Written Statement of

Christine E. Bishop, Ph.D.

Professor, Schneider Institute for Health Policy

Heller School for Social Policy and Management

Brandeis University

Waltham MA 02254-9110

Prepared for Presentation to

Department of Public Health

On

Proposed Regulation105CMR 158.000, Licensure of Adult Day Health Programs

August 4, 2017

1

Christine E. Bishop, Ph.D.

February 24, 2011

Introduction

I appreciate the opportunity to provide written testimony with respect to licensure regulations for Adult Day Health (ADH). The Massachusetts Association of Adult Day Services has asked me totestify based on my research experience and training as a health economist and knowledge gained through a research career in the economics of medical care, post-acute care, and long-term services and supports (LTSS) for older adults spanning more than 40 years.

Based on my studies of post-acute and LTSS provider financing and payment, nursing home culture change, and accountable care organization practices, I would like to bring to your attention the impact of the very narrow or negative margins for many ADH programs. With a MassHealth rate that has been frozen since 2012, licensure requirements that seem modest to regulators can be daunting for a low-margin provider. If participants and their families are to have ongoing access to ADH services, either resources required by licensure standards must be paid for within the MassHealth rate; or licensure requirements that add to program costs must be adjusted so that goals for person-centered quality can be met in a flexible, less costly manner.

ADH programs now provide low-cost, community-based, person-centeredhealth and supportive services for older adults and people with disabilities, contributing to emerging aspirational goals of our health and LTSS systems. In other settings, continuity of health services for persons with multiple chronic conditions has been difficult to achieve, linkages between medical care and supportive services are challenging, and the person-centered care stipulated by the Supreme Court’s Olmstead decision requires radical organizational change for service systems and providers. In Massachusetts, public and private organizations are striving mightily in these arenas, with developments in accountable care organizations, nursing home culture change, rebalancing, person-centered medical homes, Community First, Senior Care Options, and One Care. In the meantime, Adult Day Health programs quietly address many of these issues. In contrast to our siloed, fragmented institutions and narrowlyfocused medical providers, they are ahead of the curve in supporting continuity of care, quality of life, and community-based services for older adults and persons with disability.Access and quality of Adult Day Health services should be sustained and enhanced.

My written testimony is organized around three points:

  • Cost and revenue analysis shows that ADH programs, especially the smaller programs with the strongest community roots,are on the edge and likely to close if faced with unfunded requirements that they cannot pay for, moving our system away from a person-centered, community-based service continuum.
  • To avoid this unintended consequence, licensure requirements must be fully funded in the MassHealth rate for ADH providers, or considered more flexibly so that requirements can be met in less costly ways.
  • Further, regulations that aretailored to the ADH service should supersede rigid requirements that specify inputs or otherwise undercut its person-centered approach to this community-based population.

Cost per Unit of Service is Substantially Greater than the Medicaid Rate for Many ADH Providers, and Licensure Requirements Will Increase this Shortfall

I have studied how the MassHealth rate is set for adult day health, and have testified with respect to the adequacy of the rate and the rate method on several occasions. Using cost data for 2015, the latest data available to me, I recently computed a synthetic cost per unit for Basic services for the 130 providers reporting costs. Sixty-two, almost half of the reporting providers, had costs in 2015 greater than the Basic per diem rate of $58.83; cost increases for labor, food, supplies and utilities have occurred since 2015, so the number of providers with costs greater than the MassHealth rate has surely grown.

It is very difficult for these providers to continue to pay for additional inputs required by the licensure regulations without a rate increase.

Many ADH Providers Are Operating at a Deficit and Have No Margin to Cover AddedOperating Costs or Investment

In addition, an analysis considering 2015 total costs and total revenues (from all sources, not just MassHealth) and costs for 2015 from provision of ADH services shows that 58 of the 131 providers had negative margins. These providers were not able to cover unreimbursed costs through private-pay or insurance-paid days. With a frozen MassHealth rate, this situation has only gotten worse since 2015, especially when added ongoing costs of meeting licensure requirements are included.No business can operate for long with a negative margin, and nonprofit enterprises cannot cross-subsidize these services indefinitely. We are already seeing closures among these providers.

Some of the licensure requirements are for fixed investment, for example handrails in hallways and additional toilet or bathing facilities. Research I am conducting on investment by the nursing home industry in innovations for quality of care contains a finding that I believe applies to adult day health in Massachusetts: Our study found that a larger margin (funds accumulated when revenues exceeded costs) did not affect whether for-profit enterprises undertook investments to promote quality; but margin made a significant difference to the nonprofit enterprises – they needed a financial cushion to make investments to improve future services. We suspect this is because nonprofits find it hard to borrow funds for investment, and must accumulate any investment funds from their operations. Their nonprofit mission also encourages them to plow earnings back into service quality. In the adult day health case, the investments required to meet new licensure standards may seem modest and inexpensive to an outside observer.

But providers with negative margins simply cannot accumulate the cash to cover extra capital expenses, even when this is the price for staying open in the future.

MassHealth Rate Should Fund Added Costs of Licensure Requirements

.When regulation results in cost increases, the Department should support Medicaid rate increases to keep Adult Day Health providers in operation, and assure that providers are not forced by new cost pressures to stint on other aspects of the quality of care or quality of life for participants. Capital costs pose a special problem, because the current adult day health cost report and rate method treat capital costs as if they were a small and unimportant portion of Administrative costs. The MassHealth rate is set using average of capital costs computed for all programs, and data are reported for a previous year. Average capital cost per day computed in this way substantially underestimates actual average costs, firstly because many programs still do not report any capital costs. In addition, licensure regulations concerning building and equipment affect some providers much more than others, depending on their initial setting --not all programs will need to make costly capital improvements to meet the new standards. In setting the rate, an increase in reported capital costs for any one provider is diluted by averaging over all the providers, and in any event will affect the MassHealth rate with a lag of at least two years. (With the frozen rate, there is no way for capital costs expended in 2016 or 2017 to be reflected in current payment for MassHealth members.) This means that the MassHealth rate cannot cover the costs spent by the particular programs that must invest in capital improvements in order to meet the new licensure requirements. The Department may want to recommend changes in the rate method, for example a center-specific capital pass-through component, to make required improvements feasible for the affected programs.

Fixed costs in general are also an issue, especially for small programs. Regulations specifying fixed inputs (capital improvements, consultants, presence of administrative personnel) affect all programs but have a larger impact on the cost per unit of service for small providers than for large providers. These increased costs, without increased revenues to match, may drive some needed rural or suburban providers out of business. Because of transportation costs, smaller-scale programs are the efficient choice for some areas; programs need to be located within a reasonable distance of where participants live. The Department will want to monitor and support access to adult day health across the Commonwealth to assure that small programs as well as large programs can cover additional fixed costs due to licensure regulation.

Focus on Quality for Person-Centered Community-Based Service

As an economist, I am an enthusiastic observer of positive trends toward valuein services for older adults and persons with disabilities– away from residential services toward home- and community-based services; away from regimented, institutionalized services toward person-centered serviceslike ADH, attentive to quality of life as well as quality of care; away from old ways of assessing performance and quality and toward evidence-based expectations about outcomes and participant experience; and away from fragmented services toward services that providecontinuity and coordination across settings and types of care.

Licensure of adult day health providers in Massachusetts is an important step: quality assurance standards support the trend toward home and community based care,enabling these providers to become a more prominent part of the network of servicesfor community-dwellingpersons with chronic illness and disabilities.Licensure can codify high standards for performance that all providers should meet.

At the same time, it is important that these regulations maintain the fundamental person-centered approach of Adult Day Health. Regulations that restrict the ability of staff to work flexibly in teams and to restrict the ability of all staff to provide one-to-one service to participants should be avoided. Such regulations could disrupt the non-institutional environment of the adult day health centers. Especially because of my research on the challenges of bringing person-centered care to nursing homes, I am impressed with Adult Day Health, which at its best has developed a very person-centered approach to care. A good ADH program is a place people look forward to going each day – ideally, it’s a welcomingcommunity, where staff know their participants well, and a team of professionals and paraprofessionals work together to provide personalized medical, social service and therapeuticservices. Regulations that move away from this ideal, turning the ADH center into a hierarchically staffed environment or removing professional personnel from direct contact with participants, could undercut quality of life and quality of care for participants. The effects of these regulations on person-centeredness should be carefully evaluated and, if restrictive regulationsmust beput in place, they should be carefully implemented to preserve quality of life.[1]

I urge you to adjust licensure regulations to make them fully appropriate to community-based, multi-disciplinary, modest-expense, and, most important, person-centered adult day health programs and services; and to fund through the MassHealth rate any additional costs associated with licensure, so participants and their families continue to have access to adult day health centers across the Commonwealth.

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Christine E. Bishop, Ph.D.

August 4, 2017

[1]The parallel challenge of adjusting rigid nursing home regulation to support person-centered nursing home services has been discussed inStone, R. I., N. Bryant and L. Barbarotta (2009). "Supporting culture change: working toward smarter state nursing home regulation." Issue Brief (Commonw Fund)68: 1-10 and Beck, C., K. J. Gately, S. Lubin, P. Moody and C. Beverly (2014). "Building a state coalition for nursing home excellence." Gerontologist54 Suppl 1: S87-97.