Angst and Opportunity: Nursing Home Upheaval Raises Stakes for Medicaid-Based Assisted Living

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Upheaval in the nursing home sector is increasing the need for Medicaid-based assisted living.

This was one of the key takeaways from my meetings last week at the American Health Care Association/National Center for Assisted Living (AHCA/NCAL) annual conference in Denver. Given that AHCA is the largest association of U.S. nursing home providers, the concerns of these providers dominated the event — and they are facing a multitude of challenges, including the “policy nightmare” of a proposed federal staffing mandate, along with ongoing financial and operational stresses that are already leading to facility closures across the country.

While some of these difficulties might be resolved favorably through effective advocacy and more advantageous economic conditions, there is no question that older adults’ access to affordable long-term care is under threat. Expanding the flow of Medicaid dollars to assisted living could be an important part of the solution.

There is — and should be — excitement about the potential for Medicaid expansion to solve a pressing social and health care need, and to open up new business opportunities within the senior living sector. Of course, senior living providers and advocacy groups already are pushing for more Medicaid dollars to support assisted living, as they have been galvanized over the last several years to create a scalable offering for the middle market.

But there is also a lot of angst about whether such an expansion will actually occur on a widespread basis across the country, at least any time soon. And even as more Medicaid dollars become available for assisted living, providers will have to create models that address thorny issues in order to succeed.

In this week’s exclusive, members-only SHN+ Update, I analyze this issue and offer key takeaways, including:

• How the future of SNFs relates to the future of Medicaid-based AL
  
• Why political and policy headwinds are raising concerns for Medicaid coverage of assisted living
  
• What the future model for Medicaid-based assisted living will require

Factors driving Medicaid expansion

Seemingly every major trend under discussion at AHCA could potentially fuel the growth of Medicaid-based assisted living.

First, there is the wave of nursing home closures sweeping the country. Last year, 135 nursing homes closed their doors, according to Centers for Medicare & Medicaid Services (CMS) data. Throughout this year, the trend has continued. In Iowa alone, 26 facilities closed between June 2022 and July 2023.

These closures have been precipitated by a perfect storm of challenges, including surging debt payments due to higher interest rates; an ongoing staffing shortage; and the effects of inflation on operating costs, coupled with chronic underfunding from state Medicaid programs.

And the number of nursing home closures could mount to crisis levels if a proposed federal minimum staffing mandate is enacted, AHCA leaders have warned. Nearly 300,000 residents are at risk of being displaced if the mandate goes into effect, according to an analysis AHCA commissioned from CliftonLarsonAllen (CLA).

The majority of residents affected by nursing home closures in recent years — 62% — are Medicaid recipients, according to an AHCA presentation. And nursing homes primarily serving Medicaid recipients would be most vulnerable to closure if the staffing mandate is enacted, the CLA report stated.

Assisted living is not an appropriate setting for every nursing home resident that has been or might be displaced, but AL would be a viable option for some of them. Consider that in Illinois, for example, the waiver program allows Medicaid to cover assisted living services for people who meet a nursing facility level of care. Clearly, as access to nursing homes becomes increasingly difficult, the drumbeat for Medicaid to cover assisted living care should become louder.

Rising acuity is another major trend in the nursing home sector. In part, this is the result of trends that also are driving up acuity in senior living communities. Technology and new payment frameworks are shifting more lower-acuity care to the home, for example. Changes to the way SNFs are reimbursed through Medicare Part A also have created some new incentives for operators to take on higher-acuity patients. Touchstone Communities is one example, as their COO Leslie Campbell explained at our CLINICAL conference earlier this year.

Indeed, many SNFs are transitioning toward highly complex care. Sharon Thole, EVP of Operations for Health Dimensions Group, told me about a SNF she once helped run that included a 25-bed ventilator unit, a floor dedicated to patients with mental health diagnoses, and a transitional care unit that mainly served people who had been decannulated from a trach.

That SNF was “way ahead of its time” but could be a model for what the skilled nursing facility of the future will look like, Thole said. As this transformation occurs, assisted living centers could become the most logical alternative setting for many people who today are receiving long-term care in nursing homes, the majority of whom are Medicaid recipients.

Another major trend in the SNF space is the increasing proportion of payments coming through Medicare Advantage and managed Medicaid organizations. This trend is creating intense concerns related to inadequacy of payment rates, administrative burdens, coverage denials, and changes in referral patterns as MA insurers seek to bypass SNFs in favor of lower-cost care settings for post-acute services.

This trend also could lead to expansion of Medicaid-reimbursed assisted living, as payers seek the most cost-effective ways to deliver care to their highest-cost beneficiaries: namely, those who are dually eligible for Medicare and Medicaid.

“In some states where we’re seeing more managed care penetration with dual eligibles and [populations] like that, the states are opening up to negotiating with assisted living,” Thole said.

ATI Advisory also raised this point in a 2023 Special Issue Brief created in collaboration with the American Seniors Housing Association (ASHA), noting that if Medicaid were a viable payer for assisted living across the country, a higher percentage of dual eligible beneficiaries would be able to access AL communities.

“Nationwide there are 1.4 million dual eligible beneficiaries aged 65 and older who need assistance with two or more ADLs, and among these individuals, 10% live in assisted living communities,” the report stated.

This is hardly an exhaustive list of trends creating momentum for increased Medicaid payments for assisted living; Thole noted that the aging physical plants of many assisted living communities also could make them logical candidates for pivoting toward serving Medicaid populations, for example.

Given the confluence of all these trends, it might seem that Medicaid inevitably is going to increase from its current modest share of annual assisted living revenue, of about 16%. But of course, it’s not that simple.

Angst around expansion

A situation that transpired this year in Montana illustrates the difficulties in expanding Medicaid benefits for assisted living.

Montana State Sen. Becky Beard, a Republican, led a successful effort in the legislature to pass a bill related to Medicaid coverage of assisted living. That bill called for Montana’s Medicaid funding to be transitioned from the state’s Big Sky waiver program into the Community First Choice program.

Under the Big Sky waiver, funding is capped by the legislature. This means that a limited number of qualified beneficiaries can access services such as assisted living, while other beneficiaries are placed on waiting lists. People only move off the waiting list if someone receiving services under the waiver dies or no longer qualifies for Medicaid, as reported by KFF Health News.

Community First Choice — a program to extend Medicaid benefits that was created under the Affordable Care Act — has no funding cap and comes with an increased federal Medicaid funding match of six percentage points to incentivize states to enroll. Because Community First Choice is considered an entitlement, all eligible beneficiaries would be able to receive assisted living care, resolving Montana’s waiting list of roughly 160 people.

However, Republican Gov. Greg Gianforte vetoed the bill in May. An effort to overturn the veto failed by 10 votes in the legislature.

“Gianforte said the bill, by creating another Medicaid entitlement program, could have ended up costing the state much more in the long run,” Mike Dennison reported for KFF Health News. “He also said it would have restricted the state’s ability to serve Medicaid-funded residents ‘in a community setting.’”

Supporters of the bill — including many assisted living operators in the state — countered that the bill would actually save Montana money by shifting more care from nursing homes to less costly assisted living communities. And the governor’s own budget office estimated the measure would save the state $1 million during its first two years.

Should she be re-elected, Beard intends to “continue the effort to get this legislation passed,” she told me in an email this week. But the next legislative session is not scheduled to take place until January 2025.

The situation in Montana seems to show how political cross-currents can sink Medicaid expansion efforts. Expanding entitlements seems a no-go for some politicians, even if the math shows that budgets would benefit from such expansion.

There also are concerns about policy efforts at the federal level, including the “Ensuring Access to Medicaid Services” regulation that CMS proposed earlier this year. This proposal calls for states to ensure that 80% of Medicaid payments for certain services be allocated for direct care worker compensation.

Argentum is advocating against this aspect of the proposal, saying that CMS’ language makes it unclear whether Medicaid-reimbursed assisted living providers would be subject to the 80% requirement, and warning of potentially dire consequences if providers are subject to that rule.

“The agency’s proposal that communities must spend 80% of Medicaid payments on direct care worker compensation, while leaving just 20% for all other expenses that come with running a community, is impractical,” Maggie Elehwany, Argentum Senior VP for Public Affairs, said in an email to me this week. “It would not only do little to address workforce shortages or access to care, but it could also jeopardize the ability for communities to continue current Medicaid operations.”

Should assisted living providers exit the Medicaid program en masse, a large number of residents might be forced to live in SNFs, and the total cost of about $43.4 billion would be devastating to states’ Medicaid budgets, Elehwany warned. And she emphasized that Medicaid reimbursement rates for assisted living already are generally inadequate.

Indeed, Medicaid rates for assisted living are another source of heartburn, and ensuring proper payment levels if Medicaid expands coverage of assisted living is a daunting prospect. Not only are state governments involved, but so are managed care organizations that have contracted with many states.

As of three years ago, almost 54 million Medicaid recipients — 69% of all beneficiaries — received benefits through MCOs, according to the Kaiser Family Foundation. In some states, MCOs were cutting assisted living rates as one way to help maintain margins during the Covid-19 public health emergency. More generally, the MCOs do not seem to fully appreciate the distinctions between assisted living communities and nursing homes, and the potential for assisted living to bring down costs, drive resident wellness, and alleviate pressures elsewhere in the care continuum.

“They have been a little slow to leverage assisted living as an alternative,” ATI Advisory CEO Anne Tumlinson told SHN in March 2021.

All of these complications could be enough to deter private-pay senior living providers from having anything to do with the Medicaid space, but still, there are some pioneers and trailblazers forging ahead.

The path forward

Northbridge is one such company breaking new ground — literally, by developing a new assisted living community Washington, D.C., through its HallBridge joint venture with developer HallKeen. The plan is to take advantage of a pilot project through a Medicaid waiver program, and Northbridge’s top executives have spoken with Massachusetts officials about the potential to implement a similar program in the Bay State.

Then there are the pioneers that have been operating in the Medicaid space for years, Gardant being the standard bearer for this group. The Illinois-based company recently took on management of 22 communities, bringing its portfolio to 80 buildings, and recently appointed co-presidents Julie Simpkins and Greg Echols are setting the course for the organization’s next chapter.

I see the refresh at Gardant as symbolic of a new era dawning for Medicaid-reimbursed assisted living writ large. That’s because in order for Medicaid to become a more prominent payer for assisted living, new operating models will need to be created to take advantage of advancements in technology, address evolving consumer expectations, and resolve daunting obstacles such as worker shortages.

HDG’s Thole believes that new relationships and partnerships will be a crucial element of this new Medicaid model, and I find that notion persuasive.

For one, assisted living operators will need to forge closer ties with hospitals and health systems, Thole said. That’s because more referrals will come through these channels if AL communities become an alternative for today’s SNFs; therefore, AL providers must not only create smooth transitions for incoming residents, but work with hospitals and health systems to gain access to resources and even clinicians to provide care for a higher acuity population.

Similarly, Thole envisions closer ties between AL providers and home health and private duty companies, to help support residents with more complex needs and to help ease staffing pressures.

She also flagged the Program for All-Inclusive Care for the Elderly (PACE) as a promising avenue of exploration for assisted living providers. PACE centers that are near or even co-located with AL communities could provide a valuable resource for care and socialization, supplementing the typical offerings of senior living and helping in the effort to maintain the health and wellness of dual eligible beneficiaries. Currently, the majority of PACE enrollees are dually eligible for Medicare and Medicaid.

And assisted living operators eyeing the Medicaid market also should carefully consider starting or joining a provider-owned special needs plan through the Medicare Advantage program, Thole advised. Success in serving a larger Medicaid population will demand expertise in managed care, including the ability to gather key performance data and drive outcomes such as reduced hospitalizations. These goals align with ownership of MA special needs plans, which also can be a source of much-needed revenue.

In addition to new operating models, public policy changes also are needed in order to make Medicaid a viable platform for expanding access to affordable assisted living. Here too, partnerships could be key. For example, NCAL has urged “collaborative work with the provider community, federal agencies, banking and finance, and construction industry to create new financing incentives for low- and middle-income senior housing and assisted living.”

Furthermore, the Medicaid program does not pay for room and board costs for assisted living residents. While NCAL believes “it is important to keep the services provided through a Medicaid Waiver separate from room and board,” the organization also believes that policies should be developed to help “reasonably subsidize” room and board costs.

Expanding Medicaid benefits for assisted living is complex, to say the least, but my conversations at AHCA suggest that this will be an increasingly pressing issue in the months and years ahead. I’m curious whether the topic will be as prevalent at other industry events during the upcoming fall conference season — and if angst or optimism will be the prevailing tone in those conversations.