[Senate Hearing 107-122]
[From the U.S. Government Printing Office]



                                                        S. Hrg. 107-122

    LONG-TERM CARE: STATES GRAPPLE WITH INCREASING DEMANDS AND COSTS

=======================================================================

                                HEARING

                               before the

                       SPECIAL COMMITTEE ON AGING
                          UNITED STATES SENATE

                      ONE HUNDRED SEVENTH CONGRESS

                             FIRST SESSION

                               __________

                             WASHINGTON, DC

                               __________

                             JULY 18, 2001

                               __________

                           Serial No. 107-10

         Printed for the use of the Special Committee on Aging


                   U.S. GOVERNMENT PRINTING OFFICE
75-038                     WASHINGTON : 2001

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                       SPECIAL COMMITTEE ON AGING

                  JOHN B. BREAUX, Louisiana, Chairman
HARRY REID, Nevada                   LARRY CRAIG, Idaho, Ranking Member
HERB KOHL, Wisconsin                 CONRAD BURNS, Montana
JAMES M. JEFFORDS, Vermont           RICHARD SHELBY, Alabama
RUSSELL D. FEINGOLD, Wisconsin       RICK SANTORUM, Pennsylvania
RON WYDEN, Oregon                    SUSAN COLLINS, Maine
BLANCHE L. LINCOLN, Arkansas         MIKE ENZI, Wyoming
EVAN BAYH, Indiana                   TIM HUTCHINSON, Arkansas
THOMAS R. CARPER, Delaware           PETER G. FITZGERALD, Illinois
DEBBIE STABENOW, Michigan            JOHN ENSIGN, Nevada
JEAN CARNAHAN, Missouri              CHUCK HAGEL, Nebraska
                    Michelle Easton, Staff Director
               Lupe Wissel, Ranking Member Staff Director

                                  (ii)

  


                            C O N T E N T S

                              ----------                              
                                                                   Page
Opening Statement of Senator John Breaux.........................     1
Statement of Senator Larry E. Craig..............................     3
Statement of Senator James Jeffords..............................     4

                                Panel I

Hon. Howard Dean, M.D., Governor, State of Vermont, Montpelier, 
  VT; accompanied by Patrick Flood, Commissioner on Aging and 
  Disabilities...................................................     6

                                Panel II

David W. Hood, Secretary, Louisiana Department of Health and 
  Hospitals, Baton Rouge, LA.....................................    26
Ray Scheppach, Executive Director, National Governors Association    40
Richard Browdie, Secretary, Pennsylvania Department of Aging, on 
  behalf of the National Association of State Units of Aging.....    57

                                APPENDIX

Statement of Karen A. Wayne, President/CEO Assisted Living 
  Federation of America (ALFA)...................................    75

                                 (iii)

  

 
    LONG-TERM CARE: STATES GRAPPLE WITH INCREASING DEMANDS AND COSTS

                              ----------                              


                        WEDNESDAY, JULY 18, 2001

                                       U.S. Senate,
                                Special Committee on Aging,
                                                    Washington, DC.
    The committee met, pursuant to notice, at 10:07 a.m., in 
room SD-628, Dirksen Senate Office Building, Hon. John Breaux 
(chairman of the committee) presiding.
    Present: Senators Breaux, Craig, and Jeffords.

       OPENING STATEMENT OF SENATOR JOHN BREAUX, CHAIRMAN

    The Chairman. The Committee on Aging will please come to 
order, and good morning, everyone. Thank you all for attending 
our hearing. We have a good opening witness who we look forward 
to hearing from, the Governor of Vermont, our good friend, 
Howard Dean. We have an interesting panel which I think is 
going to be very important in letting us know some of the 
developments and the questions of long-term care, particularly 
the Secretary of the Department of Health and Hospitals from my 
own State of Louisiana, David Hood, among others, who will be 
introduced at an appropriate time.
    Today is the second in a series of hearings that the Aging 
Committee has embarked on, on the subject of long-term care. It 
is something that all of us are going to be hearing a great 
deal more about, particularly as the 77 million baby boomers--
those folks born between 1946 and 1964--become eligible for 
senior programs like Medicare and others and also have to start 
making plans today about how they are going to spend their 
golden years when perhaps they may need additional help and 
additional care in dealing with some of their health problems 
brought on by the aging process.
    But I can say that in our discussions as a committee and 
from personal experiences, the 77 million baby boomers do not 
want to be taken care of like the current Medicare 
beneficiaries and the seniors of today are being taken care of. 
For too many seniors in this country, long-term care means 
being housed in an institution. And I would argue that that is 
not the most effective and it is not the most efficient and in 
many cases it is not the necessary means of taking care of 
seniors.
    My own father, who is in the category of approaching 80 
years of age, has told me there is no way he is ever going to 
be put into a nursing home, that he would rather be dead. That 
may be an exaggeration, but it is certainly true that people 
who need medical care in their golden years find that nursing 
homes serve a very valuable purpose. But there are many 
millions of others who find themselves housed in nursing homes 
when that type of institutionalized care is not needed, nor is 
it very efficient, nor is it very effective.
    This country is now faced with a decision of the Supreme 
Court of the United States called the Olmstead decision, which 
basically makes a statement that the Americans with 
Disabilities Act actually prohibits States from discriminating 
against persons with disabilities, including those disabilities 
acquired through the aging process, that they cannot 
discriminate against those people by providing services in 
long-term care institutions when non-institutional care is 
recommended by a treating professional or is requested by the 
recipient of the services and would be a reasonable 
accommodation. So the States under this ruling can no longer 
just be comfortable with housing people in institutionalized 
care when it is not needed.
    The final point I would make for purposes of the record is 
that my own State of Louisiana, to my regret, is ranked 49th in 
the Nation in the number of Medicaid waivers that they have 
requested and have been granted to use Federal, State Medicaid 
funds for purposes other than housing people in nursing homes. 
We rank 49th only because Arizona doesn't participate in the 
program; otherwise, I would fear that it would be even worse. 
We also rank 49th in the number of people who are served under 
Medicaid waivers. And so we need some attention, a great deal 
of attention being considered about how we operate in my home 
State.
    [The prepared statement of Senator John Breaux follows:]

               Prepared Statement of Senator John Breaux

    Today's hearing is the second in a series on long-term care 
option for seniors and the disabled. The first hearing that we 
held last month with Tommy Thompson, Secretary of Health and 
Human Services, highlighted the Medicaid bias toward 
institutional care and efforts by the Department to shift 
funding away from institutional care and toward home and 
community based services.
    Trying to shift Medicaid funds from institutional care to 
home and community based care may be as difficult as turning an 
ocean liner around, but we have to try. The 77 million baby 
boomers do not want to live in nursing homes when they are 
older and will strenuously resist leaving their homes to live 
in nursing homes. We are racing against a clock to develop 
other alternatives for baby boomers so they may ``age in 
place.''
    Today we will hear from expert witnesses on the status of 
long-term care in the states. Some states have been aggressive 
in implementing the Olmstead decision and in creating a wide 
array of services for disabled citizens have created similar 
options for low-income seniors. Other states, like Louisiana, 
have not taken advantage of waivers available through the 
Department of Health and Human Services. Because most long-term 
care services are delivered through Medicaid and the state and 
federal government share in this funding stream, it is critical 
that we listen to what our witnesses have to say today so we 
can learn what is working well, what is working not so well and 
listen to suggestions for improvement by the federal 
government.
    I now turn to Senator Craig for his comments.

    Before I call on Senator Jeffords to introduce the Governor 
of his State, I would like to recognize our ranking Republican 
member, Senator Larry Craig. Larry.

              STATEMENT OF SENATOR LARRY E. CRAIG

    Senator Craig. Well, Mr. Chairman, thank you, and I 
apologize for running just a few moments late. But, again, let 
me recognize you for continuing what is now a three-part series 
on this committee's effort to understand and to build a record 
on long-term care. Our first hearing provided an overview of 
the challenges. Today, we are going to be examining some of the 
remarkable innovations that States have undertaken--and, 
Governor Dean, we are pleased you are before our committee. We 
will also be examining the obstacles the States continue to 
face.
    Over the past decade, dozens of States have sought and 
received waivers from the Federal Medicaid program to 
creatively tackle long-term care challenges. In particular, the 
Federal Medicaid waivers have given States flexibility to 
provide seniors the option of receiving services in home and 
community-based settings rather than in nursing homes.
    Nevertheless, much remains to be done. First, the waiver 
program remains just that--a waiver program. States must 
prepare and file detailed applications to the Federal 
Government each time they seek to depart from Washington's 
standard approach. Secretary Thompson is making great strides 
in speeding up that process but, still, the road to the State 
and the innovation remain cluttered with the kind of roadblocks 
that Federal approval sometimes develops.
    Second, despite the progress in many States to shift the 
focus of long-term care toward home and community-based care, 
institutional nursing home care still consumes 3 times as many 
Medicaid dollars as home and community-based services, and that 
is unfortunate and troubling. I sense that is a substantial 
imbalance.
    As we all know, the baby boomers will begin to retire in a 
few short years, Mr. Chairman. Both he and I find ourselves in 
that category, along with a lot of other citizens in our 
country, placing tremendous pressure on the current fractured, 
patchwork care services program. We owe it to them as well as 
to our current seniors, our children, and our grandchildren to 
tackle the hard problem, and I am pleased, Mr. Chairman, you 
are doing just that.
    Governor, I think those of us who serve here and who had 
the opportunity of serving in State legislatures or serving at 
the State level oftentimes find the States served as marvelous 
incubators of thought and idea and program. The welfare reform 
that has benefited so many citizens across our country today 
was a product of State efforts. It was not something that was 
greatly envisioned here. It was that we took the good efforts 
of States and incorporated that into a national program. And so 
that is why we are anxious to hear from you and other States on 
the innovative practices they have used dealing with long-term 
care.
    Thank you, Mr. Chairman.
    The Chairman. Thank you, Senator Craig.
    Let me recognize Senator Jeffords from Vermont for any 
comments he may have, as well as to present his Governor.

             STATEMENT OF SENATOR JAMES M. JEFFORDS

    Senator Jeffords. Thank you very much. There are few topics 
more important to our Nation's elders than the issue of long-
term care, and I want to salute Chairman Breaux and Senator 
Craig for the priority they are giving to it for this 
committee.
    This committee and its leadership has been at the forefront 
in responding to the needs of senior citizens. During the last 
Congress, Senators Grassley and Breaux were instrumental in 
drawing attention to the need for a national program for 
caregivers. The National Family Caregiver Support Program, 
which we included in the reauthorization of the Older Americans 
Act last year, is already providing $125 million to help 
support families and other provides of in-home and community-
based care to older individuals. This program is helping not 
only our seniors but their families who are struggling to care 
for them in the home environment rather than the nursing home.
    I raise the National Family Caregiver Program today only to 
point out that the focus of this committee is fertile ground 
where we can successfully plant the seeds of hope for our 
senior citizens. While the caregiver program will help many 
Americans, it is not itself enough.
    Much has been said about the looming crisis facing our 
country as the baby boomers begin to age. During the first 
hearing on this topic, Secretary Thompson highlighted and 
defined that crisis. Today, people who are 65 years or older 
account for only about 13 percent of our total population. By 
the year 2030, they will account for about 1 in 5 Americans.
    Today, Government funding accounts for about 60 percent of 
the funding for nursing home care. That is in part because our 
system is designed to direct people into nursing home settings. 
We will hear today why that may not be the only answer, and 
certainly it may not be the best answer.
    I am especially pleased that Governor Howard Dean is here 
to advise the Aging Committee on Vermont's innovations in the 
area of providing long-term services because he has an 
important lesson to share, and I urge all of us to closely 
listen to Vermont's experience in establishing innovative 
approaches to the long-term care, the Federal regulatory 
problems, the State has confronted, and his advice for making 
the system work better.
    I also want to welcome our other witnesses, Mr. David Hood 
of Louisiana and Mr. Scheppach of the National Governors 
Association and Mr. Rich Browdie, who is representing the 
National Association of State Units of Aging.
    Let me go on to the introduction of my good friend. I have 
the special pleasure this morning of introducing my long-term 
friend and Vermont's long-term Governor, Howard Dean. Vermont 
has been at the forefront in providing our Nation's elders real 
choices, allowing them to live their lives in their homes. I 
know that my colleagues on the committee will want to listen 
closely to the lessons learned by Vermont and to the advice and 
recommendations that Governor Dean will offer.
    Howard Dean brings to this discussion not only his 
experience as chief elected official of Vermont, but also as a 
physician who understands the needs of patients and the 
elderly.
    Governor Dean received his bachelor's degree from Yale 
University in 1971 and his medical degree from Albert Einstein 
College of Medicine in New York City in 1978. He then completed 
his residency at the Medical Center Hospital of Vermont and 
opened an internal medicine practiced with his wife, Dr. Judy 
Spangler, in Shelburne, VT. He served in the Vermont House of 
Representatives from 1982 to 1986 and was elected assistance 
minority leader in 1985. He was elected Lieutenant Governor in 
1986 and re-elected in 1988 and 1990.
    On August 14, 1991, Dr. Dean's political career took a 
sudden and unexpected turn. He was treating a patient at his 
medical practice when a call came informing him that Governor 
Snelling had died of a sudden heart attack. Dr. Dean completed 
his patient's physical, called his wife and children, and drove 
to Montpelier to take the oath of office. He was elected to a 
full term in 1992 and has been re-elected by solid margins 
since that time.
    Over his decade as Governor, he has shown himself to be a 
fiscal conservative with a social conscience. He has retired 
the State's deficit, built comfortable budget reserves, cut the 
income tax, improved the State's bonding rating, and reduced 
the State debt. Not bad.
    In addition, Governor Dean has established Vermont as a 
national leader in the areas of children's disease prevention 
programs, health care reform, and welfare reform. He has also 
focused on improving public schools and helping Vermont 
families meet the cost of sending their children to college.
    As we will hear today, he has been a leader in providing 
improved systems of care and programs for the elderly. In 
short, Governor Dean is an independent thinker, and all of us 
know that Vermonters cherish independent thinkers, and in that 
vein, I want to welcome him to the Aging Committee.
    The Chairman. Well, thank you for that wonderful 
introduction, and Governor, we are delighted to have you. It is 
particularly appreciated by this committee to have you as 
Governor of the State come down and share your thoughts with 
us. What you have done is important. It is important for 
Vermont, but it is also important as a symbol for the rest of 
the country, and we are delighted to have you tell us about it. 
Governor, welcome.

    STATEMENT OF HON. HOWARD DEAN, M.D., GOVERNOR, STATE OF 
  VERMONT, MONTPELIER, VERMONT; ACCOMPANIED BY PATRICK FLOOD, 
             COMMISSIONER ON AGING AND DISABILITIES

    Governor Dean. Thank you, Mr. Chairman. Thank you, Jim, for 
your kind words. I have with me Patrick Flood today, who is the 
Commissioner on Aging and Disabilities, who has done a 
wonderful job for us and gets a lot of the credit for some of 
the things that we have done, and he is certainly obviously a 
technical expert, and I thought I might refer some of the 
questions that you may have to him.
    I have prefiled written testimony, which I am not going to 
read, so I am just going to kind of give you a general outline 
of what is going on.
    As this committee is very much aware, our elderly 
population is growing. The fastest-growing age group in Vermont 
right now is those over 85 years of age. By 2025, 20 percent of 
the population will be elderly, and our current system of long-
term, like many of our other systems for the elderly, will be 
supported by an increasingly fewer number of working-age 
people.
    What we have done in Vermont is essentially used the waiver 
process, which we have been very successful at, to change our 
profile. In 1996, nursing home costs were 88 percent of our 
long-term care expenditures. Today, they are 74 percent. We had 
a nursing home population 4 years ago of 2,800; today, it is 
2,300. At the same time, we have been able to use Medicaid 
dollars under a Federal waiver to take care of 1,000 people in 
their own homes. And this is really the crux of the message 
that I have for the committee today. Four years ago, we were 
able to take care of 400 people in their own homes. Today, we 
have more than doubled our ability to do that.
    Older people want to be taken care of in their own homes. 
They don't want to go to a nursing home. I think the example 
you used of your own father is a very typical one that we hear 
from all kinds of people. And what we are trying to do in 
Vermont and what we need some help with and some flexibility 
with is to identify people early on who are potential 
candidates for a nursing home and get them enough services 
early on so they don't ever end up in a nursing home.
    I think if I could distill my testimony today into perhaps 
one sentence, it is this: You should not need a waiver to be 
supported in your own home. And that is a position that Vermont 
and, of course, all the others States are in as well. We need a 
waiver to use innovative programs, and, of course, when the 
waiver has to be reauthorized, we have to jump through lots of 
hoops, and it makes it more and more difficult.
    We are and have been able to keep some of the frail, 
vulnerable people in their own homes with as much as 30 hours 
of services a week. In the past, those people would have been 
sent to nursing homes.
    We passed a few years ago something called Act 160, which 
is a mandate to reduce the number of nursing home beds and 
increase the number of people being taken care of in their own 
homes. Fortunately, we have been able to expand the Medicaid 
dollars to do that; otherwise, it would be impossible. The 
State clearly can't pick up the tab for people who are no 
longer in nursing home beds.
    The problem with the current system is essentially there is 
an entitlement to a nursing home bed, but there is no 
entitlement to any of the things that can keep you out of a 
nursing home. So one of the things we are interested in having 
the Federal Government do is to re-examine the entitlement so 
that the preferred choice is not immediately the nursing home 
bed. Families don't want that. The individuals don't want that. 
Of course, sometimes it is necessary. There are people who have 
enough needs that they can only be taken care of in an 
institutionalized setting.
    Patrick and I were talking yesterday about my upcoming 
testimony, and he believes that we could reduce our present 
nursing home population easily by another 10 percent, and 
possibly more, so that the net reduction would have been almost 
one-third over a 4- to 6- or 8-year period, if we had enough 
flexibility from the Federal Government in terms of designing 
the program so that we could take care of people, identify 
people before they get into nursing homes, and never have to 
spend the $48,000 a year to keep folks in nursing homes.
    Everybody is a winner with more flexibility. The senior 
citizen gets to stay in their own home or a more independent 
setting with support. The State saves money. The Federal 
Government saves money because an individual is less expensive. 
We can take care of more people, or for the same amount of 
money, if you are not as interested in the savings and more 
interested in spreading the care around, and the family likes 
it because they feel less guilty and it is less of a burden on 
them to keep somebody in their own home.
    So, basically, that is what we are trying to do. What we 
are interested in is more flexibility without the need of a 
waiver, for prevention services, housing costs, flexible funds. 
We think that this committee ought to take a look at paying 
spouses in some instances, something that we are fooling around 
with. It is very hard to do those kinds of things, but 
certainly it is something that the committee might think about; 
and then covering nursing homes and home care during transition 
periods so we can get people into a more independent setting.
    Again, I want to restate--and this is probably the most 
important thing I am going to say today. We need to somehow 
remove the bias toward institutionalized care. If we could do 
nothing else but that, that would be enormous, because the 
presumption is financially that when you are in a hospital and 
you are a senior citizen with a lot of disabilities caused by 
illness, that you are going to the nursing home; and anything 
that you do that is not about going to the nursing home 
requires a huge, jury-rigged, sort of innovative financial 
scheming to keep you at home and an enormous amount of work on 
the part of social workers and discharge nurses and so forth to 
keep that happening. So anything that we can do to remove the 
institutional bias and allow us to spend funds for people in 
their own homes, even to the extent that you would require for 
the financial, fiscal consideration a reduction in nursing home 
beds, that would be fine. Because we did that. We knew we had 
to do that. We knew we couldn't afford simply to expand the 
program and keep the same amount of nursing home beds and then 
take care of more people in their home. And we have made that 
tradeoff under the waiver, and we are taking care of 600 more 
seniors than we were 4 years ago.
    I think this goes without saying, and every advocacy group 
for seniors will tell you this, and I am sure they have: 
Everybody ought to have a voice in deciding where they are 
going to receive their care, and to empower the senior and 
their family, we need more flexibility at the Federal level.
    I think that is really the--there are all kinds of things 
in here about money and other--a couple more things I want to 
say, because, you know, I am in the middle, Governors are in 
the middle. We come here and lobby you for more flexibility and 
more money, but we get lobbied by mayors for more flexibility 
for the local people and more money. So I am not going to beat 
you over the head with that because I am sure you hear it from 
everybody. But I would just like to make one or two more 
remarks, and then I will close my formal testimony.
    The first is that one of the best things that could happen 
has actually nothing to do with or is only peripherally related 
to jurisdiction of the committee. We really badly need a 
prescription benefit with Medicare. You would not have designed 
the Medicare system today the way it was designed, the way you 
did it in 1964, because most decent health insurance has a 
prescription benefit. Medicare does not. If we had a 
prescription benefit piece of Medicare, in the Medicare 
program, it would enable us to keep people out of nursing homes 
because part of their problem is if they don't take their 
prescriptions, which they don't because they are too 
expensive--they take them half as much as they are supposed to 
or they don't take them at all so they can pay the rent--that 
cuts down on the kind of morbidity that sends people into long-
term care.
    Second--and on this I think I speak--I have pretty much 
spoken for most of the Governors as I have gone through this, 
and you are going to hear, I think, later from Ray Scheppach, 
who will officially do so. But the next piece is not speaking 
for all the Governors. Vermont, Rhode Island, and a few other 
States, I think Minnesota was one, really did not get much 
benefit out of S-CHIP. And if there is a way that when you look 
at your legislation that you could craft it so those States who 
are really trying to do a really good job and are ahead of the 
curve don't get penalized, as we did in S-CHIP, those States 
which were already giving children a large amount of health 
care never got any benefit out of S-CHIP. In fact, we have 
turned money back because we simply can't use the money because 
our benefit level--we are at such a high level, anyway. We 
insure people, kids up to 300 percent of poverty. We never had 
any benefit from S-CHIP money.
    I would hate to see that happen in whatever long-term care 
bill might occur. It would be possible, for example, to design 
a bill that would help those States that don't have much 
flexibility, but it wouldn't give us any more flexibility than 
we already have because we have a fair amount of it under our 
waiver.
    So I would just put in a plea: For those States in the 
long-term care that are fairly far ahead of the curve--and I 
think we are one of them--please don't pass a bill that 
addresses the bottom 10 States. Pass a bill that is going to 
help all the States. S-CHIP was not that bill for kids' health 
care, and we certainly don't want to have a repeat of that for 
the health care for seniors.
    So, Mr. Chairman, let me thank you very much for your kind 
invitation to come down and talk. This is an area we have spent 
a lot of time on. This is an area Governors are going to be 
incredibly concerned about as we see our financial situation 
deteriorating, because this is a big piece of every single one 
of our Medicaid budgets.
    In our State, we have, not including dual-eligibles, about 
100,000 people, which is about 20 percent of our population, on 
Medicaid. Now, I have done that on purpose because I wanted to 
expand benefits to as many people as possible. Half of all the 
expenses--we have 100,000 people on Medicaid; 2,300 of those 
people use almost half of all the money that we spend on 
Medicaid, and that is the nursing home population. Every 
Governor has a profile like that, between 40 and 60 percent. So 
anything that you can do to help us expand the number of people 
we can cover for that 40 to 60 percent of our Medicaid budgets 
would be incredibly helpful. And we are just delighted to have 
the opportunity to come and share our views.
    I would be happy to take questions or comments.
    The Chairman. Well, thank you very much, Governor, for 
telling us about the Vermont experience and what you all have 
been able to do. I think that you really represent what the 
future hopefully will look like in all of our States with 
regard to how we treat and help seniors live a better life.
    Tell us a little bit about how you were able to pass the 
Act 160, which, as your statement says, mandated the shifting 
of the State financial resources from institutional to the non-
institutional services. What brought that about? How difficult 
was it to get done? I would imagine that nursing homes were 
strongly opposed to it. How did all of it take place, both 
politically as well as socially?
    Governor Dean. We put together, Mr. Chairman, a coalition 
of those in the disabled community and seniors, as well as the 
community providers--home health and so on--and tried to make 
it very clear that we thought we could get a lot more for our 
long-term money if we were more flexible, if they would be more 
flexible.
    We particularly emphasized choice for consumers. Since most 
people prefer not to go to an institution, we found a great 
deal of resonance with that. What people want is opportunity to 
do things differently, and it turns out that the different 
opportunity is a lot cheaper for the State and, in this case, 
of course, the Federal Government, too, since you have a 
significant piece of money in the Medicaid budget.
    It was extraordinarily cost-effective. Of course, the issue 
of what happens, you know, to excessive use of this benefit was 
raised, particularly by the nursing home lobby, but that turned 
out not to be true. In fact, we are able to serve a good many 
more people in circumstances that they prefer. So it is true 
that the nursing homes objected to this, but we were 
fortunately able to prevail. And as it turned out, we were 
correct. We have been able to decrease the number of nursing 
home beds by a little under 20 percent and take care of about 
150 percent more people in the system for that amount of money.
    The Chairman. Have the nursing homes, for instance, been 
able to tailor their services so that some of them have 
actually been able to move into some of these different new 
services that are being provided on a home basis or day-care 
type of facilities?
    Governor Dean. We suggested that. That has not taken place 
as much as I might have thought. I do want to let Patrick have 
a crack at this question. Most of them were not nimble enough 
to do that, and, in fact, the hospitals took over some of the 
long-term care, the visiting nurses and so forth. There was 
some flexibility, not as much as perhaps there could have been, 
but I want to let Patrick just have a crack at that one as 
well.
    Mr. Flood. Mr. Chairman, we made it clear to the nursing 
home industry in the beginning that we were ready and willing 
to help them change their services or do things more flexible. 
Adult Day is a perfect example. In fact, we had one nursing 
home in the State of Vermont that opened an Adult Day site.
    But I have to tell you that, in retrospect, I think two 
factors are at work here. One is the nursing home industry has 
been doing business a certain way for a very long time, and 
they are not quick to change. And, in fact, they will tell you 
in their candid moments that they really expect that some of 
this emphasis that you are bringing here today will pass and 
that when the baby-boom generation comes----
    The Chairman. You mean pass, go away?
    Mr. Flood. It will go away; when the baby-boom generation 
comes, they are going to be back looking for nursing home beds. 
I don't believe that, but--so there is a certain inertia at 
work there where they are just unwilling to change.
    But, second, as providers of service, they are pretty 
limited in what they can do. I don't know what nursing homes 
you have been in lately, but most of them look pretty much the 
same. You have buildings that are not easy to renovate, not 
easy to change into other use. So it is a pretty expensive 
proposition sometimes, too.
    The Chairman. Today in Vermont, Governor, you say that all 
of the following services are available--and I take it that 
each one that you listed are the result of having to get a 
waiver from Health and Human Services, the old HCFA operation, 
to be able to provide those services. And that is another point 
about why you have to do that, because I think we have to make 
some changes up here so that we don't have a bias just for 
institutional care. They just say, we have money we want to 
have available to take care of seniors, and, let's design the 
best system that you can, make sure it is run right, but it 
doesn't have to be institutionalized so you don't need to have 
a waiver.
    But you have home health aide services, homemaker services, 
personal care attendants, adult day-care services, case 
management services, assistive technology and home 
modification, and traumatic brain injury services.
    My question is: Where did the people come from to provide 
those services? All of a sudden, you say, look--I guess it came 
about gradually, but all of a sudden, you say, look, here are 
some new things that we can do with some of our seniors. Was 
the infrastructure there or did it--I guess it developed as you 
made the money available for it.
    Governor Dean. Let me answer that in a couple of ways.
    The infrastructure was not there, although the advocacy 
groups were, and as money became available, these services 
became available. This is not, you know, a perfect world. It is 
wonderful for me to come to Washington and tell my story. We 
fight every day with people who want more of this and less of 
that, and that is just part of the political fabric of what 
happens when you make changes and what happens when you fight 
over resources. So I am not going to say that everybody is 100 
percent satisfied customers. We have disagreements with people 
about what services they need, because if they could get any 
service they wanted, obviously we wouldn't be able to sustain 
the program.
    We have built up as a result of this the sophisticated 
services needed to keep people in their own homes, and one of 
the very good things, in my view, that has happened is that we 
now have sophisticated services 4 or 5 years into this that we 
didn't have before, and so we can take care of much sicker 
people in their own homes and still it is much cheaper than it 
is in an institution.
    The other point I would make about this and point out about 
the nursing home industry, in Massachusetts--I think this is a 
proper statistic, and Patrick should correct me if I am 
mistaken. I think one-quarter of all the nursing homes are in 
bankruptcy. In Vermont, that is not true. We do have a few 
financially troubled nursing homes. But I believe what this has 
done, coupled with the negotiation on our part with the nursing 
home community for adequate reimbursement, it is made the 
industry stronger. They are more careful. They take sicker 
patients. We pay nursing homes based on a case-mix formula now. 
So the sicker patients they have, the more they get paid.
    I think you are going to have to do something like that if 
this is going to work because we can't expect to pay them at 
the usual rate if their case mix now--if they only get the 
sickest of all the patients and we are able to keep everybody 
at home.
    So we think that the nursing home community can do OK out 
of this, although in our State they were kicking and screaming 
all the way. But it does require some new negotiating 
approaches on the part of the State as well.
    The Chairman. Can you tell me, Patrick, what your 
reimbursement rate is for nursing homes?
    Mr. Flood. As of July, the average nursing home rate in the 
State of Vermont would be approximately $130 a day, which puts 
it in the upper echelon.
    The Chairman. Well, congratulations, Governor, for what you 
are doing.
    Senator Jeffords, any questions of your Governor?
    Senator Jeffords. Governor, thank you, an excellent 
statement, and I am proud of you and proud of Vermont in this 
area, as in many other areas.
    I would like to further the inquiry that we are having 
here. What is Vermont's experience with the increased 
participation in new enrollees? Has there been a sharp increase 
in the expense of the program, or have you been able to serve 
more elders with the funding available?
    Governor Dean. I would say it would be the second, but I 
would like Patrick to answer that one.
    Mr. Flood. Absolutely, Senator. What we have been able to 
do by diverting people from nursing homes--the average cost is 
$48,000 a year in a Vermont nursing home on Medicaid. The 
average cost to keep someone at home on our waiver program is 
less than $20,000.
    Senator Jeffords. Give me those figures again. I missed 
them.
    Mr. Flood. The average cost for Medicaid, annual cost for 
Medicaid in a Vermont nursing home, is approximately $48,000 a 
year.
    Senator Jeffords. $48,000.
    Mr. Flood. To keep somebody at home on our waiver program 
averages less than $20,000 a year. So basically we can serve 
2.5 people for the cost of 1 in a nursing home. So what we have 
been able to do is not only serve people who otherwise would 
have been in a nursing home, we have actually been able to take 
care of normal caseload growth. In other words, instead of 
building new nursing homes to take care of the population as it 
grows, we are building our waiver program where we can still 
afford it, and we have been able to use some of the other 
monies, as the Governor said, to buildup other infrastructure 
that is not necessarily covered by Medicaid, which is one of 
the problems here. There are very important services that don't 
get covered by Medicaid, and we have had to take some general 
funds and do that.
    So we have been able to do all those three things with 
basically the same amount of money.
    Senator Jeffords. I am glad you mentioned the lessons 
learned by Vermont through the S-CHIP program. Do you have any 
specific ideas to make sure responsible States are also 
rewarded? Would small-State minimum funding levels work?
    Governor Dean. I would say that certainly things like 
small-State minimum, but, you know, I am not an expert in how 
we get our money from the Feds on long-term care, so I think I 
would like Pat--I mean, the question was: What would we do so 
the S-CHIP experience isn't repeated on the long-term care?
    Mr. Flood. Honestly, Senator, I think we are prepared to 
just start from where we are. We would like to just be able to 
use the same amount of money we have today in more flexible 
ways. We don't want to be penalized in any way, I think is the 
Governor's message here.
    For example, when Medicare cutbacks occurred a few years 
back, the State of Vermont was probably the most cost-effective 
home health provider in the country, if not, the second. And 
when the prospective payment system started being put into 
place, we were severely penalized. Our already very low 
reimbursement was reduced even further, and we went through a 
very difficult time in the State of Vermont with home health. 
And that is just an example of what we want to avoid with a 
national approach.
    I honestly think that if the Federal Government would just 
give us the opportunity to use available dollars more flexibly, 
that would be enough. Just be caution that in attempts to do 
this sort of thing that you don't cost shift away from a State 
that is already doing a good job. That is the general theme. We 
have seen it happen, and we would prefer that it not happen 
again.
    Senator Jeffords. Governor, you mentioned the importance of 
having a viable prescription drug benefit for our senior 
citizens. That is why we are working on the Finance Committee 
to make this program a reality this year.
    Last year, we passed legislation based on advice we got 
from the Food and Drug Administration that would allow the 
reimportation of lower-cost drugs from countries like Canada. 
As the Governor of a border State, but also as a physician, can 
you tell me if Vermonters have benefited from their ability to 
get the lower-cost medicines for their personal use? And has 
there been any record of adverse events or abuses by this 
practice?
    Governor Dean. Well, Senator, I think the notion that 
somehow drugs that are made in America, shipped to Canada for 
sale there, and then come back into America are going to be 
less safe is ridiculous. The notion that the Secretary should 
have to sign off on some safety protocol makes absolutely no 
sense whatsoever. It is simply protectionist for the 
pharmaceutical industry.
    In my view, reimportation, the more, the better. If we 
believe NAFTA is a good thing for the automobile industry, then 
why isn't NAFTA a good thing for the pharmaceutical industry? 
We have had zero safety problems with reimportation. Zero. We 
have an extraordinary program started by some doctors in 
Bennington which allows them essentially to buy drugs for 
personal patient use over the Internet. We not only had zero 
complications, since these drugs are made in the States, kept 
in their packages, go to Canadian pharmacies, and then come 
back to the States. But for the first year, 145 people used 
that program. The savings for those 145 people was $81,000. 
Now, that is an extraordinary savings for senior citizens 
principally on fixed income. And I would encourage you and the 
Senate to maximize our ability to reimport not only for 
individuals but also, frankly, if we want to do something for 
the local pharmacies, let the pharmacies and let the 
wholesalers reimport.
    Again, if we are going to have an era of free trade and 
globalization, there isn't any reason that this particular 
industry should be exempted from it.
    Senator Jeffords. Thank you.
    The Chairman. That is another issue. [Laughter.]
    Let me just ask one final question, Governor. I take it 
that what you are saying is that as a result of your efforts 
you have happier seniors and their family members are happier. 
And you are doing all of this for less cost.
    I would imagine that some in the nursing home industry 
would make the argument, yes, but they are not getting the 
quality health care they need and they are at risk.
    Can you comment on that?
    Governor Dean. Well, I think it is very clear--and I will 
comment as a physician not as a Governor on this one. I have 
taken care of a lot of people over the age of 65--over the age 
of 85, and it is very clear to me that the single most 
important way of keeping seniors happy and living longer is, in 
fact, keeping them happy. So I would actually disagree with 
anybody who said that the quality of care was going to be worse 
in the home, because by keeping somebody with independence, 
that enhances their own sense of independence and allows them, 
A, to do more for themselves than they would in an institution, 
and, B, to feel much better about themselves. And, therefore, 
that alone will keep them living longer.
    I doubt very much--I haven't seen studies on this, but I 
would be shocked if there was a lower incidence of people 
falling down and hurting themselves in a nursing home than 
there was in a properly supervised home. These folks who do the 
home care have plans, they have restrictions that they make 
very clear to the families what they have to be. So I don't 
think there is any kind of a safety issue, and my guess is that 
people do better in their own homes psychologically and, 
therefore, physically than they would in a nursing home.
    Now, we are not talking about everybody. Remember, home 
health care is not for everybody. There are people who are so 
severely disabled that they must have institutional care, and 
we are not talking about doing away with all nursing homes. But 
there are an enormous number--in our State, for all we have 
done in expanding home health with the waiver, we still think 
that we have at least 10 percent of patients who are in 
institutions now who don't need to be there, and we can't get 
them out now because once you go in, you become dependent and 
you need even more services. So you have got to stop them from 
going in in the first place. Then they are not only happier, 
but they do better physically.
    The Chairman. Patrick, any statistics on that?
    Mr. Flood. Well, I can say, Mr. Chairman, that the Adult 
Protective Service Office is also within my department, so I 
see the complaints that come in about abuse and neglect and 
exploitation of elderly people. And I certainly have not seen 
any increase in the actual cases of abuse and neglect of people 
residing at home.
    I agree 100 percent with the Governor's comments that if 
people are content, if people are happy, they tend to do better 
medically. And my experience--I have worked in nursing homes as 
well as in other settings, and my experience is an 
institutional setting, just by its nature, tends to cause 
problems that you wouldn't have at home. We have seen no 
indication, no statistics to indicate that there is any 
problem.
    In fact, I would say unequivocally that people are better 
off and they are healthier and they are happier when they are 
being cared for at home. They have to have a system in place 
that manages that. We do have that in Vermont. Any particular 
client, any particular person at home, has probably two or 
three different kinds of services they are getting, and that 
provides a check and a balance in the system, which, in fact, 
is not something you necessarily see in an institution. That is 
the problem with institutions. They are separated.
    In this case, the whole community is involved in the case 
of somebody so you get that check and a balance, and that, in 
fact, prevents the kinds of abuses people are worried about.
    The Chairman. Well, thank you, Governor and Patrick, for 
sharing the Vermont experience with us, and hopefully it can be 
an example for others to follow. I think you all have done a 
wonderful job, and we appreciate your being with the committee.
    Governor Dean. Thank you, Mr. Chairman. Thanks, Senator.
    Mr. Flood. Thank you.
    [The prepared statement of Governor Dean follows:]

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    The Chairman. I would like to welcome our next panel of 
witnesses, including Mr. David Hood, who is the Secretary of 
the Louisiana Department of Health and Hospitals; Mr. Ray 
Scheppach, who is the Executive Director of the National 
Governors Association; and Mr. Rich Browdie, who is Secretary 
of Aging in Pennsylvania, who will be speaking on behalf of the 
National Association of State Units on Aging.
    Gentlemen, we welcome you and look forward to hearing your 
testimony.
    David, we have you listed first, so if you would go ahead 
and begin, we'd appreciate it very much. And thank you for 
being with us.

STATEMENT OF DAVID W. HOOD, SECRETARY, LOUISIANA DEPARTMENT OF 
             HEALTH AND HOSPITALS, BATON ROUGE, LA

    Mr. Hood. Thank you, Mr. Chairman.
    I am David Hood. I am the Secretary of the Louisiana 
Department of Health and Hospitals, and it is certainly an 
honor to be here to discuss this very important topic with you 
and the committee.
    Governor Dean and Mr. Browdie, who is going to testify, I 
understand, I have read their written statements, and I was 
very impressed. I applaud them for the clarity with which they 
outlined the challenges and problems that are facing States 
today, and also the thoughtfulness of their proposed solutions.
    It is apparent that all States are having difficulty in 
making the transition to a long-term care system that provides 
services our senior citizens need and want, both today and in 
the future. Louisiana, on the other hand, represents a group of 
States which are actually very similar to States like Vermont 
and like Pennsylvania in the types of challenges and problems 
that they face. But there is wide disparity between the rich 
and the poor States with respect to their resources and their 
ability to address these problems.
    I think the demographics tell the story, and I will cite 
just a few of them.
    In Louisiana, 23 percent of our total population is below 
the Federal poverty level; 24 percent of our elderly population 
is below the Federal poverty level. And in that respect, we are 
not unlike most Southern States.
    If you look at Northeastern States, on the other hand, 11 
to 14 percent of their total population and 8 to 11 percent of 
their elderly are below the Federal poverty level. So there is 
a significant difference there.
    Louisiana has 20 percent of its population uninsured, and 
in the Northeast, it ranges from 11 to 15 percent, again, a 
significant difference.
    The statistics, for several Southern States are even worse 
than for Louisiana.
    I wish I could find some solace in the fact that these 
affluent and socially progressive States, while making 
progress, are still having tremendous difficulty reshaping 
their long-term care systems to meet the challenge of the baby-
boomer generation. Instead the difficulties that those States 
are having make the challenges seem even more imposing for the 
poor States of this Nation, such as Louisiana. I think Vermont 
and Governor Dean have certainly set a high standard for us and 
have provided us with a model that we could all follow. 
Progress so far has been slow in our State.
    Louisiana has acknowledged that our health care system is 
in need of reform and revitalization if we are to meet the 
demands of the 21st century. We have made significant progress 
providing coverage for uninsured children and also for persons 
with disabilities in terms of providing community services. But 
progress has been painfully slow in providing more choices and 
better care for our elderly.
    Louisiana did pass a bill in this recent legislative 
session to form an Olmstead Planning Group, so we do hope 
change will occur at a faster pace now. We have also 
established a trust fund for the elderly to provide some 
financing for these new community-based services that we hope 
will be expanded. And we will be expanding them this fiscal 
year. We hope to double, for example, the number of elderly 
waiver slots that we currently have.
    Governor Dean indicated that 26 percent of Vermont's long-
term care budget for the elderly goes to home and community-
based services and 74 percent to nursing homes. In Louisiana, 
the situation is much different. We in Louisiana are far below 
Vermont's level. We hope to reach 10 to 15 percent for 
community services within the next few years.
    There is a natural tendency to take care of the most urgent 
problems first, and I think Louisiana is no different in that 
respect. We tend to leave future problems for the future, and 
this is changing in some respects with our emphasis on primary 
care, coverage of children, and so forth. And we certainly need 
to quicken the pace with respect to our elderly population.
    Nursing homes occupy nearly all of Louisiana's long-term 
care budget for the elderly. Nearly $600 million this year in 
direct payments to nursing homes will be made, plus $200 
million for drugs, for physician services, and for various 
therapies and other services are paid separately. So we spend a 
total of about $800 million on our 25,000 or so nursing home 
recipients.
    I think we would all agree that nursing homes are a vital 
part of our continuum of care, and they will be for the 
foreseeable future. Certainly this requires that we pay 
adequate rates to assure good quality of care in those nursing 
homes. Governor Dean mentioned $130 a day in Vermont. We pay 
about $80 a day in Louisiana, and that was after a recent very 
significant rate increase for our nursing homes. So there is a 
wide disparity there as well.
    We also want to be certain that as much of the money as 
possible that we pay to nursing homes actually reaches the 
patient and that it goes to direct care for those patients.
    One thing we need to do in Louisiana, like in Vermont, is 
to reduce overcapacity and to encourage our nursing home 
industry to diversify into other methods of delivering care to 
our elderly population. Our occupancy rate 15 years ago was 
about 95 percent. Today, it is about 80 percent. We are over-
built. We have too many nursing home beds.
    I would certainly agree with Governor Dean and Mr. Browdie 
that both Medicaid and Medicare need to be reformed and 
restructured with much thought given to what the impact of 
change in one program might have on the other. For example, the 
Balanced Budget Act of 1997 implemented cuts in Medicare 
payments in many areas, including SNF care for the elderly, 
that had a direct impact on our Medicaid program in Louisiana.
    I would summarize our recommendations for change with two 
words: funding and flexibility. We certainly would benefit in 
Louisiana from additional assistance in the form of enhanced 
match rates that would provide incentives to expand home and 
community-based services. In Louisiana, this provided an 
incentive for our LaCHIP program to expand, and in terms of 
enrollment, it is one of the best in the entire country. We 
think an enhanced match rate will work just as well for our 
senior citizens, and I totally understand what Governor Dean 
has said about not putting States that are ahead of the curve 
at a disadvantage here. But in Louisiana, the money would 
certainly be very helpful.
    Waivers are administratively cumbersome and need to be 
simplified. Governor Dean suggests cost-effectiveness 
calculations should include the impact on Medicare, and we 
would wholeheartedly agree with that.
    The concept of having to get a waiver at all simply proves 
that the medical model that forms the basis of Medicaid and 
Medicare law is outdated. It is expensive, and in the case of 
long-term care, it fails to meet the true needs of much of our 
elderly population.
    However, waivers provide a mechanism for States to control 
entry into home and community-based services, which have high 
demand and long waiting lists in poor Southern States. If they 
were converted to State plan services, a State such as 
Louisiana would be overwhelmed. Everyone's needs would have to 
be met immediately. This needs to be taken into account as we 
consider reforms.
    And, last, I would completely agree with Governor Dean and 
many others that a prescription drug benefit under Medicare in 
particular would keep people healthy, keep them out of nursing 
homes, out of hospitals, and we would certainly hope that will 
occur at some point in the near future. Otherwise, there will 
be tremendous pressure on States such as Louisiana and other 
poor States in the country.
    Mr. Chairman, that concludes my oral remarks.
    [The prepared statement of Mr. Hood follows:]

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    The Chairman. Thank you very much, Secretary Hood.
    Now we will hear from Mr. Ray Scheppach, who is Director of 
the NGA.

   STATEMENT OF RAY SCHEPPACH, EXECUTIVE DIRECTOR, NATIONAL 
             GOVERNORS ASSOCIATION, WASHINGTON, DC

    Mr. Scheppach. Thank you, Mr. Chairman. I appreciate being 
here on behalf of the Nation's Governors.
    The current health care system serving the Nation's elderly 
is a patchwork system built for another age. It no longer 
services our citizens, nor does it permit States to provide 
21st century solutions. Medicare's coverage has many gaps: 
preventive care, prescription drugs, and long-term care. In 
their absence, States have filled the gaps with many small, 
innovative, but effective programs. Although we have done 
exciting and innovative things, the patchwork of programs and 
services that we have put in place is no substitute for a 
comprehensive vision of long-term care. And the programs are 
essentially getting much more costly.
    Currently, Medicaid is about 20 percent of State budgets. 
It has now jumped up to be growing between 10 and 12 percent 
per year. It is squeezing out education funding. And as we look 
forward, we really don't believe States have the fiscal 
capacity to continue this funding, particularly when you look 
at the growth of the over-85 population between now and the 
year 2010 and, of course, the overall elderly population growth 
between 2010 and 2030.
    States have been doing a number of innovative programs: 
home and community-based waivers. These allow States to provide 
alternatives to nursing home care through Medicaid. More 
flexibility, as has been previous mentioned, is needed in this 
area. Innovations, such as PACE and other programs, capitated 
rates which combine Medicare and Medicaid spending, are good 
experiments. There are a lot of information programs. State 
pharmacy assistance programs are now in 26 States, and States 
are spending over $400 million now on drugs for the elderly. We 
have cash and counseling programs in several States and 
partnerships for long-term care to help States work with the 
private sector and individuals to fund long-term care 
insurance. Many of these are being done with State-only 
dollars.
    If you ask what the Federal Government can do, one thing I 
would like to say is that the Governors passed a very 
comprehensive policy at the last winter meeting that called for 
a fairly major reform of Medicaid. If you look at Medicaid, you 
find now that only about 40 percent of the funding is actually 
in entitlements for required populations. Essentially 60 
percent of the funding in Medicaid is now for optional benefits 
and optional populations. Yet the problem is that once you 
include one additional individual, they have to get the 
complete menu of services. So allowing States a lot more 
flexibility in how they can mix and match those particular 
benefits of the program would go a long ways toward stretching 
the Medicaid dollars.
    We also need help in Olmstead compliance. We need to work 
with other agencies such as HUD and Labor where we can develop 
more comprehensive programs with those agencies. We also could 
use an enhanced match for home and community-based care, and 
also, although Secretary Thompson has been very, very good at 
expediting waivers during the last several months, he is 
limited by Federal law on the waivers, and perhaps an expanded 
waiver bill that would provide States with more flexibility for 
just the home and community-based case could be an effective 
strategy in the short run.
    Thank you, Mr. Chairman, and I would be happy to answer any 
questions.
    [The prepared statement of Mr. Scheppach follows:]

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    The Chairman. Mr. Scheppach, thank you.
    Mr. Browdie.

     STATEMENT OF RICHARD BROWDIE, SECRETARY, PENNSYLVANIA 
 DEPARTMENT OF AGING, ON BEHALF OF THE NATIONAL ASSOCIATION OF 
                      STATE UNITS OF AGING

    Mr. Browdie. Good morning. I am Richard Browdie, the 
Secretary of the Pennsylvania Department of Aging and a member 
of the Board of Directors of the National Association of State 
Units on Aging. The association applauds the committee for 
focusing congressional attention on the issue of long-term care 
in America.
    The development of comprehensive home and community-based 
service systems for older persons and adults with disabilities 
has long been a policy and program objective of the 
association. We are hopeful that this series of hearings that 
you have undertaken will help to move this critical issue in 
the lives of millions of older persons to the center of the 
national policy agenda.
    As the public agencies charged by the Older Americans Act 
with determining the needs and preferences of the Nation's 
older citizens, State units on aging are acutely aware of the 
overriding fears expressed by older persons and their families 
regarding the risks associated with a need for long-term care 
in this country. Once expressed somewhat vaguely as a fear of 
losing independence, the concerns of increasingly knowledgeable 
older consumers have become focused on the realities of long-
term care in America: likely separation from home and familiar 
persons, the inevitability of poverty, and the possibility of 
inadequate services or poor quality of care.
    The inadequacies of the long-term care system in America 
are built into the structure of the long-term care system, 
whose foundation was laid in 1965 when Medicare and Medicaid 
were created as social insurance for the elderly and poor 
people. Though obviously critically important to the lives of 
millions of older persons, these programs were drafted without 
extensive knowledge or experience with long-term care needs of 
long-lived Americans. At that time, long-term care services 
were viewed as a simple extension of medical care. We now know 
that medical services and long-term care services are 
interrelated, but neither is simply an extension of the other. 
Each is associated with a distinct body of knowledge.
    Long-term disability is a social problem, a functional 
problem, and a family problem. Medical and institutional care 
ought to be a support to the long-term care system, not be the 
driving force. Regrettably, the Medicare system has not 
addressed this issue but has instituted procedures which shift 
the problems and the costs from the federally financed health 
care system into the State and privately financed long-term 
support system.
    State systems of long-term care were necessarily built on 
Medicaid in order to capture Federal financial participation. 
Medicaid has become the Nation's long-term care insurance 
program. But the Medicaid long-term care system exacts a high 
price for its benefits: it requires people to be or become poor 
to gain access; it requires individuals to separate from family 
members and relocate to institutions; it is organized through 
the medical care provider systems; and it is not uniform in its 
benefits. While States have made significant progress in recent 
years in overcoming these obstacles through the use of the 
Medicaid home and community-based waiver authority, the 
predominant bias in Medicaid remains institutional not home or 
community, medical not social. And as the costs of 
institutional long-term care continue to grow, States have been 
inhibited in their ability to move quickly because of the 
rising costs.
    The Older Americans Act is the only piece of Federal 
legislation that promotes comprehensive, coordinated community-
based systems of care, but it falls woefully short in terms of 
financing and cannot meet all the needs of older people and 
their caregivers.
    Despite these handicaps, States have moved aggressively in 
the last two decades to organize and rationalize long-term care 
systems, by coordinating, financing, and designing systems 
which more closely meet the needs and preferences of their 
older citizens.
    States have taken deliberate and aggressive action to 
constrain the growth in nursing home utilization and divert 
savings to community services, as you have heard; provide 
substantial State and local funds to develop more comprehensive 
and systematic approaches to serve persons who do not meet the 
financial eligibility of Medicaid and are unable to pay 
privately for needed services--and if I might divert, 
Pennsylvania is a strong example of that kind of initiative--
develop a variety of services in in-home, adult day care, 
assisted living, and other services designed to meet the needs 
of diverse populations of older people; reorganize local 
services systems to provide standardized assessments of needs 
for both institutional and community-based long-term care 
services, and in some States single points of entry systems; 
provide consumers with choice of services and providers suited 
to their individual needs and preferences; develop equitable 
cost-sharing policies to extend services to an even broader 
population; and pursue standards of quality which monitor the 
achievement of outcomes sought by the consumer: comfort, 
security, and dignity.
    These efforts have resulted in a vastly improved array of 
service options, increased involvement of family and community 
in-service systems, and permitted a more judicious management 
of resources--but only for a small segment of population 
requiring care. Current structuring and financing of long-term 
care is not adequate to meet the current need, much less the 
future growth in the long-term care population.
    The solution is a national long-term care policy which 
provides a predictable, uniform long-term care benefit which 
older people, their families, State and local governments, 
private insurers, and providers can plan on. Knowing what 
Federal policy is committed to provide will enable these other 
actors in the system to anticipate and plan for the additional 
resources and services which will be required.
    NASUA believes that the system older persons deserve will 
be most equitable and responsive to their individual needs if 
it is federally financed, State administered, locally managed, 
and consumer directed.
    We are very encouraged by a number of recent Federal policy 
and program initiatives which are providing States with new 
resources and flexibility to reform the current long-term care 
system. First, the field of aging worked with Congress and the 
administration to authorize and fund the National Family 
Caregiver Support Program. As you know, the majority of people 
with chronic disabling conditions rely on friends or family 
members for their primary source of assistance. This new 
program supports caregivers in their stressful roles with an 
array of services and supports that may delay or prevent the 
need for institutionalization. We look forward to working with 
you and the Administration to expand the reach of this new 
program.
    Second, we applaud Congress and the Administration in 
providing States with new opportunities, flexibility, and 
resources to respond to the Olmstead decision. We are hopeful 
that Congress will continue to support these new Federal 
initiatives which provide States with resources to build on the 
work of the past two decades.
    Third, NASUA also applauds and supports the efforts of 
Secretary Tommy Thompson in streamlining and expediting the 
Medicaid waiver process for States and providing leadership on 
the new Family Caregiver Support Program and the Systems Change 
Grants. We were greatly encouraged by his testimony before this 
committee last month that underscored the administration's 
support for State innovations in long-term care.
    Having said this, we do continue to believe that a more 
fundamental restructuring of the long-term policy is needed and 
warranted. NASUA looks forward to working with this committee 
to clarify existing Federal policies and support additional 
legislation, including Medicaid reform, to enable States to 
expand home and community-based services and long-term care 
programs for persons with disabilities, regardless of age, and 
to promote Federal policies that foster consumer dignity and 
respect through consumer choice and control.
    Thank you, Mr. Chairman.
    [The prepared statement of Mr. Browdie follows:]

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    The Chairman. Thank you very much, gentlemen, for your 
testimony and for being with us and sharing your thoughts.
    Secretary Hood, in our State of Louisiana, looking at the 
waivers we have for non-institutionalized care for seniors, it 
seems we have only one which has 500 slots. So everything else 
that we have for seniors is really institutional-based nursing 
homes. The rest of them that you have, four waivers that you 
receive, but they are not targeted to seniors. One is for a 
group of 18 to 55; another one is for people with disabilities 
from 0 to 65 years of age; and another one is for adults over 
the age of 21; and I guess for elderly and disabled. I guess 
that would include potentially some seniors, but it is also for 
young adults as well. There is one then that is targeted just 
for seniors.
    I guess the question is why. You make the point in your 
statement--and I understand it and I agree with it--that we 
have a lack of resources. But it would seem to me that if a 
State has a lack of resources and is a relatively poor State, 
this would mean that they would aggressively try to move into a 
different way of delivering services for seniors other than 
using institutionalized care.
    For example, you point out that we spend $109 per person in 
Louisiana for nursing home services and only $1.33 for home and 
community-based services. And Governor Dean pointed out that it 
was spending $48,000 a year for a person to be in a nursing 
home and less than $20,000 a year to serve a person who is 
elderly in a home and community-based setting.
    So it would seem to me that the argument that we have lack 
of resources is an argument in support of moving to something 
other than nursing homes, institutionalized care, not a reason 
not to do it.
    Can you comment on that?
    Mr. Hood. Yes, sir, and, Senator, just one minor 
correction. Most of the elderly waiver slots are for the 
elderly. There are a few disabled adults who are not elderly.
    The Chairman. I want you to get to the main question. But I 
understand we have four--one, two, three, four waivers that 
have been approved for Louisiana. One is the personal care 
attendant waiver, which offers services to individuals between 
18 and 25--excuse me, 18 and 55 who have lost sensory or motor 
functions. We have one for mental retardation and developmental 
disability waivers for people with disabilities between the 
ages of birth and 65. And we have an elderly and disabled 
waiver for adults over the age of 21. And there is only one 
that is granted specifically for elderly. Is that not correct?
    Mr. Hood. That is correct, and as I said, the elderly 
waiver is predominantly people over the age of 65, with very 
few adults who are under 65.
    The Chairman. So getting back to my main point, if we are a 
State that is relatively poor, why are we not moving to 
something that is less expensive in treating elderly?
    Mr. Hood. Right, and, you know, I wish I could say that it 
was strictly a financing problem. It is not. There is also what 
I would say is a lack of resolve that we have had in the past. 
This is only now beginning to change. Now we have, as I said, 
an elderly trust fund that we can use to finance some 
additional services. We have an Olmstead Planning Group and a 
process that we will use to try to plan for those services.
    The Chairman. What is the elderly trust fund, and how much 
money do we have in it?
    Mr. Hood. Well, there is a significant amount of money in 
that particular fund, and one-third of the interest earnings 
from that money will be used for community-based services for 
the elderly. The other two-thirds will go to nursing home care 
and will be used to increase or enhance the quality of care in 
our nursing homes.
    So that is a significant step in the right direction. I 
think we are----
    The Chairman. It would seem like if two-thirds is going to 
institutionalized care and one-third is going to new and less 
expensive services, that is a step in the wrong direction.
    Mr. Hood. Well, many people would say that. I would only 
point out that our nursing homes are not particularly well 
reimbursed in terms of rates compared to other States.
    The Chairman. The statistics show me that we are the 7th 
most profitable nursing homes in the country in Louisiana. Is 
that not correct?
    Mr. Hood. Those statistics have been published, and the 
publisher of those statistics has informed me now that they 
were in error, that they were not 7th in the Nation. I frankly 
don't know exactly what they are.
    The Chairman. If we are not 7th, we must be something else. 
He didn't tell you what the other number was?
    Mr. Hood. No. They are no longer citing that particular 
statistic in their most recent report.
    The Chairman. Well, if the report said that we were the 7th 
most profitable nursing home system in the Nation and now they 
are saying we are not, they must be saying that we are 
something else. They don't say what else we are?
    Mr. Hood. My guess is that we are probably in the top 25 
for sure, and the reason is that not only do we have low rates, 
but we also have low cost.
    The Chairman. What has been the position of the nursing 
homes in Louisiana with regard to these waivers?
    Mr. Hood. I think they are in a mode of basically 
maintaining of the status quo, tolerating the movement toward 
waivers and community-based services.
    The Chairman. They support the waiver?
    Mr. Hood. As I said, they are reluctantly accepting the 
existence of these types of services. I would not say that they 
have embraced them at all.
    The Chairman. What is the biggest problem as to why we are 
49th or dead last in the number of home-based community 
services for elderly?
    Mr. Hood. Because, as I said earlier, I don't think there 
has been the resolve. It is not just a funding issue, and it is 
not just a flexibility issue. It is also----
    The Chairman. How do we solve the resolve issue?
    Mr. Hood. I think through the activities of this committee, 
for example. Certainly you yourself have brought many of these 
issues to light, and I think that that will have a demonstrable 
effect in Louisiana. And there is certainly a sign that our 
legislature is showing some indication that we need to change 
as well.
    I think we are taking the long view now instead of looking 
just one year down the road at a 1-year budget horizon. So 
through programs such as LaCHIP, for example, which obviously 
is for children, but it will have some long-term effect. 
Primary care initiatives have been discussed in Louisiana, and, 
you know, we have a plan to do something about the lack of 
access to primary care.
    I think the elderly problem is also on the radar screen, 
and I believe that we will make significant progress in the 
near future.
    The Chairman. Well, you and I have worked together very 
well, and I commend you for it. I think that your heart is in 
the right place on these issues, and I know it has not been 
easy, and part of the problem, I think, is political and 
getting some of these things accomplished, because people have 
interests and they don't want them shaken up.
    I don't, for the life of me, understand why people who are 
in the nursing business can't wake up and move into the 21st 
century and recognize that the baby-boom generation is not 
going to want to go to their facilities. I am going to Baton 
Rouge this weekend to participate in the Senior Olympic Games, 
and there are going to be 9,000 seniors there. And I bet you if 
I took a poll as to whether any of them would prefer being in a 
nursing home institutionalized when they need health care or 
whether they would rather be in a home or a community-based 
setting receiving adequate care if they, in fact, are not 
seriously ill, I bet I don't find one person that would have 
difficulty in saying they prefer home and community-based 
services.
    This industry is going to have to wake up and realize that 
the 21st century is not going to be like the 19th century and 
the 20th century. They have to adjust their delivery of 
services and health care for elderly to something that fits the 
needs and the requirements of the upcoming baby-boom 
generation. And what they have now is simply not going to be 
where it is going to be in the next 50 years.
    I would argue to them, look, you can make money doing other 
services, too. I mean, you are going to have to pay for these 
services, but they are different services. And people are going 
to have to recognize that change is coming, and, in fact, in 
Vermont, we have heard that it is here. And you heard Governor 
Dean say, look, we have got happier people, happier seniors, 
happier family members, and we are doing all of it for less 
cost, which is--you know, how can you beat that deal? I mean, 
particularly for a poor State that doesn't have a lot of 
resources, if we can take care of people for substantially less 
in a better setting and bring about happier results for people, 
this is what it is all about.
    Mr. Hood. And, Senator we are encouraging the nursing home 
industry to think in those terms, that this is not necessarily 
a lose-lose situation to them.
    The Chairman. It is not.
    Mr. Hood. Some of them have diversified. Some of them 
provide, for example, adult day health care. Some also provide 
assisted living services. I think we need to move more rapidly 
in that direction. Diversification I think is the future for 
the nursing home industry.
    The Chairman. You know, we have got to get away from the 
thought--I mean, it is all of us in society, out of sight, out 
of mind. I think that unfortunately some people feel if they 
have a grandparent or a parent in a nursing home they don't 
have to be as involved. And that is a tragic statement, because 
it is probably easier for them, but it is really not the best 
for everybody involved. And that is a cultural thing, and we 
have to recognize that.
    Well, let me talk to the other gentlemen about what we need 
to do as a committee, because we heard Governor Dean talk 
about, you know, why do I have to do all these waivers? If this 
is the right thing to do, why do I have to go plead with the 
Federal Government to please let me do it? Why don't we just--I 
mean, would you recommend that we have an act of Congress that 
says that States can provide care for elderly citizens in the 
best setting that they determine to be best for the people in 
their State? They would probably have to submit a plan to us to 
make sure that the money is being spent appropriately. We are 
not going to just toss the money out and say go use it 
somewhere, but give them almost total flexibility. Design a 
day-care center, design a home health care delivery system, and 
show us what it looks like and how it is going to be run, and 
then you can go do it. Is that something we should do, Ray?
    Mr. Scheppach. Well, it would be nice. I don't know whether 
Congress, in all honesty, both sides, would be willing to do 
that. We do believe that Medicaid needs to be reformed. As I 
said, there is so much money in optional services and optional 
benefits when States have no flexibility. And all you have to 
do is look back at welfare reform when States had a fair amount 
of flexibility. You know, they moved 50 percent of the caseload 
into self-sufficiency. So I think they now have a track record 
where they have done a lot in a program that they had 
flexibility.
    If you can't get something like that one, what I do think 
would be important would be expanded waiver authority so that 
you could get a broader definition of what would be allowed----
    The Chairman. All right. I am going to ask you all to do 
something for us. Submit to this committee, if you can, a 
proposal for the committee from a legislative standpoint. You 
don't have to worry about doing it in legislative form. Just 
give me the Governors' ideas about how they would like to see 
this part of the Medicaid program written in order to give them 
the flexibility that they need. And I think that would be very 
helpful to us.
    Let's see. I have some other questions I know might be of 
interest.
    Ray, again, the NGA, National Governors Association, in 
February--you referred to H.R. 32, a health care reform 
proposal that the Governors adopted. Can you tell me a little 
bit more about that? What was the most important element of 
that proposal, do you know?
    Mr. Scheppach. Well, what we did is we basically protected 
the entitlement nature of it. So anybody under the current 
legislation that was entitled to get certain benefits, that was 
continued. But then there was a second component of it that 
allowed States to designate other vulnerable populations that 
the States would entitle.
    We did ask for an enhanced match on that particular 
component, but then the rest of the money, which is really 
basically in optional benefits and optional services, States 
would have a lot more flexibility to utilize that funding.
    So, for example, States would get flexibility to increase 
the co-pays. They would be able to work with the private sector 
to perhaps pay for coverage of children through parents' 
programs. So it is really focusing on that 50 to 60 percent of 
the money that is optional, but the problem is you can't--you 
have no ability to mix and match that money. That is the policy 
and we would like to work with Congress on it.
    The Chairman. I thank all of you. The goal of this 
committee is to try and help establish a system that provides 
better long-term care in this country for seniors that is not 
only better but is more efficient economically. We spend about 
$50 billion a year under the Medicaid program as a Federal 
share that goes to nursing homes. All of those people do not 
need to be there. Some do and they get great service, and I 
think that there is a percentage--and it is a large 
percentage--who do not need to be in that type of an 
institutional setting in order to be taken care of because of 
their conditions. And I think that if we can provide better 
services to allow people to be happier and more content and 
families to be happier and more content and do it all at a less 
cost than we currently do it, that is a win-win situation.
    I know the problems and the pitfalls and the politics of 
it, but that is not a reason for us not to do what I think is 
right. And, David, I think that you understand that, and I 
think you are giving it your best, and I think people are 
starting to recognize what we have been preaching and what you 
have been preaching. And I want to work with you to help our 
people understand that.
    This can be a win for everybody, including the nursing 
homes, if they wake up and recognize that the care they give 
today is not going to be the care that they are going to be 
called upon to give tomorrow. It is a changing world. I thank 
you, all three of you, for your contribution and for being with 
us.
    That will recess the hearing for the moment.
    [Whereupon, at 11:27 a.m., the committee was adjourned.]


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