State Health Reform 2011:

A Quality and Fiscal Opportunity through New

York State’s Nursing Homes: Making Risk Work
Author: Arthur Y. Webb*

With national health reform and heightened demands to simultaneously reduce costs and improve quality, New York State
should seize the opportunity to implement a state-wide institutional shared savings program for skilled nursing
facilities. Such a program would achieve these significant outcomes:

XX Improve the quality of care for nursing home residents and patients

XX Capture savings and resources for New York State providers

XX Continue to shift New York State’s health capacity into community-based alternatives

XX Align incentives and improve the efficiency of Medicaid and Medicare, particularly for dual-eligible beneficiaries, a
target group for health reform efforts.

In brief, we recommend the implementation a state-wide “Evercare-type” program through an agreement between CMS
and the State. Under this agreement, nursing homes who reach targeted quality and hospitalization indicators can share in
the savings that would otherwise accrue to Medicare. Such a program would incentivize New York State nursing homes to
enhance their clinical capabilities and minimize hospitalizations, which almost always pose additional risks – and certainly
higher costs.

Below is a brief background on the concept and a detailed proposal for the State-wide program.

BACKGROUND
In the 1990s, United Healthcare launched the first Medicare institutional special needs plan, Evercare. Institutional special
needs plans (“ISNPs”) are Medicare managed care plans that enroll only beneficiaries residing in a nursing home for 30
days or more, and in turn, receive a Medicare payment that is enhanced for the increased risk and cost of this population.
By implementing key features within the nursing home, especially heightened medical monitoring, care coordination, “in-
tensive stay days” which compensate the nursing home for acute interventions, and emphasizing appropriate end-of-life
care (along with family education), Evercare was able to spend less than its Medicare payment, making a healthy profit and
fueling its growth nationwide.

In New York State today, Evercare, Fidelis and ArchCare all operate successful ISNPS within scores of skilled nursing facili-
ties. What is especially impressive is that ISNPs can spend less than Medicare typically spends on nursing home residents,
despite adding significant resources into each resident’s care. The key to success is working with the nursing facility itself
to spend the right resources at the right time, thereby avoiding expensive and unnecessary hospitalizations.
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The successful institutional-care model includes the following features:

XX A nurse practitioner-level Advocate assigned to a panel of enrollees, ranging between 50 and 80. He/she:

XX ensures effective communication among the physician, the family, the patient, and the nursing
facility staff;

XX mentors and assists the facility’s nurses to carefully monitor for any change of condition;

XX educates the family and staff on best practice end-of-life and comfort care protocols, which often
rule against a hospital transfer;

XX initiates any “intensive stay” and ensures resources are in place to attend to acute care needs; and

XX If a hospital transfer is indeed necessary, works closely with the hospital staff and ensures an effec-
tive transition back to the nursing facility.

XX Preparing the nursing facility to provide interventions such as intravenous fluids, enhanced diag-
nostics, and other additional clinical capabilities.

XX Financial arrangements with the nursing facility not only to compensate for the additional care provided, but often, to
share in the savings achieved.

When Evercare first started, most nursing homes were custodial care residences, with small, if any, sub-acute capacity.
Today, almost all skilled nursing facilities have significant sub-acute care programs, and a good number have features
such as IV nurses or state-of-the-art monitoring technology. There remain few capacity barriers to a widespread adop-
tion of this model.

The barriers that still need to be overcome are the assumption of risk inherent in a Medicare managed care plan ISNP
model, and perceptions of inequity in the distribution of savings achieved.

PROPOSAL

In 2011, the State of New York should enter into an agreement with CMS. This agreement could take several forms,
ranging from the approval of a State-sponsored Medicare Special Needs Plan, to a waiver for mandated dual-eligible
institutionalized enrollment. A third option – which minimizes risk to both the State and participating providers – is a
shared savings agreement, consistent with the Accountable Care Organization (ACO) agreements and potentially ac-
tionable under the CMS Innovation Center; based on currently available information, we recommend the shared savings
agreement.

The agreement must also specify the methodology to be used to calculate the Medicare monthly payments or the Medi-
care savings achieved. Ideally, the State’s regions could be used to determine the Medicare “baselines” from which sav-
ings would be determined. This would account for cost variation across the state, and may enable neighboring nursing
homes to share a pool of Advocates, if needed.

To implement the program, the State Department of Health would first need to promulgate regulations, consistent with
the successful institutional care model outlined above, for participating nursing facilities. (The regulations for existing
ISNPs could, of course, form the basis of the Institutional Program.) The Department would also need to establish the
quality indicator targets and perhaps modify survey procedures to ensure quality-of-care is not adversely impacted in
any way.

*Arthur Webb has been involved in health and human services since 1971, with over 20 years of experience as a provider of a wide range of health and
human services and almost 18 years as public official in New York State government. His government experience includes responsibility for Medicaid
budgets in the budget division; commissioner or director of four government agencies including Department of Social Services (the welfare, Medicaid
and social services agency); Office of Mental Retardation and Developmental Disabilities; Office of Substance Abuse Services; and Health Planning
Commission. As a provider, Mr. Webb was president & chief executive officer of Village Care of New York and, most recently, chief operating officer of
St. Vincent’s Catholic Medical Centers in New York.

The Arthur Webb Group provides advice and consultation to health care providers, health plans, disease and utilization management companies and
government officials. The group specializes in offering innovative solutions in the post-acute world.
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The State would be called upon to play additional roles, particularly if a Medicare capitation plan is involved. Risk-sharing
models and requirements for participation would need to be established. Initially, participation in the program should be
voluntary, but could then move to only allow homes to “opt out” based on certain criteria. That means that enrollment of
dual-eligibles would be mandatory, and any nursing homes receiving Medicaid reimbursement would need to participate
in some fashion.

Finally, this institutional management program will impact significantly on hospital Medicare revenue, and that must be
monitored and managed. It also must be determined what Medicare spending reductions are attributable to the state-
wide institutional program versus any ACOs that New York State hospitals are participating in.

The program will also require some investment on the part of participating New York nursing facilities. These include:

XX The participation of a nurse practitioner in the clinical care team, in the required ratios.

XX The use of health information technology, both to facilitate improved resident/patient monitoring and to expedite
outcome evaluation.

XX The implementation of enhanced clinical capabilities, consistent with the facility’s most common reasons for hospital
transfers. For example, if pneumonia is a common cause for hospitalization, arrangements must be made for expe-
dited laboratory testing and the administration of IV antibiotics.

In sum, the potential for enormous Medicare savings exists within New York State’s skilled nursing facilities. As seen with
the Evercare program and other ISNPs, these savings can be tapped by enhancing clinical capabilities and care manage-
ment within the nursing home, thus avoiding hospitalizations. With federal opportunities opening up for dual-eligible
integration proposals and innovations that “bend the cost curve,” now is the time to tap the potential in New York’s nurs-
ing homes on a state-wide basis. The proposal outlined here is not only achievable, but will have a long-lasting positive
impact on New York State’s nursing home residents and their families.

Contributions from Allison Silvers, MBA, Director of Strategic Initiatives, VillageCare.

October, 2010