PACE model brings success in managed Medicare

As providers hold a telescope to the skies, looking for some obscure star lighting the way to enhancing community care and saving money, they might want to consider the PACE model.

PACE, which stands for the Program of All-inclusive Care for the Elderly, is a model of community-based long-term care that was started in 1971 in San Francisco as a way to help the frail elderly avoid or delay being placed in nursing homes.

Physicians and other providers who enter into risk contracts with Medicare may find that the PACE model is one way they can reduce their costs in this high-utilization population.

"It's very hard for physicians in private practice to care for frail older people unless they have support systems in place to help them," says Robert McCann, MD, medical director of Independent Living for Seniors in Rochester, NY, which is one of the first 12 PACE models of care in the nation. McCann also is chief of the geriatric unit at Rochester General Hospital and is assistant professor of medicine at the University of Rochester.

The PACE model provides that support. It integrates primary care, acute care, and long-term care service delivery. In some PACE programs, physicians follow patients into the various multidisciplinary settings.

The Health Care Financing Administration (HCFA) sponsored a four-year demonstration project in 1978 for the first PACE model in San Francisco's Chinatown-North Beach, called On Lok. By 1983, the program was considered a success. The program expanded to six more sites in 1986 after receiving major grants. The cost of care was 15% less for PACE participants in On Lok than in the traditional fee-for-service model.1 Since then, the savings have increased.

The Rochester program has saved Medicare about 35% to 40%, according a study by APT Associates in Boston, McCann says. "We do save Medicaid money too, we think, but the final numbers are not yet available."

Because of its financial success, federal officials want to expand the PACE model.

The Balanced Budget Act of 1997 has called for 40 replications of the PACE model this year and 20 more each year thereafter, McCann says. "Our Rochester PACE site provides technical assistance to 30 places in the Northeast and Canada that are in various stages of replicating the program now."

Various provider and community groups are starting PACE centers, including hospitals, nursing homes, and nursing schools, McCann says.

Here's how PACE works:

· Coverage for a specific population. People who enroll in PACE must be 55 years of age or older, and they must be certified by the state's Medicaid agency as eligible for nursing home care.

"We're unusual in that we care only for frail elderly people who meet state criteria, and this varies from state to state," McCann says.

PACE participants may only receive services from PACE staff or contract providers.

· Physicians work as part of a care team, primarily in an outpatient setting. PACE physicians work within the interdisciplinary teams, sharing decision making with other team members. Primary care teams may include nurse practitioners and nurses, as well as physicians.

PACE physicians spend about 95% of their time in an outpatient setting, such as a PACE clinic or day center, because inpatient utilization is low.1

Most of the physician's time is spent providing direct patient care at the clinic, including routine evaluations. Physicians also attend daily team meetings, meet with families, conduct telephone consultations, complete charts and records, and see patients who are hospitalized or in nursing homes.

· Financing. "We're dually capitated, with capitated payment systems from the state and federal governments," McCann says. "So we can't cost-shift between acute care and chronic care settings. For instance, nursing homes in New York state that are funded by Medicaid have a financial incentive to hospitalize acutely ill patients, where Medicare pays for the hospital bill and Medicaid pays for a bed hold in the nursing home."

Both Medicare and Medicaid pay PACE monthly capitation payments, which provide services beyond the usual benefits. Patients who are not eligible for Medicaid pay privately for that portion of the monthly fees.

"Medicaid pays two-thirds of the rate, and Medicare pays one-third," McCann says.

People enrolled in PACE pay no added fees, copayments, or deductibles.

HCFA bases the Medicare capitated rate on the average area per capita cost (AAPCC) that is used to reimburse Medicare HMOs. The AAPCC is multiplied by a frailty adjustment factor of 2.39 to arrive at the reimbursement rate. In 1994, the range of Medicare monthly capitation for PACE sites was $689 to $1,562.

States base PACE reimbursement on a percentage paid for a comparable frail, long-term care population. In 1994 this monthly capitation rate ranged from $1,486 to $4,465.

PACE providers bear full financial risk for services provided. They cannot shift costs, and they manage risk through aggressive preventive health practices, McCann says.

Reinsurance is used only for cost reimbursement of end stage renal disease patients.

· Cost-effective care. Independent Living for Seniors keeps frail elderly people as healthy and independent as possible, McCann says.

"We have many strategies for handling the population," McCann says. Most importantly, the program has a multidisciplinary team with occupational therapists, dietitians, aides, physical therapists, a chaplain, registered nurses, and physicians.

Independent Living has four day centers, based on the English day hospital concept, in which as many services as possible are provided at the centers, McCann says.

The day centers provide senior members with all therapies, personal care services, meals, and social services. When the patients return home for the night, they receive home care if needed. Not all seniors will attend the day center each day. But if someone is sick, they will stay at the day center.

For example, a patient who has pneumonia may be taken to the day center, where he or she could receive the necessary antibiotics. Then if the patient is too unstable to return home, the program will move him or her into a special apartment, called transitional housing, that Independent Living rents, McCann says.

"We develop alternatives to hospitalizations that not only save money, but give patients better care for many things," McCann says.

"Our people who live out in the community live in many different types of settings, with some living in homes, others in senior living apartments, and some have shared aide set-ups," McCann says. "We give care at their homes, and we try to have their families remain involved as much as they can, but without taking over their lives."

· Preventive and palliative measures. The Rochester PACE site emphasizes preventive care and health risk assessment to help patients maintain function and decrease morbidity.

"We assess everyone's home, especially when someone is at risk for falls or has fallen," McCann says. "We look at medications to see if they're on medications that sedate them or cause blood pressure to drop, and we have them do exercises to strengthen their muscles and prevent deconditioning."

PACE programs also provide nutrition assessment and annual screening for depression.

The program also provides excellent palliative care using a hospice model, McCann adds. PACE patients send only about half as much time in the hospital during their last days of life as does the average older patients.


1. McCann R, et al. PACE: A continuing evolving success. J Am Geriatr Soc 1997; 2:24-228.