Commission delivered final report to Congress on June 28, 2002
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Commission on the Future of Affordable Housing and Health Care Facility Needs in the
21st Century
Clark R. Law
Association of Ohio Philanthropic Homes, Housing
and Services for the Aging
855 South Wall Street
Columbus, Ohio 43206-1921
September 24, 2001


Madam Co-Chairs, members and staff of the Commission on the Future of Affordable Housing and Health Facility Needs in the 21st Century. My name is Clark Law and I'm the president and CEO of the Association of Ohio Philanthropic Homes, Housing and Services for the Aging (AOPHA) based here in Columbus. AOPHA is a nonprofit state affiliate of the American Association of Homes and Services for the Aging (AAHSA), one of more than 40 AAHSA state affiliates nationwide. AOPHA represents more than 330 mission-driven, nonprofit senior housing complexes, home- and community-based service providers, assisted living facilities, nursing homes and continuing care retirement communities (CCRCs) located in more than 150 Ohio towns and cities. Everyday, AOPHA members serve more than 50,000 elderly Ohioans and their families and employ more than 30,000 dedicated and hard-working long-term care professionals statewide.

Thank you for the privilege of co-hosting with Ohio Department on Aging (ODA), this important event and for the opportunity to testify about the design of housing and health care to meet the needs of more than 70 million "baby-boomers." We hope that this Commission's work will help set a national course for the future of long-term housing, care and services.

We at AOPHA believe that supportive housing and care provided in array of residential, homelike, community-based settings, is the future of long-term care in addition to quality nursing home care.

First, I'd like to commend the Commission for "framing" the issue in a comprehensive but concise manner. In the related material, the Commission has asked for suggested solutions in the area of financing. My presentation will, by necessity, be a brief concept outline of potential financing solutions. As been observed, the "devil in the details" which necessitates a task force to fully develop the parameters of any solution.

The existing system, fragmented and cumbersome as it is, has some success stories. Testimony following mine is an example of how one relatively small, predominately Medicaid skilled nursing facility transformed itself into a comprehensive retirement community serving low-income population offering affordable housing, clinic services and community services as well as skilled nursing services.

The retirement community model provides one solution to the issue of financing of housing and health care. In Ohio, there are 56 non-profit retirement communities which offer not only the entire spectrum of services but also management of those services. Entrance fees, and pre-payment of housing have provided initial capital for building and a reserve for services. The result is that an older individual has preplanned for their later years. The challenge is to expand this model to serve more low-income individuals.

Several of AOPHA retirement communities have incorporated HUD 202 low-income housing on their campuses, and their endowments have permitted subsidization of costs associated with assisted living and "home-based" services delivered to residents in residential cottages/apartments. Many members report a desire to expand availability of such services, including housing, to a broader population but are bothered by requirements that hinder full integration. Perhaps, the Section 202 program could be structured to cover the cost of "x" number of resident units which could be scattered throughout the campus as opposed to a single building. Perhaps various HUD rent subsidy programs could be reformatted to permit their use in retirement campus environment.

The system is obviously fragmented with low-income housing resting on the federal level with the Department of Housing and Urban Development (HUD) and at the state level with the Department of Development. Within the last several years, the value of Service Coordinators (who function as "case managers") has become apparent in reducing overall costs to the health care delivery system (although not necessarily to HUD).

With respect to service delivery, the responsibility has been shared between the federally funded Medicare program and the joint federal/state funded Medicaid program. Many health-related support services, such as meals-on-wheels and homemaker programs, are supported through federal grants, county and state appropriations and Medicaid waiver programs.

As a result of the fragmented service delivery program with various funding sources, there are cost efficiencies that are being missed. HUD doesn't want to spend more for coordination of services. CMS (HCFA) doesn't want Medicare funds to be used in ways that could reduce Medicaid cost. Medicaid agencies are challenged in raising funds necessary for the non-federal share, and resist expansions even though they could save money for "the health care system."

One obvious step is to create a single federal/state organization to control all public funding for senior services - housing, health-related and medical services. In the short term, it is doubtful that this will happen if for no other reason than the aversion to "one size fits all," "big brother" and existing body of law assigning specific responsibilities to specific agencies.

There is, however, a congressional tool that could be used. That tool is the authority granted under revised managed care legislation for the Medicare program.

This existing legislation permits private provider organizations to establish a "Provider Sponsored Organization" under the expanded Medicare "Managed Care Plus Program." Although recent history of the Managed Care Plus plans has raised serious questions, I remain convinced that this approach can deliver effective services, and that the failures of the past are primarily attributable to the necessity of partnering with community structural HMOs whose delivery system model is not appropriate for the over age 65 populations.

As a point of fact, an alliance of a dozen AOPHA members formed just such a Provider Sponsored Organization which was successful in providing a range of services (including wellness programs, drug benefits, community services plus all the Medicare covered services) within the Medicare prospective rate until their insurance partner pulled out of the market. This alliance's experience highlights several factors.

  1. An initial need for a stable partner with necessary reserves. Perhaps, in this case, the federal government is that partner, and would share in the savings.

  2. The development of "Best Practice" protocols that could be adopted initially by local PSOs, thereby avoiding needless initial expense of "reinventing the wheel."

  3. Loans to establish the infrastructure which would be repaid from the subsequent net margin.

  4. Modification of mandatory composition of provider service organizations that is inappropriate for rendering services to chronic care populations.

There are inherent efficiencies in Provider Service Organization which can be utilized to expand services at no additional costs to the Medicare/Medicaid programs. Properly structured, the PSO could expand to a much wider population those proven techniques employed by the PACE program, Hospice programs and the Evercare model. Paying the prospective rate to the PSO would allow payment to Assisted Living and community-based service providers as cost effective alternatives. Effective drug control programs would be enhanced and made more cost effective. The PSO quality assurance and utilization control systems would be employed to ensure much superior quality control programs than currently exist if for no other reason that there is an alignment of incentives.

Under this model, Medicaid and federal grants should be required to participate for the "dually eligible" Medicare/Medicaid recipient. The PSO would be held to the same requirements as MCO + plans and would be locally governed by a board of local providers and knowledgeable individuals. Under this model, such PSO could become eligible for Section 202 and other HUD subsidy programs. On a local level, at least, the delivery of services would be coordinated regardless of the fragmentation of the funding sources.

Outside this basic system change, there are trends occurring in the financing of services. Many states, including Ohio, have adopted "franchise fee" on nursing homes as a means for generating funds for not only nursing home services but also home and community-based services under Medicaid waivers (which in this state are called PASSPORT). The franchise fee approach for licensed residential care facilities and certified home health agencies has also been suggested as the vehicle for financing Medicaid "Assisted Living" and further expansion of home and community-based services.

The underlying fact in such "franchise fee" approach is that seniors are financing programs for other seniors.

Finally, just a word about financing of nursing facility services under the Medicare and Medicaid programs. Such programs must cover the cost of providing services. It makes no sense to expect nursing home providers to provide skilled nursing services to Medicare beneficiaries when the cost of just a particular drug exceeds the per diem rate.

In Ohio, the State's Medicaid program, while it does not cover costs in all situations and has a number of reasonableness screens, does allow the opportunity to recover most costs. This has allowed non-profits to fund other aging services. Otherwise these funds would have had to be used to meet existing responsibility to care for those already entrusted to our care. Ohio's system is fairly unique in that most costs associated with direct care are covered, and "profit" is limited to specific dollar maximums in limited number of cost categories (excluding direct care).

In the area of specific housing modifications, AOPHA would suggest consideration be given to:

  1. Using surpluses generated by the FHA insurance fund to develop new housing stock and to renovate existing housing stock, which in many cases costs less than building new. Over the past few years, for the first time in its history, FHA is generating surpluses.

  2. Readjusting federal, state and local tax codes to once again offer more attractive incentives for developers and investors to build and maintain affordable housing. Until the 1986 tax reform, there were tax incentives which encouraged building and maintaining affordable housing.

  3. Increasing incentives for banks, lenders and other financial institutions to invest more resources in developing elderly housing and health facilities as ways for them to comply with the Community Reinvestment Act (CRA) requirements.

  4. Offering affordable long-term care insurance options through existing private insurance and through Medicare and Medicaid.

In conclusion, AOPHA supports the work of the commission and hopes AOPHA's observations can assist in building a strong flexible foundation by merging a variety of existing resources. In the process, we hope the commission develops its response in concert with the Social Security program, the Medicare program and the Medicaid program.

Thank you for your time and consideration. I'm happy to respond to any questions, now and in the future.

The page was last modified on October 2, 2001