Memo

From: Brian Burwell, The MEDSTAT Group Date: May 7, 2001 Re: Medicaid Long Term Care Expenditures in FY 2000 In Federal Fiscal Year 2000, Medicaid long term care expenditures increased 8.6%, from $62.3 billion to $67.7 billion (see Table 1). This was higher than the rates of increase in long term care spending over the prior two years, which were in the 5% to 6% range. Medicaid long term care expenditures increased at a slightly higher rate than overall Medicaid spending, which increased 7.9%, from $180.1 billion to $194.3 billion. Medicaid spending for nursing home care increased by 8.8%, to $39.6 billion. As shown in Table 1, the growth in expenditures for nursing home care has been increasing over the last four years, but is still considerably below the rates of increase that occurred during the early 1990s. Spending for ICF-MR care increased by 3.3 percent. Overall, however, Medicaid spending for ICF-MR care has remained relatively flat over the last five years. The Medicaid long term care benefit that is still growing most rapidly is HCBS waiver services, which increased 14.6% in FY 2000 to $12.0 billion. Spending for personal care services increased 7.6% in FY 2000, to $3.8 billion. Medicaid expenditures for skilled home health care services remained relatively flat in FY 2000, as they have in recent years. Overall, Medicaid spending for institutional services (nursing home care plus ICF-MR care) comprised 73% of all Medicaid long term care spending in FY 2000, while spending for community-based services (personal care, HCBS waiver, and home health services) comprised 27% of total expenditures. Clearly, a related issue in Medicaid expenditures for long term care populations is the rising costs of prescription drugs, which increased 21.0% in FY 2000, to $20.6 billion, as shown in attached Table M. The data presented in Tables A through N are derived from HCFA 64 reports submitted by states to the Health Care Financing Administration. The HCFA 64 is the form used by states to claim Federal Financial Participation (FFP) for state Medicaid outlays, and is audited by the Federal government. It is thus considered to be one of the most reliable sources of information on state Medicaid spending. However, it is important to reiterate some caveats in the interpretation of these data. First, HCFA 64 data are by date of payment, not date of service. Thus, rates of change in state Medicaid spending for specific services, as reported on the HCFA 64, can be due to factors related to state payment policies as well as to real changes in service utilization by Medicaid beneficiaries. For example, simply by delaying one month’s payments to nursing home providers from June 30th to July 1st, a state can push 13 months of nursing home spending into a later fiscal year, leaving only 11 months of nursing home payments in the earlier year. These kinds of “bill paying” practices definitely occur in some states, usually in response to budgetary pressures. Second, HCFA 64 reports represent state claims to the Federal government of health care expenditures that states believe are eligible for Federal matching funds under the Medicaid program. As a result of its audit process, HCFA may disallow some of these claims as not eligible for Federal matching funds, which are then adjusted on future HCFA 64 reports. These adjustments are not reported by type of service and therefore cannot be used to adjust previously-reported data on Medicaid spending by type of service. Third, HCFA 64 reports on Medicaid spending by type of service only represent Medicaid fee-for-service spending, not spending for services provided through capitated managed care programs. Since long term care recipients (and/or long-term care benefits) are usually exempt from participation in Medicaid managed care programs, the growth in managed care enrollment should not be having a large impact on HCFA 64 reports of spending for long term care services. However, Arizona’s entire long term care system is capitated, and the accompanying tables only include fee-for-service expenditures in Arizona’s long term care system (persons newly eligible for long term care services in Arizona may receive long term care services on a fee-for-service basis before enrolling in managed care plan). In addition, a few other states (e.g. Minnesota and Texas) have recently implemented relatively large managed care long term care programs that pay for services on a capitation basis. Also, increased enrollment of TANF-related recipients and SSI recipients who are not dual eligibles into managed care programs may be affecting reported spending on the HCFA 64 for personal care and Medicaid home health benefits. Lastly, HCFA 64 reports on long term care expenditures are just sometimes wrong. States occasionally call and question the data reported in this memorandum, particularly in regard to HCFA 64 reports on HCBS waiver spending. In some cases, this is due to the fact that HCBS waiver expenditures are reported on some other line of the HCFA 64, usually the “Other” service line. We will be producing another memorandum shortly, which summarizes HCFA 64 reports on expenditures for individual waiver programs. As you know, most states operate multiple HCBS waiver programs for different long term care populations. A few other words of explanation. Table F: Total Home Care, is the sum of Personal Care (Table C), HCBS Waivers (Table D) and Home Health (Table E). Table G: Total Long Term Care, is the sum of Tables A through E. Also, the “Expenditures Per Capita” number that appears in the final column of each table is simply total Medicaid expenditures divided by the total state population. As always, I appreciate any comments which you may have about these data. I would like to again thank John Klemm in HCFA’s Office of the Actuary for his continuing assistance in making these data available.