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Is Long Term Care in the Home a Cost Effective Alternative to Institutionalization? June 1998
Acknowledgments I would like to thank, without implicating, the following for their help in the preparation of this report: Molly Gavin, Connecticut Community Care Incorporated; Don Sherwood, HCFA; and Joshua Wiener, The Urban Institute, Washington DC. Many of the resources used in the compilation of this report were identified by means of electronic searches of the National Library of Medicine, using PubMed. 1. Introduction The issue of long term health care has become increasingly prominent in public policy debates, not least because one consequence of an aging population is an increase in the number of elderly persons who are also unable to fully care for themselves. The anticipated growth of demand for long term health care leads, in turn, to the question as to how best to provide such care - i.e., the issue of appropriate methods of delivery. At present, the majority of all public and private expenditures on long term health care accrue to nursing homes. Of the $102.8 billion spent on long term care in the US in 1993, over 86% was spent on nursing home services (Ladd and Associates, 1997, p.5). But is this orientation of expenditures appropriate? Should the provision of long term care be channeled primarily through nursing homes, or would it in fact be cheaper to treat those in need of long term care in their homes? The purpose of this report is to investigate this issue. Judging the propriety of different long term care delivery systems demands, of course, that we specify a suitable criterion of assessment. Note that the criterion implicit in the penultimate sentence of the previous paragraph is that of the total cost of delivery. Because this criterion alone will be relied upon throughout what follows, it is worth pausing at this early stage to reflect upon its suitability. In general, it would be appropriate to evaluate alternative long term care delivery systems on the basis of their comparative costs alone if we could be sure that the consumers of long term care were essentially indifferent as between the delivery systems in question. It is clear, however, that this is not the case; recipients of long term care display an unambiguous preference for receiving care in their own homes (Ladd and Associates, 1997, p.17; Legislative Program Review and Investigations Committee, 1996; Wiener and Harris, 1990, p.32; Weissert et al, 1988, pp.354-5). For this reason alone, it may therefore be socially beneficial to increase the provision of long term care in the home even if it is more costly than long term care provided by nursing facilities. The cost criterion - although undoubtedly important - cannot, therefore, be regarded as a definitive criterion for assessing the relative merits of different long term care delivery systems. It is important to bear this in mind, despite the fact that only infrequent reference to the (in)propriety of the >total cost of delivery= criterion is made in what follows. The remainder of this report is divided into five sections. Section 2 presents the conclusions that have resulted from the research. Section 3 provides a brief overview of long term care in the US, with a particular emphasis on the situation in Connecticut. Sections 4, 5 and 6 investigate the costs of providing long term care in nursing facilities as compared with the costs of providing care in the home. These sections examine, respectively, costs per person, the effects of provision systems on the number of recipients of formal long term care, and the total costs of each method of provision. 2. Findings On the basis of the pursuing discussion, it is possible to draw the following conclusions about the capacity of home care programs to reduce the costs of providing long term care: (1) Home care can reduce the cost per person of long term care for individuals who would otherwise have been institutionalized. This is true even when the indirect costs of home care - including the value of informal care givers= time and public expenses that would not be incurred in the event of an individual=s institutionalization - are taken into account. (2) There is a Awoodwork effect,@ but it is sensitive to the way that home care services are targeted. The provision of formal home care does not reduce the provision of informal care to elders. However, formal home care is used as a complement to informal care by elders who would not otherwise have entered a nursing home. This implies that substantial importance attaches to the targeting of home care services - by means of the definition of program eligibility criteria and the pursuit of appropriate case management methods - if an Aexcessive@ woodwork effect (i.e., one that prevents the home care program from being cost effective) is to be avoided. (3) In light of the two preceding conclusions, it is not surprising to find that studies of the total costs of long term care find that total costs can either rise or fall in response to the increased provision of home care. The ability to contain total costs depends on the ability to target services to elders who would otherwise have entered a nursing home, thus avoiding large increases in program participation whilst reducing long term care costs per person by substituting home care for more expensive nursing home services. Note, however, that targeting methods are themselves a subject of public policy, thus creating a practical scope for increasing the provision of home care whilst containing or even reducing the total costs to the state of providing long term health care. Note also that some states have succeeded in reducing total long term care costs even as the number of elders who receive long term care has increased in response to the provision of home care - thus reducing costs whilst simultaneously increasing welfare by providing more long term care to more elders. (4) Advocates of home care must beware of the possibility of cost shifting. Even when the provision of home care causes the total costs of long term care to fall, it is likely to involve some re-distribution of costs away from the formal and towards the informal care-giving sector. This may create some conflict between the needs and desires of those who receive and those who (informally) give long term care, a possibility which should not be overlooked. 3. Long Term Care: A Basic Overview Long term care can be defined as A... a wide range of medical, social, personal care and supportive services needed by individuals who, because of a chronic illness or condition, have lost some capacity for self-care and need assistance with daily activities for an extended period of time (Legislative Program Review and Investigations Committee, 1996, p.6).@ Although the need for long term care is by no means confined solely to the elderly and the poor, those who require it are typically older and worse off than the population as a whole. This is because the type of frailties associated with the need for long term care increase with age (Legislative program Review and Investigations Committee, 1996, p.76; Wiener and Harris, 1990, p.29), as does the likelihood of being a member of a low income household. Hence in 1995, almost 12% of Connecticut residents aged 65 or over reported at least one ADL limitation; over 34% of those aged 85 and over reported the same (Legislative Program Review and Investigations Committee, 1996, p.76). Meanwhile, 56% of Connecticut households aged 65 and over earned incomes less than $25,000 in 1989, compared to less than 28% of all households (Legislative Program Review and Investigations Committee, 1996, p.73). Looking at a specific long term care program such as the Connecticut Home Care Program (CHCP), we find that in 1990, 76% of participants in this Program (all of whom are aged 65 and over) were over the age of 75, compared to only 43% of all elderly (i.e., over 65s), whilst 98% had incomes of less than $15,000 per annum (Legislative Program Review and Investigations Committee, 1996, pp.36-8). One significant feature of this profile is that it means that a large proportion of the population who require long term care are so-called Adual eligibles@ - i.e., persons eligible for both Medicare and Medicaid benefits. Looking again at the CHCP, we find that in 1995, 95% of Program participants were Medicare beneficiaries and 81% were Medicaid beneficiaries, implying that between 76% and 81% of all CHCP participants are Adual eligibles.@ As intimated earlier, there is no unique method for delivering long term care. It is widely understood that the informal provision of care by family members and friends is very important to many of those who require long term care. Some estimates suggest that those receiving formal long term care account for only a third of those who require and receive long term care (Ladd and Associates, 1997, p.5). Judging by expenditure patterns, formal long term care is, as was demonstrated above, largely provided through nursing homes. This bias towards the institutionalization of those in need of long term care is not without its critics. The formal long term care system in the US has been described as using A... a medical model of care to treat what are essentially functional and social problems (Ladd and Associates, 1997, p.4).@ Indeed, the picture that emerges from Ladd and Associates= (1997, pp.4-13) characterization of the development of the US formal long term care system is that the dominance of this system by nursing homes has arisen for a mixture of historical, institutional and even political reasons, some of which date back to the nineteenth century, and not because it is demonstrably the best and/or the most cost effective method of providing long term care to its current users. The emergence of the Medicaid program in the mid 1960s - the major source of state funded long term care expenditures in the US - contributed further to this nursing home bias, although there have been efforts to ameliorate this effect since the early 1980s. Hence the fact that Medicaid was intended to be a medical program meant that the long term care expenditures made under the auspices of this program had to accrue to medical providers such as nursing homes. However, motivated by a desire to reduce long term care expenditures (Legislative Program Review and Investigations Committee, 1996, p.15), the federal government introduced a system of Home and Community Based Waivers in 1981. These waivers are designed to allow states to use Medicaid funds to provide non-medical, home and community based services in an effort to prevent or at least defer the entry of long term care recipients into institutional care. This initiative certainly had an impact on the delivery of long term care in Connecticut. Although the history of state funded home and community based care in Connecticut dates back to the mid 1950s, Connecticut=s Long Term Care Pre-admission Screening and Community Based Services Program set up in 1987 was established in order to take advantage of the Medicaid waiver. Furthermore, the idea of waiver-financed long term home care survived the consolidation of Connecticut=s home and community based long term care system in 1992, and in 1996, fully 64% of participants in the CHCP received services under the waiver-financed portion of this program (Legislative Program Review and Investigations Committee, 1996, p.27). Despite these efforts, however, Medicaid expenditures remain heavily oriented towards the purchasing of nursing home services. In 1994, over 61% of total national Medicaid expenditures on long term care accrued to nursing facilities, whilst just over 8% of this same total was spent on home and community based services provided under the waiver scheme. Meanwhile, in 1992, the state of Connecticut spent just over 9% of its total long term care expenditures on home and community based care, whilst Medicaid nursing home expenditures accounted for over 90% of its total long term care expenditures (Legislative Program review and Investigations Committee, 1996, p.I-3). If the bias in the long term care system towards institutionalized care is essentially historical/institutional/political rather than a result of its demonstrated cost effectiveness, and if the major source of state funding for long term care - the Medicaid program - has been systematically encouraging the diversion of funds away from nursing home expenditures because of the perceived costs of this method of provision, it is reasonable to ask whether the current bias in the delivery of long term care is truly desirable. Would it be preferable, based on the comparative costs of provision, to encourage states like Connecticut to follow the lead of states such as Oregon, by diverting expenditures away from nursing homes and towards home and community based care? In short, would it be cheaper to provide long term care in the home rather than in nursing homes? In order to address this question, we need to be clear about what is meant by home and community based care. This is important because the definition of home and community based care is rather amorphous, including such qualitatively different services as non-medical, supportive housing arrangements, adult day care and case management services. In what follows, we will confine our attention as far as possible to the study of personal home care systems co-ordinated by case managers and designed to provide long term care to the elderly (i.e., the over 65s). These are all features of the CHCP and are thus emphasized in order that we might ultimately be able to draw conclusions about the cost effectiveness of programs of this nature. We proceed by examining first the relative costs per person of long term care in the home, and then the effects of changes in the method of care delivery on the total demand for long term care. Finally, we combine these insights in order to discuss the impact on the total costs of provision of increasing the home care component of long term care delivery. 4. Can home care reduce the costs per person of long term care? Suppose that many of those who currently receive long term care in a nursing home could, in fact, be cared for in their homes. Would such a change in the method of delivering long term care reduce the costs per person of long term care provision and hence, other things being equal, reduce the total costs of providing long term care to elders? Evidence from the operation of the CHCP in Connecticut suggests that the costs per person of providing long term care in the home are lower than the per capita costs of nursing home care. Federal standards for Medicaid waivers require that a state must demonstrate that the cost per person of a waiver project is less than the cost per person of institutionalized care. In fiscal year 1995, the average monthly cost per client of the waiver portion of the CHCP was $1,133. This compared favorably with the average monthly Medicaid nursing home rate of $3,268 (Legislative Program Review and Investigations Committee, 1996, p.51). Looking at the services that are most frequently used by CHCP participants lends support to the notion that the reason for these savings is that, as intimated earlier, nursing homes are based on a medical model of provision, whereas infirm elders often require cheaper, non-medical services in order to help meet their daily living requirements. Hence the four most popular CHCP services in 1995 (as measured by average number of monthly clients per service) were case management (which nearly all CHCP clients receive), homemaker, personal emergency response system and meals. Out of the 13 services surveyed in Legislative Program Review and Investigations Committee (1996, p.52), these four most popular services ranked 9th, 5th, 13th and 11th respectively in terms of their average monthly cost per average monthly client. Evidence from Connecticut therefore clearly suggests that, to the extent that it is possible to substitute home care for nursing home care amongst elders who are already receiving formal long term care, this change in the method of delivering long term care would reduce costs per person and hence, other things being equal, the total costs of providing long term care. But is the Connecticut experience an aberration? A variety of studies suggest not. Ladd and Associates (1997, p.15) report that in 1994, the costs per day of home and community based care on one hand, and nursing home care on the other, were $13-52 and $57-97 respectively in Oregon and $12-27 and $46-55 respectively in Texas. Meanwhile, using a mathematical model to determine the risk of institutionalization, Greene et al (1993) find that 41% of the individuals in the control group of the National Long Term Care Channeling Demonstration could have been provided with cheaper long term care had they been participating in a home and community based care program. The authors conclude that A... additional community services can work for many individuals - potentially reducing both their risk for institutionalization and their expected long-term care costs (Greene et al, 1993, p.186. Emphasis in original).@ One possible objection to these findings is that they are based only on the direct costs of providing long term care in the home; account must surely be taken of the indirect costs of this method of provision before we can conclude that it is a cost effective substitute for nursing home care. These indirect costs include costs to the state arising from programs such as food stamps, fuel assistance etc., that elders receiving care in the home may, unlike their institutionalized peers, participate in. They also include costs that accrue to informal care givers, such as the economic value of unremunerated time, who provide essential supplementary care to elders receiving formal care in the home. Is it the case, then, that once these indirect costs are accounted for, the cost advantage of home and community based care vis a vis nursing home care disappears? Harrow et al (1995) suggest not. They calculate the total formal and informal costs of home care for seniors in Massachusetts, imputing the market value of services provided in order to estimate the cost of informal care. Their research suggests that in 1991, the total (formal and informal) annual per capita cost of home and community based care was between $8,500 and $9,500, whereas the cost per annum of nursing home care was just over $35,500 per person. Harrow et al. (1995, pp.810-11) note that although their estimates of the cost of home care do not include the costs of food and shelter (towards which food stamps, heating assistance etc. would contribute), these costs would have to amount to more than $25,000 per annum in order to make home care cost ineffective. Furthermore, they note that their estimate of the cost of nursing home care does not include any allowance for the value of informal care provided to nursing home residents, which may be substantial. For example, Rice et al (1993) calculate annual informal costs of $5,500 per person for nursing home residents with Alzheimer=s disease. Harrow et al (1995) note that when living expenses are taken into account, the average annual total cost per person of home care in their sample of high cost elders may exclude the average annual cost per person of a nursing home, but conclude that, even when the value of indirect costs is taken into account, A... for the majority of elders (75%), community care is less costly than nursing home care (Harrow et al, 1995, p.812).@ A final concern with regard to the potential for substituting home care for nursing home care in the pursuit of cost savings is the question as to whether or not it is reasonable to think that home care is even capable of providing services to any but the most lightly impaired elders. Is it, in other words, a realistic substitute for nursing home care in a sufficiently large number of cases? Greene et al (1993), whose findings on the relative costs per person of home care were cited earlier, certainly think that it is. They interpret their finding that 41% of their sample would have been cheaper to care for in a home or community based setting as indicating that A... cost effective [home and community based] programs can in principle be operated at a reasonably large scale, to some degree mitigating concerns that appropriate target populations will necessarily be too small for efficient program operation (Greene et al, 1993, pp.186-7).@ Furthermore, Ladd and Associates (1997, pp.16-17) contest the notion that home care programs can only cater to the lightly impaired. They point to advances in equipment and care giving techniques, coupled with the observation that two-thirds of those who require long term care - including persons who are highly impaired and have high care needs - are already receiving (informal) long term care in the home. In sum, there is evidence to suggest that by substituting home care for nursing home care, it is possible to reduce the costs per person and hence, other things being equal, the total costs of providing long term care to a large number of elders. 5. Does the provision of home care result in a Awoodwork effect?@ The presumption in the previous section is that, since the per capita costs of home care are lower than those of institutionalization, long term care costs could be reduced if home care programs succeeded in encouraging the substitution of home care for relatively costly nursing home care. Is it the case, however, that home care programs primarily serve a client base that would otherwise be consuming nursing home services? Or do they create a new demand for formal long term care from a section of the population that would not otherwise have entered nursing homes, increasing the total demand for formal long term care and hence raising long term care costs? In what follows, we will examine this latter possibility - sometimes referred to as the Awoodwork effect@ - in detail. In an early study of the woodwork effect, Greene (1983) examines the propensity of elders to substitute formal home care for informal care. This would create a woodwork effect because it would mean that elders who would not otherwise have entered a nursing home, preferring instead to remain in the community deriving whatever support they can muster from family and friends, will become clients of formal home care programs. Greene=s findings lead him to conclude that there exists a Asubstantial tendency@ for such substitution of formal for informal care to occur. What is remarkable about Greene=s finding, however, is that it is refuted by the great majority of subsequent studies. It would seem, in fact, that there is no tendency for elders to substitute formal home care for informal care; the effects of introducing formal health care programs on the level of informal care provided by family members and friends are approximately neutral. In their summary of Weissert et al=s (1988) survey of the literature on home and community based long term care, Wiener and Harris (1990, p.30) note that A... of 53 findings in studies of the effect of paid home care on informal care, 41 were not statistically significant, 7 suggested a significant increase in unpaid support, only 4 suggested a significant decrease and 1 was indeterminate.@ Wiener and Harris (1990, p.30) also cite studies of home care programs in Minnesota and Chicago in which there were no observed reductions in the level of informal care following the introduction of formal home care programs. Meanwhile, Hanley et al=s (1991) study, based on national data, finds no significant effect of formal home care on the amount of informal care received by elders, noting that this result holds even for sub-groups - including those without cognitive impairments, elders with above average income and persons living alone - deemed by the authors to be most likely to engage in the substitution of formal for informal care. Finally, Tennstedt et al=s (1993) study - significant because it studies behavioral responses over a seven year period rather than just in the short run - finds that such substitution of formal for informal care that can be detected constitutes a temporary response to the provision of formal home care, with there being no longer term impact of home care programs on the provision of informal care. In response to the studies discussed above, then, it seems only reasonable to repeat here Wiener and Harris=s (1990, p.31) conclusion to their own discussion of the substitution of formal for informal care: A[although the studies surveyed ] ... measure mostly local, short-run experience rather than long-term responses to a national or private insurance entitlement ... they sharply contradict the expectation that informal care will collapse if paid home care is available.@ It may therefore be tempting to conclude that the woodwork effect is a myth. To conclude as much would, however, be a mistake. Although there is no evidence to suggest that elders substitute formal home care for informal care, this does not preclude the possibility that they will use formal home care services as a complement to existing levels of informal support. Note that this would lead to a woodwork effect, as elders who would not otherwise have entered a nursing home begin to supplement the informal care they continue to receive with formal home care services. It appears, in fact, that this is how seniors behave; to the extent that there is a woodwork effect, it arises not from the substitution of formal for informal care, but from the use of formal home care as a complement to pre-existing levels of informal support. Hence Ladd and Associates (1997, p.18) note that in studies of home and community care programs in Colorado, Washington and Oregon, the introduction of home and community based care programs resulted in more clients being served by the formal long term care system. Furthermore, Edelman and Hughes (1990) note that participation in formal home care programs results in a significant increase in the amount of formal services consumed by elders, with no significant decrease in their consumption of informal services. The authors thus conclude that the role of formal home care is that of a supplement to, rather than a substitute for, pre-existing levels of informal care. The reason for all this is not difficult to fathom. As was noted earlier, elders prefer receiving care in their home to receiving care in an institution. Hence Agiven a choice between nursing home care and nothing, many elderly people will choose nothing. But when the choice is expanded to include home care, many will choose home care (Wiener and Harris, 1990, p.32).@ In other words, confronted by the Aall or nothing@ possibility of entering a nursing home, many elders will attempt to make do on their own and with whatever informal support they can muster. However, they will gladly consume formal home care services as a means of supplementing informal care and thus increasing the amount of long term care they receive. The existence of a woodwork effect means that home and community based care programs are likely to create a new client base for formal long term care services. Other things being equal, this will undoubtedly raise the costs of providing long term care. However, it is important to bear two things in mind. First, we are inevitably confronted at this point with the potential inadequacy of judging long term care delivery systems solely on the basis of our Acost of provision@ criterion. It should be clear from the discussion in the previous paragraph that the woodwork effect means that, as a result of home care programs, more elders receive more long term care services and are thus better off as a result (see also Legislative Program Review and Investigations Committee, 1996, p.44). The point is that the woodwork effect - the use of formal home care services to supplement pre-existing levels of informal long term care - can be construed as representing a real need for long term care services that is otherwise unmet because of an aversion on the part of many elders to the currently favored method of delivering these services, i.e., nursing homes. Treating the woodwork effect purely as a problem that will result in increased long term care costs is not, therefore, an obviously compelling way of thinking about the phenomenon. This is not to say that the costs of providing long term care and the issue of who bears them are not important. In fact, the point that is being made here only serves to reinforce the importance of these cost issues, by interpreting the woodwork effect as evidence that there are important hidden costs associated with the currently predominant method of delivering long term care, costs that are borne by elders in the form of foregone care and by informal care givers, upon whom the entire burden of long term care falls in the event that an elder declines to receive care in a nursing home. Second, even retaining the narrow cost criterion with which we have been concerned up until now, it is important to recognize that the woodwork effect, and hence its impact on the costs to the state of providing long term care, is not beyond the control of policy. The extent to which the woodwork effect is observed depends greatly on the attention that is paid by policy makers to targeting the appropriate client group when establishing a home care program, the point being to target as precisely as possible groups that are most at risk of institutionalization in the absence of formal home care. This targeting can be done through either the definition of program eligibility criteria and/or the design of case management techniques. Hence Jackson et al (1992) find that when only ADL criteria are used, between 1.6% and 12.5% of the community-dwelling elderly are deemed eligible for formal home care. However, when cognitive impairment criteria are added, the proportion of elders eligible increases to between 3.5% and 14.0%. The authors conclude that the stringency or liberality of program eligibility requirements will substantially affect the number of elders who qualify for home care programs and hence the total costs associated with such programs. Similarly, Weissert and Hedrick (1994, p.352) suggest that A... loosely written criteria will result in relaxed admission standards, producing clients less and less likely to offset some of its costs by substitutions of [community based long term care] for other types of care [primarily nursing homes].@ Both Greene et al (1993) and Ladd and Associates (1997, p.14) emphasize the importance of using instruments to predict the likelihood of nursing home admission in an effort to limit home and community based care services to populations deemed at risk of institutionalization, if home care programs are to be cost effective. These claims have obvious implications for the conduct of case managers. Greene et al (1993, p.186) suggest that their mathematical model for predicting the likelihood of nursing home admission could and should be used by case managers in order to help target home care services to those individuals who are at the greatest risk of entering a nursing home. Furthermore, Weissert and Hedrick (1994, p.351) warn of the dangers of falling enrollment rates into new home care programs, a likely occurrence once pent up demand for home care has been met by initial enrollments. They argue that these falling enrollment rates are likely to create pressure for the relaxation of admittance criteria, but that case managers must be aware of the importance for cost effectiveness of maintaining an appropriate clientele, and must therefore be vigilant A... to assure that minimum criteria are not allowed to slip so that a case mix less likely to benefit from care is served.@ Clearly, then, it is important for policy makers to pay attention to the definition of eligibility criteria and the design of case management techniques if the woodwork effect (and hence the cost ineffectiveness of home care) is not to become a fait accompli by virtue of poor program design. A final point that is worth emphasizing at this juncture is that the existence of a woodwork effect does not mean that home and community care based programs only serve a new clientele for formal long term care services who would not otherwise have entered nursing homes. Evidence on the impact of home care programs on nursing home utilization rates suggest that there is substitution of home care for nursing home services by elders, so that the reduced long term care costs per person arising from such substitution that were discussed in the previous section can and do materialize. Weissert et al (1988, pp.324-27) argue that properly targeted home care programs reduce nursing home utilization rates. Of the 14 studies in their survey that reported tests of statistical significance, only 4 showed a statistically significant impact of home care on nursing home utilization, but each of these 4 studies reported a reduction in nursing home utilization. The Weissert et al survey also suggests that home care programs can reduce the average length of nursing home stays. Of 16 studies reporting statistical significance tests, 8 demonstrated a statistically significant impact of home care on the average length of nursing home stays, 7 of these 8 studies pointing to a statistically significant reduction in the average length of stays. An example of this research is Nocks et al=s (1986) study of the South Carolina Community Long Term Care Project. Established as a Medicaid waiver demonstration, this project provided a clientele who had requested nursing home care with case managed home care. The authors find that over an 18 month period, the rate of nursing home utilization of Project participants was 38% lower than that of non-participants. Similar results are evident in other states. The Connecticut Department of Social Services= survey of elders on the CHCP waiting list between July 1995 and December 1996 revealed that only 9% of those on the waiting list who received limited, state funded home care entered a nursing home, compared to fully 20% of those who received no formal home care (Department of Social Services, 1997, pp.19-20). This prompts the conclusion that A... even a little home care can make a big difference@ to the rate of nursing home utilization (Department of Social Services, 1997, p.20). Meanwhile, Ladd and Associates (1997, p.15) suggest that the expansion of home care in Wisconsin contributed to the 12.3% reduction in nursing home utilization during the 1980s. They also note that of the 8 states who succeeded in reducing nursing home utilization during the 1980s and the 10 states who managed to limit the expansion of nursing home utilization to below 10% during this decade, all were engaged in the expansion of formal home care programs during the same period. Although the woodwork effect is likely to increase the number of elders who consume formal long term care services and hence, other things being equal, increase long term care costs, it is well to remember, then, that formal home care can and does serve as a substitute for more expensive nursing home care, an effect which, other things being equal, will reduce the cost per person of long term care and hence reduce total long term care costs. The question that we now confront, then, is which of these two effects dominates the other? Does the woodwork effect dominate, resulting in a rise in total long term care costs? Or does the nursing home utilization effect dominate, so that cheaper care for erstwhile potential nursing home inhabitants means lower long term care costs overall? This issue brings us to studies of the net effect of formal home care programs on total long term care costs, and it is to the examination of such studies that we now turn. 6. The impact of home care programs on the total cost of long term care Putting together the Acost per capita@ and Anumber of clients served@ dimensions of home care programs, what, then, tends to be the impact of increasing the provision of home care on total long term care costs? Ladd and Associates (1997, p.13) argue that there is a broad based perception amongst policy makers that home care programs are cost ineffective, and that the federal AChanneling Projects@ conducted in the 1980s are, in large measure, responsible for this negative perception. These Channeling Projects tended to show a significant woodwork effect accompanied by insubstantial reductions in nursing home utilization rates, resulting in the conclusion that home care programs raise total long term care costs. The Channeling Projects are not without their critics, however. Kane and Kane (1987) are critical of both the way in which these Projects targeted services to elders and the case management practices they employed. Similarly, Greene et al (1993, p.186) argue that on the basis of their analysis, A... over half of the target group [of the Channeling Projects] had no initial potential for net cost reduction through further investment in community services.@ The importance of the appropriate targeting of services for the success (in terms of cost effectiveness) of home care programs has already been emphasized in section 4 above. Based on the criticisms of authors such as Kane and Kane (1987) and Greene et al (1993), which suggest that the Channeling Projects were deficient in their targeting of services, it is perhaps not surprising to find that these projects showed that home care programs increase long term care costs. It is less clear, however, in light of these same deficiencies, that the Channeling Projects can be said to provide a firm basis for the belief that home care programs must necessarily involve an increase in total long term care costs. Nevertheless, there are authors - at least some of whom would count themselves as proponents of home care programs - who insist that such programs should not be advocated on the basis that they will allow states to reduce long term care costs. For example, Weissert et al (1988, pp.336-47) find that of the 19 home care programs in their survey, only 7 succeeded in reducing long term care expenditures (although 3 programs Acame close@ to reducing expenditures and the importance of targeting issues is noted in the failure of the majority of programs to save money). Meanwhile, Chappell=s (1994) review of the home care literature motivates the author to conclude that on the whole, efficacy studies have not succeeded in demonstrating that home care is cheaper than institutional care. In a similar vein, Wiener and Harris (1990, pp.32) argue that A...expected cost saving is ... not a valid reason to expand home care,@ although their conclusion is based, at least in part, on the results of the federal Channeling Projects criticized above, and they do acknowledge the importance of targeting the appropriate clientele for the cost effectiveness of home care programs. Nevertheless, Wiener and Harris suggest that home care programs might be a good idea to the extent that they address unmet needs of elders and provide long term care services in a manner that elder=s prefer - thus increasing their welfare. At the same time, Wiener (1996) warns against cost effective home care programs, suggesting that, to the extent that home care programs can be designed to reduce the total costs of long term care, they may do so by adversely affecting eligibility, access to services and the quality of care, all of which reduce elder=s welfare. In view of these findings, it is perhaps not surprising that Weissert and Hedrick (1994, p.352) conclude that Apolicy makers who wish to support expanded [home care] should be prepared to support it because some patients prefer it and experience improved life satisfaction from it,@ and that A... the popularity of [home care], despite its lack of cost effectiveness, suggests that life satisfaction improvements and consumer preferences may be the most appropriate rationales for offering it, if costs can be kept reasonable.@ The fact that the authors cited above draw our attention once again to the potential of welfare enhancing benefits arising from changes in the method of delivering long term care services is no doubt laudable. But are all studies so resigned to the belief that home care programs increase total long term care costs, and that their justification can only arise from the possibility that the additional benefits they confer on long term care recipients outweigh the additional total costs of providing care? It would appear, in fact, that this is not the case. Retreating, once again, within the confines of our narrow cost effectiveness criterion, it is possible to identify a number of studies which show that in some states, home care programs have succeeded in reducing the total costs of providing long term care. A good example is the waiver portion of the CHCP in Connecticut. As reported earlier, the standard for cost effectiveness for home care programs operating under Medicaid waivers is that the cost per person of the program must be less than the per capita cost of institutional care. However, the Connecticut Statutes demand that the CHCP meet not only this federal criterion, but also that it be cost neutral overall - in other words, that it involve no increase in total long term care expenditures. As a result, the Department of Social Services calculates, on an annual basis, the Anet savings@ that result from the operation of the waiver portion of the CHCP. These net savings are calculated as follows. First, the Department estimates the savings that arise from the Program as a result of decreased nursing home utilization. This is done by assuming that all CHCP participants would have entered a nursing home, but only after three months (the assumption being that elders will resist entering a nursing facility for as long as possible). These Agross savings@ are then reduced by 35%, to account for the fact that 35% of all nursing home beds are filled by Medicaid patients (i.e., it is assumed that the vacating of nursing home beds by CHCP participants does not result in reduced nursing home utilization in 35% of cases, since these beds are simply filled by other Medicaid patients). Finally, the cost of home care services rendered, CHCP program administration and Old Age Assistance (to which CHCP participants, unlike nursing home residents, are entitled) is subtracted to calculate the net savings (i.e., the estimated total reduction in long term care expenditures) due to the operation of the CHCP. Using this methodology, it was calculated that total Program savings amounted to $20,185,048 in fiscal year 1995 (Legislative Program Review and Investigation Committee, 1996, p.47) and $21,419,845 in fiscal year 1996 (Department of Social Services, 1997, p.39). The Department estimates that these net program savings will increase still further in fiscal year 1997 owing to increased enrollments in the CHCP. Further evidence of the potential for reducing long term care costs as a result of extending the provision of home care in Connecticut can be found in the Department of Social Services= survey of elders who were placed on the CHCP waiting list between July 1995 and December 1996. Between May 1996 and January 1997, the Department of Social Services surveyed the first 2,623 individuals on the CHCP waiting list, asking AHow have you managed while the home care program for elders has been suspended?@ Almost 20% of those surveyed were unable to gain access to the waiver portion of CHCP but succeeded in gaining access to the state funded portion of the Program, which closed after the waiver portion. These elders were thus able to receive some home care from CHCP, even while waiting to be considered for admittance to the waiver portion of the Program. Of the remaining 80% of those surveyed, who received no formal home care while waiting for CHCP enrollment to re-open, 13% died and 20% entered nursing homes before receiving access to home care. The Department calculates that had this latter group been admitted to the CHCP rather than having been institutionalized, the savings to the Medicaid program in the period during which CHCP enrollment was closed would have totaled some $8,000,000 (Department of Social Services, 1997, p.19). The finding that home care programs have reduced long term care costs is not unique to Connecticut - similar results have been observed in other states. Ladd and Associates (1997, p.15) report the findings of a study of the comparative costs of nursing home and home and community based care in Colorado, Oregon and Washington, which found that community based care was successful in reducing nursing home utilization and, as a result, total costs - despite the fact that more elders were served by the formal care system once home-based care was offered (i.e., there was a woodwork effect). Notice, in fact, that the woodwork effect emerges here as something of a triumph, being characteristic of systems that ultimately succeeded in serving more individuals whilst simultaneously lowering total long term care costs. The case of Oregon is worthy of closer inspection. Oregon=s integrated long term care system is heavily committed to providing care to elders in their homes. In 1992, Oregon ranked second highest in the nation in terms of expenditures per capita on home and community based care for elders, and fourth highest in terms of Medicaid expenditures on home and community based care (Ladd and Associates, 1997, p.23). The Oregon long term care system, which features extensive case management, cared for almost 52% of its clientele in their own homes in 1996. A further 26% were cared for in substitute homes (such as adult foster homes and assisted living facilities), with only 22% receiving care in nursing homes (Ladd and Associates, 1997, p.24). Oregon has been working to reduce the dependence of its long term care system on nursing homes since 1981. The Oregon Senior and Disabled Service Division estimates that between 1981 and 1996, its efforts to re-orient long term care towards home and community based care produced cumulative long term care savings of $495,500,000 (Ladd and Associates, 1997, p.24). Even adjusting this savings estimate to account for national changes in long term care delivery, it is estimated that Oregon=s initiatives resulted in cumulative long term care savings of $308,600,000 between 1981 and 1996 (Ladd and Associates, 1997, pp.24-5). It is also interesting to note that Oregon reports a woodwork effect - in other words, the number of elders demanding formal long term care is believed to have increased as a result of the state=s re-orientation of its long term care delivery system towards home care. This means that, since the early 1980s, Oregon has succeeded in providing care to more elders whilst simultaneously reducing the total costs of providing long term care. A final example is provided by the state of Arizona. Arizona operates a statewide long term care system which possesses a number of special features. It is a managed care system, which provides institutional, residential and home care to elders and disabled Medicaid beneficiaries who meet the criteria for admission to a nursing home (Riley and Mollica, 1996). Case managers are an integral feature of the system, which is also capitated, creating an incentive for program contractors to care for program participants in their own homes rather than in nursing homes in order to reduce the costs per person and hence the total costs of providing long term care (Weissert et al, 1997; Riley and Mollica, 1996). Weissert et al=s (1997) study of the Arizona Long Term Care System concludes that the use of home and community based care within this system has resulted in a substantial reduction in total long term care costs, when comparison is made to what these costs would otherwise have been in the absence of home and community based care. The authors also suggest that Arizona=s long term care savings appear to be a long run rather than a short run phenomenon; there is no evidence to suggest that savings have disappeared as the program, begun at the turn of the decade, has matured. It would seem, then, that home care programs can result in either increased or decreased long term care costs. This is not surprising, given the two opposing forces that influence total long term care costs as home care is increased - reduced costs per person resulting from the substitution of home care for more expensive nursing home care, and the woodwork effect, which tends to increase the total number of clients receiving formal care following the introduction of home care services. However, as the actual experience of a number of states attests, it is clear that the potential exists for appropriately targeted home care programs to reduce total long term care costs or at least be cost neutral. At this point, one final and somewhat qualificatory remark is necessary on the potential for cost redistributions in response to changes in the long term care system. Hence as total costs either increase or decrease in the process of providing more or less home care, so, too, they may be redistributed between the formal and informal sectors - suggesting that the issue is not just at what cost home care can be provided, but who bears these costs. It is important to draw attention to this point, because even if it is true that home care programs can reduce total long term care costs defined so as to include the time costs of informal care givers, it is important to be aware that increasing the amount of home and community based care may also involve some transfer of costs away from the public (formal) and towards the personal (informal) sectors. This Acost switching@ arises because of the higher level of informal care that is required to supplement the operation of home care programs as compared to nursing homes. The notion that successful home care programs depend upon the existence of informal support is widespread throughout the long term care literature. Furthermore, recall from section 5 that of the eleven studies in Weissert et al=s (1988) survey that found a statistically significant impact of home care programs on levels of informal care, seven studies reported a significant increase. The additional costs that this entails for informal care providers must be taken into account, even if it can be shown that home care programs reduce total long term care costs. The point here is not that this cost switching necessarily defeats the object of using home care programs to lower long term care costs and/or to raise the welfare of elders in need of long term care. It is simply to suggest that any quantitative change in long term care costs and/or elders= well-being arising from changes in the method of delivering long term care services may well be accompanied by a qualitative change in the structure of these costs/benefits in the form of a redistribution of costs between the formal and informal sectors, and of benefits between informal care givers and care recipients. Redistributions of this nature can be a source of conflict, and it is well to be aware of them for this reason alone. As Parker (1990, p.466) concludes, A[although] there is an understandable reluctance to acknowledge that gains in the quality of life of people with special needs may be made at the expense of those who care for them, or vice versa,@ current home care research is guilty of A...an evaluative approach which fails to take proper account of the fact that the needs and wishes of both parties cannot be the same, and that potential or actual conflict between them may be >resolved= at a cost to the carer.@ Hence current thinking will remain incomplete Auntil this possibility is fully acknowledged and properly incorporated into a theoretical perspective that informs research ... (Parker, 1990, p.466).@ References Chappell, N.L. (1994) AHome care research: what does it tell us?@ The Gerontologist, 34, 116-20
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