirements will be met by default.

Serving Medicaid residents is not for every provider, but may be very beneficial to some. New, high-end facilities with waiting lists would not see the benefit that a mature facility with lower occupancy might. Facilities with lower occupancy have the most to gain by serving Medicaid residents. Units that otherwise would be vacant could be filled, albeit at a lower margin. In states where Medicaid reimbursement is competitive with private-pay rates, the benefit is even greater.

This is an ever-evolving topic, but the trend seems to be moving in the direction of expanding Medicaid reimbursement for AL. It is state specific, so providers should evaluate the programs in the states where they are located. Agile providers who position their facilities to accept Medicaid residents could stand to benefit from more stable occupancy and consistent revenue.

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Kevin Tholke is an associate with Lancaster Pollard in Los Angeles. He may be reached at [email protected]. Lancaster Pollard & Co. underwrites debt securities for seniors housing and care providers and is a registered broker/dealer with the Securities and Exchange Commission (SEC) and a member in good standing of the Financial Industry Regulatory Authority (FINRA), Municipal Securities Rulemaking Board (MSRB) and Securities Investor Protection Corporation (SIPC). Learn more at lancasterpollard.com.