Gazing Into a Crystal Ball


“…and, furthermore, I don’t want to see your face in my office until the research report is finished!”

The door slammed behind the young healthcare analyst at a prestigious investment bank in New York City. Several weeks before, the analyst’s supervisor had assigned him to draft a definitive research report for his firm on the future of the long-term care and home healthcare industries. He tried to obtain that definitive information but was stymied by the often confusing and conflicting information available. Disheartened, and facing an abrupt end to his once-promising and financially rewarding career, the young man decided to take an early lunch to figure out how he could get out of this mess. As he walked down the street, he was drawn to a storefront that he passed by hundreds of times before without giving it a second glance. The sign in the window read:

Deciding that he had nothing to lose, he stepped inside. The dark, musty room smelled odd-a mixture of burning incense and garlic. Next to a small table covered by a dirty tablecloth sat an overweight elderly woman. “Yes, can I help you?” she asked. He hesitated for a moment and nodded his head warily.

“I can see that you are deeply troubled,” she said in a mixture of indefinable foreign accents. Again, he nodded in agreement and then stammered out his woebegone story: the research project…his inability to get clear and consistent information…his total frustration…and, most importantly, the possible end to a lucrative career.

She solemnly tipped her head and replied, “You have come to the right place. Please sit down. I can help you, but it will cost $250.” He reluctantly agreed. She placed a small crystal ball on the tabletop, uttered a strange incantation that sounded like a cross between Hungarian and Chinese, and waved her hands frantically over the crystal ball. Closing her eyes, she began to speak: “I can’t help you very much with long-term care. You have to be a real prophet to figure that area out, and I’m only a master fortune-teller. However, home health is easier, so sit back and take some notes.” The young man listened attentively.

“To see the future, you must be aware of the past,” said the fortune-teller. “The story begins with the Balanced Budget Act of 1997. In the three years following its implementation, the number of Medicare beneficiaries who received home health services annually dropped by about 1,000,000 individuals, or nearly 30%. MedPAC [the Medicare Payment Advisory Commission] estimated that in 2001, which was the first calendar year after the home health Prospective Payment System was instituted, an additional 300,000 beneficiaries lost their home health services. In fact, MedPAC found that hospital discharge planners observed that hospitals were taking special measures to provide rural beneficiaries with home care, to the point of even renting hotel rooms or housing patients on a temporary basis in apartments that were owned or rented by the hospitals,” explained the gypsy.

The young analyst was impressed. Thinking that she really might be able to give him sound advice, he took a notepad from his jacket and began to scribble furiously.

She continued: “The tide began to turn with the Olmstead case that was decided by the United States Supreme Court on June 22, 1999. The Supreme Court held in Olmstead that some persons with disabilities in institutions may have suffered discrimination under the Americans with Disabilities Act of 1990 [ADA] by being deprived of an opportunity to live in the community. The Olmstead court stated that the ADA did not mandate deinstitutionalization,” she explained, “but the Supreme Court set forth three conditions for community placement: (1) the state’s treatment professionals must reasonably determine that community placement is appropriate; (2) the person seeking placement does not oppose such placement; and (3) placement can reasonably be accommodated taking into account resources available to the state and the needs of others receiving state-supported disability services.”

The fortune-teller gave a heavy sigh, and began chanting and waving her hands over the crystal ball. With a twinkle in her eye, she explained that the globe was growing dim and she had to reboot. Her gaze resumed its intensity:

“Back in 1981, Congress established the Home and Community-Based Services Waiver Program that authorized a state’s use of Medicaid funds to pay for home- and community-based services for individuals who would otherwise require services in a long-term care setting. While the waiver program allowed the states to have discretion in determining what populations would be served and which services would be allowed, the waiver program also required that the cost of providing home- and community-based services must be cost-neutral to receiving services in an institutional setting, and it also required that room and board are not to be covered by Medicaid. Now, in February 2001, President Bush announced the New Freedom Initiative, which was aimed at promoting full access to community life through efforts to implement the Supreme Court’s Olmstead decision. The initiative consisted of a governmental framework to help provide elders and people with disabilities with the necessary support to live and participate in community life.

“President Bush expanded the New Freedom Initiative through Executive Order 13217 on June 18, 2001. This order directed federal agencies to work together to ‘tear down the barriers’ of community living by developing a government-wide framework for helping elderly people and those with disabilities with the support necessary to develop skills and to form or participate in community life.”

The fortune-teller stopped, opened her eyes, lit a cigarette, and took a long drag. She blew the smoke into the analyst’s face, smiled and asked, “How am I doing?” The young analyst said, “I’m very impressed.” Flashing a gold-toothed grin, she closed her eyes and continued:

“To get a good read on the future of home health, you need to look at the Medicare Prescription Drug, Improvement and Modernization Act of 2003 that was signed into law by President Bush on December 8, 2003. Buried behind the hundreds of pages of regulations dealing with the new Medicare drug benefit and Medicare drug discount cards are two demonstration projects that were authorized under the act. In Section 702 of the act, the Secretary of Health and Human Services [HHS] was instructed to conduct a two-year demonstration project under Medicare Part B in which Medicare beneficiaries with chronic conditions are deemed to be homebound for purposes of receiving home health services under the Medicare program. The individuals who are eligible for the demonstration project must have been certified by a physician as having a permanent and severe disabling condition that is not expected to improve. The individual must be dependent upon assistance from another individual with at least three of the five activities of daily living [ADLs] for the rest of his or her life. The beneficiary must require skilled nursing services for the rest of the his or her life and skilled nursing must be more than medication management. An attendant is required to visit the beneficiary on a daily basis to monitor and treat the existing medical condition(s) and to assist with the ADLs. The individual must also require technologic or personal assistance to leave the home. Finally, the individual must not be employed in a full- or part-time position outside the home.”

Taking a deep breath, the fortune-teller went on, “No later than one year after the date of the completion of the demonstration project, the Secretary of Health and Human Services must submit to Congress a report that includes an examination of whether the provision of home health services to the Medicare beneficiaries under the project has adversely affected the provision of home health services under the Medicare program or has directly caused an increase of expenditures under the Medicare program for provision of home health services. The report must also contain specific recommendations to permanently exempt severely disabled homebound beneficiaries from restrictions on the length, frequency, and purpose of their absences from their homes to qualify for home health services without incurring additional costs in the Medicare program.”

“Wow,” said the analyst, “you’re giving me a lot of good information here! What else is involved?”

She replied: “In Section 703 of the Medicare Modernization Act, the HHS Secretary is ordered to establish a demonstration project under which the he must permit a home health agency, directly or under arrangements with a medical adult day care facility, to provide medical adult day care services as a substitute for a portion of home health services that would otherwise be provided in a beneficiary’s home. No later than six months after the completion of this demonstration project, the HHS Secretary must submit to Congress a report which includes an analysis on the patient outcomes and cost of furnishing care to the project’s participants as compared with outcomes and costs of beneficiaries receiving only home health services for the same health conditions.

“In addition to looking at the Medicare Modernization Act,” she went on, “you also need to look at President Bush’s proposed project for the fiscal year 2005 and a letter that was issued to state Medicaid directors by the Centers for Medicare & Medicaid Services [CMS] on August 17, 2004.”

The ink in the analyst’s pen ran out. The analyst cursed to himself and searched for another pen. After a few seconds, he found one and continued to scribble.

The gypsy continued: “I see that in President Bush’s proposed budget for the 2005 fiscal year, the President demonstrated his commitment to the New Freedom Initiative by proposing approximately $428 million of expenditures in fiscal year 2005 and approximately an additional $2.2 billion over the next five years. These expenditures are proposed to be divided among a number of different initiatives. Some of the initiatives are the ‘Money Follows the Individual Rebalancing Initiative,’ ‘New Freedom Demonstrations,’ ‘Presumptive Eligibility for Home and Community-Based Care Services,’ and ‘Real Choice Systems Change Grants.'”

The analyst asked the fortune-teller if she would explain these initiatives further. “Of course, young man,” she said. “The Money Follows the Individual Rebalancing Initiative is a demonstration that finances home- and community-based Medicaid services for individuals who transition from institutions to the community. It supports states in rebalancing their long-term support system. The term ‘money follows the person [MFP]’ refers to a system of flexible financing for long-term services that enables funds to move with the individual to the most appropriate and preferred setting as preferences and needs change. It is a market-based approach that gives individuals more choice over the location and types of services they receive. The proposed budget authorized $350 million in fiscal year 2005 for this initiative and $1.75 billion over the next five years.

“The New Freedom Demonstrations initiative,” she added, “includes the provision of respite services to caregivers of adults with disabilities and respite services to caregivers of children with severe disabilities. The proposed budget authorizes a total of $18 million of expenditures for this demonstration in fiscal year 2005, and $327 million over the next five years. Under the Presumptive Eligibility for Home and Community-Based Care Services initiative, the budget proposes the establishment of a state option to allow Medicaid presumptive eligibility for individuals who are discharged from a hospital to a community-based waiver service program. Lastly, the Real Choice Systems Change Grants are assigned to assist states in developing systems that support community-based care alternatives for people of all ages with disabilities. The proposed budget authorizes an additional $40 million in fiscal year 2005 for this initiative.

“On May 18, 2004,” she continued, “CMS published a notice in the Federal Register in which states were encouraged to submit a notice of intent to apply for Real Choice Systems Change Grants no later than June 8, 2004. These grants are designed to assist states and others in building an infrastructure that will result in effective and enduring improvements in long-term support systems. These systemic changes are designed to enable children and adults of any age, disability, or long-term illness to live in the most integrated community setting appropriate to their individual support requirements and preferences, to exercise equal choices about their living environments and the providers of services that they receive, and to obtain quality services as consistently as possible with their community living preferences and priorities. The notice stated that CMS anticipates making approximately 46 to 76 grants to states in these areas. The grant awards were expected to be made before September 30, 2004.”

The fortune-teller gazed into her crystal ball and said, “I see that on August 17, 2004, Dennis G. Smith, director of the Center for Medicaid and State Operations of CMS, sent a letter to state Medicaid directors encouraging states to implement MFP principles. Smith stated in the letter that, although states may implement MFP strategies without a home- and community-based waiver, states who anticipate using such waivers may request to amend their current home- and community-based waiver program to include additional participants. Smith also addressed the issue of nursing home beds. He said:

States that implement MFP strategies will begin to achieve a more equitable balance between the proportion of total Medicaid long-term support expenditures used for institutional forms of service and the proportion of combined funds used for home health and personal care services under the state plan and waiver services. We anticipate that as individuals have greater choices in service delivery, a smaller proportion of individuals will choice institutional care. We encourage states to reduce nursing facility beds to assist the state in rebalancing its long-term care service system, but this is not a requirement.
“Smith went on to state that for individuals to naturally select community services over institutional services, states must ensure that a broad array of quality services are provided under a long term care system that recognizes service delivery options that are diverse and flexible.”

The fortune-teller stopped again, opened her eyes, stood up, and without a word disappeared behind a beaded curtain into another room. The young analyst, now feeling a bit more confident in his future because of what he had learned, shouted a quick thank-you to the back of the room, put $250 on the dirty tablecloth, and left. His curiosity getting the best of him, he returned to the shop and called out, “How in the world did you know all of that information?”

Peering through the beaded curtain, she smiled smugly and replied, “You know, I used to be an analyst for your firm, but fortune-telling just seems to be a more certain and lucrative career.”

Alan E. Schabes, Esq., is an attorney at Benesch, Friedlander, Coplan & Aronoff, LLP, in Cleveland, Ohio. For more information, call (216) 363-4500. To comment on this article, please send e-mail to For reprints in quantities of 100 or more, call (866) 377-6454.

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