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Medicaid Could Help Unlock Middle-Market Senior Living — But Policies, MCOs May Not Favor Providers

With their eyes on the huge cohort of lower- and middle-income baby boomers, senior living providers are looking to the Medicaid program as one potential avenue for growth. Large providers such as ALG Senior and Gardant have carved out niches in the Medicaid space, but recent Medicaid policy changes paint a decidedly mixed picture about where the program is going and how attractive the opportunities will be for assisted living.

On February 27, the U.S. House of Representatives passed the American Rescue Plan, the Biden administration’s $1.9 trillion stimulus package. Included in the bill is a a 7.35% rate increase to Federal Medical Assistance Percentages (FMAP), for states to enhance home- and community-based services during the pandemic.

If the provision survives budget reconciliation in the Senate, it could prove to be beneficial for assisted living providers with Medicaid-reimbursements of home- and community-based services as a revenue stream.

But that will depend on managed care organizations (MCOs) that contract with states to handle Medicaid reimbursements. Some MCOs are signaling that they will cut reimbursement rates to assisted living providers.

With the Biden administration committed to expanding home- and community-based services, it may be incumbent on senior living providers and industry advocates to ensure that assisted living is not left behind.

Rate cutting

Strictly defined, Medicaid may not be used to cover the full cost of housing and caring for seniors in assisted living facilities, as the program does for nursing homes.

Most commonly, states use waivers allowing for the reimbursement of home- and community-based services to reimburse assisted living providers, under Section 1915(c) of the Social Security Act. Waivers enable states to tailor services to meet the needs of a particular target group, and states are also permitted to establish additional criteria to further target the population to be served on a HCBS waiver, within these target groups. Theoretically, states can cover an unlimited number of services, as well as a combination of standard medical and non-medical services, under an HCBS waiver.

“The 1915(c) waiver authority gives states enormous amounts of budgetary control over the provision of home- and community-based services to people who have a need for them,” Tumlinson said.

States use a variety of tools at their disposal to adjust plan risk, and modify direct uniform rates to ensure payments are neither too high nor too low.

But few states directly reimburse assisted living facilities directly for home- and community-based services through Medicaid. A September 2020 report from the Kaiser Family Foundation found that 40 states, plus the District of Columbia, contract with managed care groups to provide care to a portion of their Medicaid recipients, as of July 2019. Almost 54 million Medicaid recipients received their care through MCOs — accounting for 69% of all beneficiaries.

In many of these states, the entity setting the rates for assisted living reimbursement is the MCO. With more states under financial duress stemming from the pandemic, need for services increasing and margins compressed, something has to give.

“Cutting rates to providers is always an easy place to go,” Tumlinson said.

Some states have strong relationships with MCOs — Tumnlinson cites Arizona as an example of where MCOs truly position assisted living with home- and community-based services as an alternative to skilled nursing. But that synergy between government and insurer is rare.

“Where there is a lot of tension is when the entity setting the rates for assisted living is the Medicaid MCO, not the state,” she said.

Margins for MCOs are up throughout the pandemic, but that is not exactly translating into higher reimbursement rates for providers.

Gross margins in the Medicaid MCO market increased 109% through the third quarter of 2020, compared to the same period a year prior, according to a December Kaiser Family Foundation report. But margins in this segment tend to be smaller compared to other markets, because Medicaid payments are lower.

The MCO Medicaid market reported smaller growth margins in 2020, due to challenges presented by Covid-19. Some groups are signaling cutting reimbursement rates to providers, as a result, because of decreased utilization of MCOs for health care throughout the pandemic.

For example, Lakeside Care, one of five MCOs in Wisconsin, is reducing the daily rate it reimburses assisted living providers by as much as 9%, WBAY-TV reports.

Lakeside did not respond to requests for comment from Senior Housing News. But providers in America’s Dairyland are concerned.

Some states, disappointed with the performance of MCOs, are rethinking their relationships with these groups.

In January, the Illinois House advanced a bill that would end hiring MCOs to manage the state’s Medicaid reimbursements, and replace it with a fee-for-service payment system. This is in response to decreased utilization of MCOs for health care throughout the pandemic in the Land of Lincoln, as well as addressing what lawmakers believe are racial and ethnic disparities in the state’s health care system.

The growing tension stems from a lack of understanding of the assisted living landscape on the part of MCOs, ATI Advisory CEO Anne Tumlinson told Senior Housing News. In theory, Medicaid MCOs would have a solid grasp of what assisted living provides as an alternative to nursing homes, and to reimburse providers at rates that make it attractive to develop facilities that forestall the need for nursing care. In practice, Medicaid MCOs are not that sophisticated, and don’t fully understand the assisted living space.

“They have been a little slow to leverage assisted living as an alternative,” she said.

Providers hamstrung

States that outsource to MCOs do not employ uniform rate and reimbursement standards, which can be confusing for regional providers providing home- and community-based care in assisted living, Gardant Management Solutions CEO Rod Burkett told SHN.

The Bourbonnais, Illinois-based provider manages a portfolio of 56 communities in six states — 50 of those are Medicaid certified. The company pioneered a sustainable middle-market senior housing model through Illinois state Medicaid waivers, and approximately two-thirds of Gardant’s total resident population receives Medicaid assistance.

The majority of Gardant’s portfolio is located in Illinois, a managed care state, and Indiana, where providers receive Medicaid reimbursements directly from the state. The differences between the two states could not be more stark.

Managed care organizations in Illinois focus a lot more on hospitals, emergency room stays, surgical centers and long-term care, and only pay assisted living providers the minimum rates set by the state for home- and community-based services.

Burkett describes MCOs’ emphasis on wellness in long-term care as an afterthought, and that insurers are missing out on an opportunity to open assisted living to lower-income seniors who would otherwise enter the long-term care space once their conditions have deteriorated to the point where assisted living is no longer an option.

“We don’t see [MCOs] moving people out of higher-cost environments of care to assisted living,” he said.

Assisted living providers seeking Medicaid reimbursements in Indiana, conversely, contract directly with the state, Vermilion Development President and CEO Dave Cocagne told SHN. The Chicago-based, vertically integrated real estate services company includes a senior housing arm, Silver Birch Living, which owns and operates nine assisted living communities for low-income seniors. Approximately 92% of Silver Birch’s residents are on Medicaid waivers, meaning they have liquid assets totaling less than $2,000.

States received additional funding, thanks to the federal government issuing an increase in FMAP for the duration of the pandemic. But that pertained mainly to skilled nursing, and did not trickle down to assisted living.

In spite of that, Vermilion has not seen a substantial uptick in outstanding receivables with the state. But the lack of additional funding has placed pressure on Silver Birch’s margins.

“For the assisted living waiver providers, [the FMAP increase] did not pass that along to us, even though we have the same costs and labor base,” he said.

A stopgap measure

After months of lobbying from industry groups, providers were finally able to tap into general distribution federal funding, starting last September, when the Department of Health and Human Services (HHS) opened Provider Relief Fund Phase 2 General Distribution allocations to private-pay assisted living providers.

And in the most recent phase of general distributions funds, assisted living providers stood to receive $140 million in allocations.

The FMAP rate increase in the Biden administration stimulus package is only for one year, but could be interpreted as an indicator of a longer-term, more permanent hike, Tumlinson told SHN.

“If so, it’s a positive sign for growth for any organization that participates as a provider of home- and community-based services,” she said.

But the extent to which states use the additional federal funds to increase rates, services, eligibility or compensation to direct care workers still varies by state. Additionally, the FMAP rate increase may not be enough for MCOs to forestall planned cuts at this point.

“There’s still a big space between the theoretical increase in federal funding and the reality,” she said. “We have a lot of work to do to make up the difference.”

Cocagne is taking a cautious approach to the FMAP funding increase and what that means for Silver Birch communities.

“We invest millions of dollars of capital, so we need to have confidence that those rate increases are permanent and that states will in turn use that funding to create and sustain appropriate reimbursement rates for assisted living waiver rates,” he said.

If the increases are permanent, it opens a window of opportunity for providers to expand affordable assisted living. If the increase expires after a year, it will not generate large-scale investment in waiver provider infrastructure. And Vermilion’s experience with Silver Birch in Indiana over the past year does not bode well for the possibility of growing the affordable assisted living cohort.

“Indiana has had that additional funding for almost a year now, and has opted to pass it through to some providers, but not all,” he said. “That can only happen if those additional federal resources are passed through to providers.”

The post Medicaid Could Help Unlock Middle-Market Senior Living — But Policies, MCOs May Not Favor Providers appeared first on Senior Housing News.

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