Analysis of the 2006-07 Budget Bill Legislative Analyst's Office February 2006

Improving Long-Term Care

In this review of the state’s system of long-term care, we provide an analysis of its caseload and costs and a discussion of recent trends. We also analyze the Governor’s 2006-07 budget proposals related to long-term care, suggest a strategic approach the Legislature should take to address long-term care issues, and examine whether the statutory authority for the Long-Term Care Council should be continued.

Analysis of Long-Term Care Caseload and Costs

Our analysis of California’s long-term care programs shows that an increasing portion of long-term care spending is for home- and community-based services rather than institutional care. Generally, long-term care costs have grown, driven mainly by increases in caseloads and the cost per case for three programs-In-Home Supportive Services, regional centers, and state hospitals.

Background

Chapter 895, Statutes of 1999 (AB 452, Mazzoni), directed the Legislative Analyst’s Office to provide in our Analysis of the 2001-02 Budget Bill and in our Analysis of the 2006-07 Budget Bill a summary of spending on state long-term care programs and, to the extent feasible, estimates of the population served by each program. The first required report was published on page C-50 of the 2001-02 Analysis. In accordance with Chapter 895, in this section we provide an inventory of the state’s long-term care services, spending for these services, and how many clients are served by the various programs. We also report on recent patterns of growth in California’s long-term care system.

Characteristics of Long-Term Care

Figure 1 summarizes the state’s primary long-term care programs, describes the services provided, the departments that administer or provide funding for the programs, the total amount of funding appropriated in the 2005-06 Budget Act, the types of services provided, and the clients served.

Long-Term Care Encompasses a Wide Array of Services. Long-term care services generally address an individual’s health, social, and personal needs and try to maximize an individual’s ability to function independently outside an institution. For example, a long-term care service may provide a disabled person with assistive technology that allows that person to accomplish routine activities independently. In another case, an individual may receive assistance in the home with meal preparation; housework or shopping; and eating, bathing, or dressing.

Long-Term Care Services Used by Diverse Group. Long-term care services are provided not only to the elderly (age 65 and older), but also to younger persons with developmental, mental, and/or physical disabilities. Many elderly and disabled persons receiving long-term care are eligible for state services as a result of being eligible for Medi-Cal or the Supplemental Security Income/State Supplementary Program. Many of the persons eligible for long-term care services use multiple services provided by a variety of programs operated by many state departments.

Where Long-Term Care Services Are Provided. As Figure 1 shows, long-term care services are provided in two primary settings: (1) institutional care (for example, nursing facilities) and (2) community-based services. Community-based services include nonmedical residential care facilities and services such as transportation and meals, to assist individuals in remaining in their homes instead of being placed in an institution.

Many State Departments Provide Long-Term Care. Within California, the Departments of Aging (CDA), Health Services (DHS), Social Services, Developmental Services, Mental Health, Rehabilitation, and Veterans Affairs directly administer long-term care programs. In some cases, for example, for mentally disabled and developmentally disabled persons, the department provides funding to county-operated entities or nonprofit organizations for long-term care services.

The state’s framework for delivering long-term care services largely reflects the state’s role as an administrative entity for federal funds. For example, the federal government requires a single state agency to be responsible for receiving federal Medicaid funds. In California, DHS receives all federal Medicaid funding and disburses some of these funds to other departments to administer programs providing long-term care services.

State, Federal, and Local Governments Provide Funding for Services. The bulk of funds spent on long-term care services come from the state and federal governments. In large part, these expenditure sources are related to the Medicaid program, known as Medi-Cal in California. The federal Medicaid program requires states to provide institutional benefits to all eligible persons and permits states to make community-based services available through waivers of federal Medicaid rules. Federal funds flow to the state as a Medicaid match to the state’s funds. In addition, the federal government provides various small grants targeted at increasing community-based services and pays for a limited number of days in a nursing home after a person has been released from an acute care hospital.

There is also a county share of cost for some of the state-operated programs. For example, counties share in the cost of the (In-Home Supportive Services) IHSS program and in the cost of state-operated mental hospitals.

Summary of Long-Term Care Expenditures and Caseload

Key Findings. Figure 2 summarizes 2005-06 Budget Act appropriations by funding source, caseloads, and the cost per case for the major long-term care services provided by the state. The data demonstrate some important points regarding California’s current system of long-term care:

• Most Long-Term Care Spending Is for Community-Based Services. Estimated expenditures for home- and community-based services are approximately $8.4 billion in 2005-06 compared to a little more than $5.3 billion for institutional care.

• Community-Based Services Have a Greater Caseload. About 375,000 individuals rely on the IHSS program for assistance, in contrast to less than 100,000 relying on institutional care. Numerous additional persons use community-based care services. The total caseload in community care cannot be determined because many individuals use multiple services, making it impossible to provide an unduplicated count. For example, a single person might simultaneously receive IHSS, Early and Periodic Screening, Diagnosis and Treatment shift nursing, and senior companion program services.

• Cost Per Case Generally Greater for Institutions. On average, institutional care costs nearly $55,000 per case annually. The annual costs for community-based care vary widely depending on the types of services provided, from over $200,000 annually for individuals receiving certain in-home medical services to about $10,000 per case for IHSS recipients. Because of the great variation in the nature of community services, a meaningful cost average cannot be computed for them. But, in most situations, the cost per case is lower for community care than for institutional care.

• Most Long-Term Care Spending Concentrated in a Few Programs. About $3.8 billion ($1.2 billion from the General Fund) was appropriated in the 2005-06 Budget Act for IHSS, $3 billion ($1.5 billion from the General Fund) for nursing facilities, and $2.9 billion ($1.9 billion from the General Fund) for Regional Centers. These three programs alone account for about 71 percent of long-term care spending.

• General Fund Accounts for More Than One-Half of Long-Term Care Spending. The major long-term care programs, including IHSS, services for the developmentally disabled, and nursing facilities, are funded by Medi-Cal. The state receives matching federal dollars for most of the services provided under these programs, with the result that the federal government contributes about 43 percent of the overall support for the state’s long-term care programs. On balance, however, the General Fund is the primary source of funding for long-term care services, accounting for 51 percent of the total. The remainder of the funding comes from local governments.

Historical Trends in Long-Term Care

Five-Year Expenditure Trend. The data below summarize the status of the long-term care system since our 2001-02 Analysis. In general, total spending on long-term care services has grown significantly over the last five years, from over $10.3 billion ($5.3 billion from the General Fund) in 2001-02 to estimated spending of almost $14 billion ($7 billion from the General Fund) in 2005-06 as shown in Figure 3. This represents average annual growth of 7.5 percent in overall costs during this time period. Finally, despite concerns about the lack of coordination in the delivery system for long-term care services, it continues to remain fragmented.

• Portion of Total Spending for Community-Based Services Has Grown. Figure 4 shows that spending on community-based services comprises a greater percentage of total long-term care spending than it did five years ago. This category of spending is now 61 percent of the total.

• Shift in Spending Linked to Caseload Trends. The increased share of spending going to community care is mainly the result of efforts to divert individuals from institutional care by providing greater choices for community care. In general, the nursing home caseload for the Medi-Cal Program has remained relatively flat, with only about a 1 percent increase in caseload annually at a time when we estimate the population requiring long-term care services has grown by roughly 3 percent annually.

• Spending Growing Quickly for Certain Community and Institutional Programs. Sizable increases in spending for IHSS, regional centers, and state hospitals have particularly contributed to the trend of increased long-term care program costs. Each has experienced total growth in costs exceeding 40 percent over the last five years including increases in caseloads and the average cost per case during the last five years. The IHSS cost increases have been driven mainly by a 38 percent increase in utilization of services and significant wage increases for workers. The state hospital population has increased 25 percent during the last five years. This is primarily because of growth in the number of mentally ill criminal offenders who have received commitments to the state hospital system. Regional center cost increases are due to several factors, including an aging population that requires more intensive services.

• State and Federal Spending Have Increased More Rapidly Than County Spending. Figure 3 shows how spending by funding source has increased since 2001-02. State spending for long-term care services has increased an average of 7 percent annually and federal spending grew by nearly 9 percent during the last five years, including 2005-06 estimated spending. Local spending for long-term care services has increased less than 4.5 percent annually during the same period.

Delivery of Services Remains Fragmented. As noted in our 2001-02 Analysis, multiple departments administering numerous programs has resulted in a fragmented delivery system of long-term care services. Our recent review shows that this problem persists and that little has been done to reduce fragmentation. Each program is designed with unique eligibility criteria and an individual needing assistance with activities of daily living may be assessed by three or four separate organizations in order to enable them to remain in the community.

With the exception of regional centers, which coordinate care for persons with developmental disabilities, little formal coordination of services occurs. Informal coordination does sometimes take place at the local level. An adult day health care center, for example, might assist an individual accessing other services, such as IHSS or transportation services.

Numerous state reports over the last 20 years have discussed the problem of fragmentation, including the Little Hoover Commission report in 1996 entitled Long Term Care: Providing Compassion Without Confusion and a report produced by the Health and Human Services Agency on long-term care in 1999 that was required by Chapter 269, Statutes of 1997 (AB 1215, Mazzoni). Both reports provide strategies for reducing fragmentation and promoting effective communication among long-term care departments such as establishing a “one-stop” service for consumers to obtain information, preliminary assessment of needs, and referrals to appropriate options.

Governor’s 2006-07 Long-Term Care Proposals

The budget proposes $5.6 million from all fund sources (including $2.1 million from the General Fund), and 45 new staff positions to implement various long-term care reform proposals. Our analysis indicates that the proposals are sound in concept but that only 39 of the 45 requested positions and $4.7 million ($1.8 million General Fund) of the related funding are warranted. (Reduce Item 4260-001-0001 by $338,000.)

Governor’s Budget Proposals

The 2006-07 Governor’s Budget plan includes seven proposals intended to help meet the long-term care needs of seniors and persons with disabilities (SPDs). Two of the proposals would extend or make permanent limited-term positions for activities that are already under way, and therefore are not considered further in this analysis. Two of the proposals are new and three build upon existing state and federal requirements. These five proposals are summarized below:

Long-Term Care Integration Pilot Projects. The Governor’s budget proposes $1.2 million ($525,000 General Fund) and 11 positions to implement two long-term care integration pilot projects. The pilots are intended to improve the continuity of care in a managed care setting for (1) persons who are eligible for both Medi-Cal and Medicare and (2) for persons who are seniors or disabled and not eligible for Medicare. Both pilots are also intended to explore how the state can reduce the fiscal incentive for Medi-Cal managed care plans to inappropriately shift high-cost patients into nursing facilities, so that their medical costs would then be borne by fee-for-service Medi-Cal instead of managed care plans.

The first pilot program, Access Plus, would test the integration of Medi-Cal health services with institutional long-term care services and Adult Day Health Care (ADHC) by placing all of these services under one capitated rate for managed care plans. In San Diego and Sacramento, the two counties proposed for Access Plus, enrollment would be voluntary.

The second pilot, called Access Plus Community Choices, would use joint Medi-Cal and Medicare managed care plans that would be paid a capitated rate for providing coverage of acute and primary care services as well as home and community-based long-term care services. Enrollment in Access Plus Community Choices would be mandatory for SPDs in two counties. CalOPTIMA, the existing Medi-Cal managed care plan for Orange County, would administer an Access Plus Community Choices in that county. Another undetermined county would also offer such a plan. In addition, Access Plus Community Choices would operate on a voluntary basis for beneficiaries through the existing Senior Care Action Network program in operation in Riverside, San Bernardino, and Los Angeles Counties.

The proposal also includes an evaluation of the pilot programs over the five-year period to determine their effectiveness in meeting the needs of persons enrolled in Medi-Cal and Medicare.

Develop and Test Uniform Assessment Tool. The Governor’s budget proposes the development of a tool that would provide a uniform assessment protocol for persons needing both health and social long-term care supportive services. The tool would enable health and social services programs to share information about an individual trying to access community-based services instead of entering a nursing home. These programs would no longer have to conduct separate and duplicative assessments of the same individual The administration requests one staff position and contract funds at a cost of $595,000 from all fund sources ($297,000 from the General Fund) for the budget year to develop and test the assessment tool. This same level of funding is also expected to be needed in 2007-08.

Implement Assisted Living Pilot Program. In 2001-02, a state contractor was retained to assist with the design and implementation of an assisted living pilot project. The project is to serve persons with disabilities over the age of 21 living in residential care facilities for the elderly or in publicly subsidized housing, and who require certain relatively intensive levels of nursing care. Enrollment in the pilot program was to have begun recently. The budget proposes six staff positions and contract funds at a cost of $1.2 million from all fund sources ($467,000 from the General Fund) to provide monitoring and oversight for the up to 1,000 persons expected to participate in the pilot project.

Expansion of the Nursing Facility A/B Waiver. Chapter 551, Statutes of 2005 (SB 643, Chesbro), requires DHS to expand by 500 the number of slots available for persons in the Nursing Facility A/B Waiver. Specifically, the budget requests 14 positions at a cost of $1.2 million ($355,000 General Fund) to provide case management services for persons needing skilled nursing care. Unlike the assisted living waiver described above, there is no age limit for these services.

Reform ADHC. The administration proposes to reduce fraud and abuse in the ADHC program and generate estimated savings of $19.3 million ($9.8 million General Fund) in the budget year by restructuring program reimbursement rates. The state would also take steps to verify that only medically necessary services were actually being provided. The budget requests four positions in DHS and four in CDA at a total cost to the Medi-Cal Program of $873,000 ($140,000 from the General Fund) and $174,000 General Fund is requested in CDA to implement these changes. The budget also reflects $13.5 million in savings (including $6.7 million in General Fund savings) from extending an ongoing moratorium on the activation of new ADHCs.

Managed Care Pilot Programs Test Integration

Integration Projects Scaled Back. Last year, as part of a broader effort to restructure the Medi-Cal Program, the administration had proposed so-called Acute and Long-Term Care Integration (ALTCI) pilot projects in three counties. (We discussed these and other related proposals in more detail in our Analysis of the 2005-06 Budget Bill, see pages C-67 to C-73.) The ALTCI pilots would have served both Medi-Cal and Medicare patients and provided all acute care, primary care, prescription drugs, nursing facility care, and home- and community-based services for beneficiaries in three counties. However, the ALTCI proposal was not approved by the Legislature, in part because of unresolved complications involved with integrating ALTCIs with some county-operated programs, in particular IHSS.

This 2006-07 budget proposal targets much the same type of Medi-Cal population that ALTCIs would have served, but would not achieve the same degree of integration as had been proposed last year. For example, the capitated payments made to the Access Plus pilots would include health services and nursing facility care, but would not include home- and community-based services such as IHSS. Access Plus Community Choices pilots would integrate some home- and community-based services. However, IHSS, one of the largest social services programs, would be excluded.

Pilots Could Lay Groundwork for Further Integration. Our analysis indicates that the Governor’s more scaled-back pilot projects have some merit. In our view, the pilots now being proposed have the potential to improve the quality of care provided to Medi-Cal beneficiaries and the cost-effectiveness of the health care delivery system. The administration’s proposal could go further to integrate home- and community-based services such as IHSS into the various types of pilot programs. Creating more and different pilot programs could also increase fragmentation in the long-term care system in the short term. However, evaluating these new approaches for providing services to SPDs would be of value to the Legislature as it considers long-term strategies to achieve integration of acute and primary care and long-term care services.

Finally, based on our analysis of the workload associated with this proposal, only eight of the 11 positions requested would be needed in 2006-07. The remaining three positions for the managed care pilot programs are primarily responsible for duties that would not begin until 2007-08. Our recommendation is reflected in Figure 5.

Technical Budget Adjustments Warranted for Some Proposals

Our analysis of these measures found the proposals to be sound in concept. However, some of them raise technical budgeting issues that we discuss below.

Long-Term Care Assessment Tool. As proposed by the administration, the long-term care assessment tool budget request would provide more contract funding than would be needed for this purpose in the budget year. Although a full year of contract funding is proposed in the budget plan, the contract for the development of the assessment tool is not anticipated to be awarded until December 2006, halfway through the budget year. In addition, our review found that most of the workload described in the proposal is not ongoing. Accordingly, we believe it could be accomplished with one limited-term staff position instead of the one permanent position that is requested.

Assisted Living Pilot Does Not Reflect Phase-In. Six positions are requested to implement the assisted living waiver pilot project. The request is based on workload associated with full implementation of the project-specifically 1,000 participants living in 15 different sites. However, it is highly unlikely that participation in the waiver project will reach this level in the first few years. For this reason, we believe only three of the six staff positions are justified on a workload basis in the budget year.

Analyst’s Recommendations. In summary, we recommend that the Legislature adopt the Governor’s proposals related to the state’s long-term care programs, but make adjustments to the requests for staff and contract funding that address the technical budgeting issues we have discussed above. If all of our recommendations were adopted, these budget requests would be reduced by $927,000 from all fund sources ($338,000 from the General Fund). Also, six of the requested 45 positions would be deleted, and one of the remaining positions would be approved as a limited-term position instead of a permanent position.

Figure 5 summarizes the staff positions requested to implement various long-term care services proposals and, in some cases, our recommended changes.

While Proposals Generally Have Merit-Fragmentation Problem Left Largely Unaddressed

We recommend that the Legislature focus on adopting broad strategies to promote long-term care integration rather than an incremental approach that, as often seen in the past, increases fragmentation.

Most Budget Proposals Narrow in Scope. As discussed above, we find that the individual long-term care reform proposals included in the Governor’s budget generally have merit, but most would not move the state toward unifying the fragmented array of long-term care services described earlier in this analysis. Aside from the plan to create a uniform assessment tool, none of the proposals would be implemented on a statewide basis. In fact, as noted above, the new budget proposals maintain or even worsen the fragmentation of these services through their approach of expanding a number of separate pilot programs.

Continue to Focus on Broad Strategies. Studies have repeatedly concluded that integration of long-term care services is the strategy most likely to meet client needs and potentially hold down the significant growth in state costs that is expected to occur in these programs in the future. Accordingly, we believe the Legislature should continue to focus on broader strategies that would integrate and coordinate medical, social, and behavioral health long-term care services. For example, in conjunction with the Governor’s proposal for a uniform assessment tool, the Legislature could consider the additional step of establishing a “single point of entry” for long-term care services that could better ensure that individuals receive all the services for which they are eligible.

Twenty-five states operate single entry points to provide consumers with information about long-term care services, assess their abilities to function in various daily activities of living, determine their eligibility for Medicaid, and prescreen whether they are suitable for admission to nursing homes. Community-based organizations (CBOs) and Areas Agencies on Aging (AAAs) act as the single point of entry in many of these states. In California, CBO’s and AAA’s responsibilities could be similarly expanded by statute to use the proposed new uniform assessment tool as the state’s single point of entry to provide “one-stop” services for consumers potentially in need of long-term care services. Alternatively, other agencies could be identified to carry out these functions.

Analyst’s Recommendation. The Legislature should focus its efforts on proposing changes in the long-term care system that are broad in scope rather than continuing the present fragmented and incremental approach to reform. For example, the Legislature could build on the Governor’s proposal to develop a uniform assessment tool and enact policy legislation creating a single point of entry in California through AAAs or other appropriate agencies.

Long-Term Care Council Should Sunset

The 1999 state law establishing the Long-Term Care Council should be allowed to expire because a more recently established advisory commission appears to serve as a more effective forum for the development of long-term care policy.

Background. Chapter 895 of 1999 (the same statutory measure that commissioned the report in this analysis on long-term care trends) also established the Long-Term Care Council within the California Health and Human Services Agency (HHSA). The council, which is comprised of the directors of departments that operate long-term care programs, is currently charged by state law with the responsibilities of coordinating long-term care policy development, program operations, and developing a strategic plan for long-term care policy through 2006.

Funding was appropriated to the council beginning in 2000-01 for one staff position. However, the statute establishing the council will automatically expire, or “sunset,” at the end of 2006 unless the Legislature enacts a new law continuing its operation. The administration’s budget plan continues full-year funding for this staff position even though the council would cease to exist halfway through the fiscal year.

Long-Term Care Council Now Dormant. The stated goal of the 1999 legislation establishing the council was to ensure an ongoing dialogue among the various state departments that play a role in delivering long-term care services. However, the council meetings were not as effective as had been anticipated at creating a forum for open discussions. Eventually, the council stopped meeting altogether. It also stopped producing the annual reports to the Legislature required by Chapter 895.

Olmstead Advisory Committee. Another state forum operating under the jurisdiction of the HHSA has largely supplanted the now-dormant council as a forum for the development of long-term care policy.

Known as the Olmstead Advisory Committee, the panel was created in 2004 by executive order in response to a 1999 ruling by the U.S. Supreme Court known as Olmstead v. L.C. The court had ruled in Olmstead that keeping persons in institutions who could transition to a community setting constituted discrimination under the Americans with Disability Act, a federal civil rights law for the disabled. The executive order directed the committee to evaluate and revise a 2003 state plan for complying with the Olmstead ruling. The committee, made up of representatives selected by the Secretary of HHSA, continues to meet and provide advice to the administration on improving California’s long-term care system.

Analyst’s Recommendation. The Olmstead Advisory Committee appears to be functioning reasonably well as a forum for discussion of long-term care issues among citizens, organizations, and administration officials with an interest in these policy issues. We believe this committee serves the broader purpose intended by the Legislature of fostering collaboration among various long-term care programs. Extending the statutory life of the now-dormant council is unwarranted.

Accordingly, we recommend that the statute establishing the council be allowed to sunset, and that the staff position that was originally created for the council remain at HHSA to support the ongoing work of the Olmstead Advisory Committee.