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As individuals continue to live longer beyond retirement and the U.S. population size of those 65 years and older continues to increase, the demand for long-term services and supports (“LTSS”) is also expected to increase. LTSS represents the wide-ranging health and social services that individuals require over an extended period of time, including assistive services. The increasing demand for these services will also likely proportionally increase health care expenditures of LTSS. According to the Congressional Research Service, which analyzed data from the Centers for Medicare & Medicaid Services (“CMS”) National Health Expenditure Accounts (“NHEA”) on the personal health expenditures for LTSS by payer, in 2021, an estimated $467.4 billion was spent on LTSS. This represents 13.2% of the $3.6 trillion spent on personal health care. Notably, the first and second largest payers of LTSS are Medicaid and Medicare, respectively, accounting for 64.1% of all LTSS spending nationwide in 2021. Absent public LTSS funding, individuals must rely on private funding, and in 2021, private sources accounted for just 28.6% of LTSS spending.
PACE – The One-Stop-Shop Healthcare Service System
Access to community-based, fully integrated care models is increasingly important as the U.S. population ages rapidly and demand for LTSS grows. Over the past 10 years, there has been a significant shift from delivering long-term care in institutional settings, such as nursing homes, to home and community-based settings, driven by concerns about the high cost of institutional care as well as beneficiaries’ consistent preference to live in the community. Improving the spread and scale of the Programs of All-Inclusive Care for the Elderly (“PACE”) could help address expected, growing demand for LTSS by providing eligible, older adults with access to comprehensive care in their homes and communities. As of 2022, there were 148 PACE programs operating 273 centers across 32 states, and serving about 62,000 participants.
PACE is a Medicare and Medicaid program that helps elderly individuals meet their healthcare needs, including LTSS needs, from the comfort of their home or community, rather than relocating to a nursing home, assisted living facility or other care facility. PACE offers the convenience of a comprehensive, integrated suite of healthcare services for the elderly population, such as adult day primary care, emergency services, home care, hospital care, meals, occupational therapy, social work counseling, and transportation to PACE centers for activities or medical appointments. PACE programs include an interdisciplinary team (“IDT”) of providers managing and providing care to participants and covering all Medicare and Medicaid services, including LTSS, or any other service that the IDT deems medically necessary. As such, total federal spending on PACE includes both Medicaid and Medicare spending on the program.
While PACE is only available under Medicare and Medicaid in select states, any individual may participate in PACE, with or without Medicare or Medicaid, if the individual is (i) at least 55 years old, (ii) lives in the service area of a PACE organization, (iii) needs nursing home-level of care, and (iv) is able to live safely in the community with help from PACE.
The PACE Advantage
PACE is thus well-designed to cost-effectively address the needs of populations with high rates of LTSS, including the dually eligible population. PACE offers certain advantages over other traditional healthcare models such as Medicare Advantage (“MA”). For instance, PACE prioritizes individualized care by customizing patient plans based on age, cultural background, independence level, and specific care needs, while Medicare Advantage – which offers the traditional Health Maintenance Organization, Preferred Provider Organization, Private Fee-for-Service, Special Needs and Medical Savings Account plans – does not offer the same level of coordination or personalization.  For example, PACE prioritizes individualized care by customizing patient care plans based on individual profiles (e.g., unique cultural, linguistic, religious, and social needs), and emphasizes preventative services that reduce hospitalization. A 2021 report from the U.S. Department of Health and Human Services Office of the Assistant Secretary for Planning and Evaluation determined that full-benefit dually eligible beneficiaries enrolled in PACE were significantly less likely to be hospitalized, utilize emergency department care, or be institutionalized than MA enrollees. Research has also shown that the rate at which PACE participants experience potentially preventable hospitalizations is substantially lower than similar populations (i.e., 44% lower than the rate for dually-eligible Medicaid nursing home residents and 60% lower than the rate for dually-eligible home- and-community-based services waiver enrollees).
PACE Statutory and Regulatory Background
In the early 1980s, a San Francisco-based company, On Lok Senior Health Services (“On Lok”), developed a home-and-community-based care model that integrated primary, acute, and long-term care services under a Medicaid demonstration waiver, which model became known as the PACE model. Through bipartisan efforts, Congress passed the PACE Coverage Act of 1997 as part of the Balanced Budget Act of 1997 (“BBA”), which established PACE as a permanent Medicare program and as a state option in Medicaid. Coverage of PACE under the Medicare program was authorized under Section 4801 of the BBA, which addresses Medicare payments and coverage of benefits under PACE. Pursuant to the implementing regulations set forth in 42 CFR Part 460, PACE provides pre-paid, capitated, comprehensive health care services designed to: (i) enhance the quality of life and autonomy for frail, older adults, (ii) maximize dignity of, and respect for, older adults, (iii) enable frail, older adults to live in the community as long as medically and socially feasible, and (iv) preserve and support the older adult’s family unit.
While the PACE program has proven beneficial to the aging U.S. population, its complex regulatory framework has created hurdles for its widespread expansion and growth. PACE organizations must obtain both state and federal approval and enter into a PACE program agreement with CMS and the State administering agency to operate a PACE program. There are also unique requirements that apply to organizations seeking initial approval as a PACE organization and those seeking to expand their service area and/or add a new PACE center.
Use of the State Readiness Review Tool to Guide Initial Program Implementation
All new PACE organizations must submit to CMS a complete application that describes how the entity or PACE organization meets PACE eligibility requirements. The application must also include an assurance or attestation from the State administering agency in which the program is located indicating that the State considers the entity qualified to be a PACE organization and is willing to enter into a PACE program agreement with the entity. All initial applications and service area expansion applications that include the addition of a new PACE center require a State Readiness Review (“SRR”) of the new center, which report can be submitted as part of the application process or subsequently in response to CMS’s request for additional information. The SRR was developed by CMS to be used by State administering agencies to perform the readiness review of non-operational PACE organization applicants and determine the organization’s readiness to administer the PACE program and enroll participants.
For initial PACE organization applicants, the SRR can be a useful roadmap and checklist for tracking the federal regulatory requirements for PACE program implementation, keeping in mind that each state may have its own unique, possibly stricter, compliance requirements as well. Pursuant to the SRR, new applicants should be advised that CMS requirements for operationalization of a PACE program includes, at minimum, the following:
- Physical Environment. The center must, among other things, (i) be designed, constructed, equipped, and maintained to provide for the physical safety of participants, personnel, and visitors, (ii) ensure a safe, functional, accessible and comfortable environment for the delivery of services to participants, and (iii) include sufficient suitable space and equipment to provide primary medical care and suitable space for team meetings, treatment, therapeutic recreation, restorative therapies, socialization, personal care, and dining.
- Infection Control. At a minimum, the PACE program must have an infection control plan that includes: (i) procedures to identify, investigate, control, and prevent infections in every center and in each participant’s place of residence, (ii) procedures to record any incidents of infection, and (iii) procedures to analyze the incidents of infection, to identify trends, and develop corrective actions related to the reduction of future incidents.
- Transportation Services. The PACE program must take appropriate steps to ensure that participants can be safely transported from their homes to the center and to appointments.
- Dietary Services. The PACE program must provide food that is nourishing, palatable, well-balanced, and meets acceptable safety standards.
- Bill of Rights. The PACE program must have written policies and implement procedures to ensure that the participant, his or her representative, and staff understand their rights.
- Personnel Qualifications. The PACE program must have qualified staff to provide care to frail elderly participants.
- Training and Competency. The PACE program must provide training to maintain and improve the skills and knowledge of each staff member with respect to the individual’s specific as necessary for the performance of the position, and develop a training program for each personal care attendant to establish the individual’s competency in furnishing personal care services and specialized skills associated with specific care needs of individual participants.
- Other Compliance Requirements. The PACE program must have written plans and procedures for safeguarding participant data and records, confidentiality and retention, and participant reassessments, which include periodic reassessments and reassessments requested by a participant or caregiver.
- General Safety. The PACE program must establish overall PACE center safety requirements, including ensuring written plans and procedures are in place for proper medication storage and disposal and oxygen storage.
Facing the aging baby boomer generation that led to a significant increase in the elderly population in the U.S. (a phenomenon known as the “silver tsunami”), PACE can help address the growing demand for LTSS by providing community-based, culturally-tailored, and fully integrated comprehensive healthcare solutions to older adults, and help lower the high cost associated with institutional care (such as nursing home, assisted living facility, etc.) by helping older adults remain at home.
However, despite its benefits, PACE’s complex regulatory framework and strict application approval process can create hurdles for the program’s expansion. A PACE startup working on launching de novo PACE programs is encouraged to collaborate with established PACE centers to share operational expertise and application guidance. In addition, since the SRR is a comprehensive list of PACE operational requirements, it is often a useful roadmap and checklist for PACE startups to trace federal regulatory requirements. It is imperative, however, to bear in mind that each state has its own compliance requirements that may be more restrictive.
PACE applicants should stay up to date on the latest developments in federal and state regulations, such as the recent CY2024 CMS Final Rule, which modified the “Contract Year” definition, clarified the agency’s enforcement authority for civil monetary penalties and intermediate sanctions, and amended 42 C.F.R. § 460.70(a) regarding written contracts between PACE organizations and external administrative or care providers. More details on the Final Rule can be found in our previous Healthcare Law blog post.