Editor’s Note: In a recent webinar, Manatt Health provided a guide to navigating the exploding growth and transformational trends remapping the long-term and post-acute care (LTC and PAC) landscape. The article below summarizes highlights from the program. If you missed the session, click here to view it free, on demand. To download a free PDF of the presentation for your continued reference, click here.

Defining LTC and PAC

It’s important to recognize the distinction between LTC and PAC. PAC involves a range of medical services that are focused on helping an individual recover from an illness or manage a chronic condition. Medical care includes home health, skilled nursing, inpatient/outpatient rehab, long-term acute care and hospital/palliative care. Medicare is the primary payer, but Medicaid and commercial insurers are involved as well. For example, for home healthcare, 45% of the payments come from Medicare.

In contrast, LTC involves a range of services and supports that individuals need to meet personal care and daily routine need. There is a large element that involves nonmedical assistance to help with daily living activities, such as bathing and dressing, and instrumental activities, such as housework and personal finances. LTC is really about helping someone to live his or her life in the best possible way. Medicaid is the primary payer. In 2011, Medicaid expended $131 billion for LTC, and 60% of nursing home residents have Medicaid as their primary payer. In 2009, 32% of elderly Medicaid enrollees used LTC financed by Medicaid. In fact, LTC accounts for 74% of Medicaid spending on the elderly.

Although there are distinctions between LTC and PAC, they are often provided alongside each other, and the demarcation is not always that clear. Both are vital parts of the care continuum.

Understanding How LTC and PAC Differ from Other Elements of the Care Continuum

There are four key ways that PAC and LTC differ from other elements of the care continuum:

  1. Patient profiles. There is a much higher rate of chronic conditions in the PAC and LTC populations, often combined with comorbidities, functional impairments, and disabilities. 
  2. Use of services. Services are used for a longer period of time and include elements that are not medical. 
  3. Goals. PAC’s goal is to restore functional capabilities, as well as the ability to live independently following an acute illness or the development of a chronic disease. LTC’s objective is to support daily living activities. There are no true “medical recovery” goals. 
  4. Role of family and friends. Family and friends often play an enhanced role in patient care, both in the home and in different institutional settings.

Recognizing the Importance of Focusing on LTC and PAC

LTC and PAC providers are playing an increasingly critical role in ensuring continuity of care and addressing complications that can reduce unnecessary hospital admissions and emergency department use. There’s a growing consensus that there is a significant opportunity to improve care quality and cost-effectiveness for LTC and PAC populations.

Managed care for seniors and people with disabilities who use LTC is still relatively small, but it is steadily growing. In 2012, there were about 389,000 people who received Medicaid LTC through managed-care arrangements, compared with 105,000 in 2004, and we see more and more states beginning to include this population in their managed care plans. On the other hand, 30% of Medicare beneficiaries were enrolled in Medicare Advantage plans as of 2014, compared with 13% in 2004. It’s hard to imagine integrating the care continuum without encompassing post-acute and long-term care.

Emerging Policy Issues Affecting LTC and PAC

There’s increased attention on how to finance LTC and move beyond Medicaid, which is such a central element of the current financing system, causing a strain on state budgets. There are a number of government entities and organizations, most recently the Bipartisan Policy Commission, looking at options for reforming and improving the financing system.

At the same time, there is wide recognition that there are significant challenges around quality measurement and reporting. We don’t yet have a good sense of the state of quality today. We are dealing with a heterogeneous population that includes not only the elderly but also the young disabled and children. Adding to the complexities, LTC and PAC involve multiple provider types with different tools and payment structures.

Other major policy concerns include:

  • Ensuring mandatory access across certain populations,
  • Placing patients in the right care settings,
  • Increasing public reporting requirements with penalties in some cases for nonreporting,
  • Reducing unnecessary variation in spending and
  • Growing attention on provider compliance.

Understanding the Four Mega Trends Shaping the LTC and PAC Landscape

There are four transformational trends that are defining LTC and PAC today—and into the future:

1. The new aging
2. From volume to value
3. Mega health systems
4. Centrality of states

Below we examine each of these critical trends—and its impact.

Trend #1: The New Aging

As everyone knows, the elderly population in the United States is growing. By 2050, 20% of the total population will be 65 and over, up from 12% in 2000 and 8% in 1950. By the same year, 4% of the population will be 85 or older, 10 times the share in 1950. It’s also important to recognize that average lifespan, which was 47 in 1900, is now over 79. In addition, a new MedPac report projects that by 2030 there will be 80 million Medicare beneficiaries.

In delving into the aging issue, it is vital that we look at the prevalence of chronic disease, which increases as people get older. We have made some strides, but prevalence remains high for many chronic conditions. For example, the percentage of those 65 or older with heart disease has remained stable at 30%. Hypertension also has not increased significantly, with 55% of people over 65 suffering from high blood pressure. Diabetes has gone up, with the prevalence now in the 20% range. Asthma has increased, as well, with prevalence for those 65+ now reaching about 11%.

Among the aging population, we have seen considerable change in palliative and end-of-life care planning and treatment. The percentage of adults who have written down or discussed what they wish for end-of-life care and who would consider palliative care has increased dramatically. There’s also been substantial growth in hospital-based palliative care—a 157% increase between 2000 and 2011. This growth has not been mirrored yet on the community side.

In addition, there has been a dramatic increase in the utilization of hospice care. In 2012, 1.6 million patients received hospice care—and 46% of Medicare decedents received hospice services, compared to 23% in 2000. Medicare spending on hospice care is expected to balloon from $15 billion in 2012 to $27 billion in 2020.

All these changes have combined to put the workforce under pressure, with LTC and PAC systems facing major shortages. The turnover rate for the formal workforce—including nurses and physical and occupational therapists—is a staggering 46%. Demand for these workers is expected to increase by 48% over the next decade.

Most of the care in the LTC system, however, is provided by informal or family caregivers. More than 75% of adults with LTC needs depend on their families. Today, 44 million Americans provide informal care, representing an economic value of $450 billion. On average, informal caregivers provide 18 hours of care a week, with 46% saying they perform medical and nursing tasks.

The key takeaways to remember for the new aging are:

  • PAC and LTC need, usage and spending will explode in the coming years due to the growth in the elderly population and the increased longevity of those living with chronic and disabling conditions.
  • The demographic changes will increase pressure on providers to develop new delivery models, expertise and treatment methods to help people manage chronic conditions.
  • The care continuum must be integrated, with providers collaborating across all sites of care.
  • Individuals and their families are increasingly embracing palliative care and hospice, creating a premium for providers to design care models that integrate these services.
  • The direct service and informal caregiver workforces are under tremendous strain, requiring a deliberate strategy focused on workforce development and training.

Trend #2: From Volume to Value

From volume to value focuses on doing more with less. It has three offshoots, including what we see in terms of healthcare cost trends; the emphasis on population health management; and the focus on innovative payment mechanisms, which we are testing along with value-based purchasing.

When we look at spending trends, we see that Medicare PAC spending grew dramatically from 2000 to 2012. In that 12-year period, there was an 89% growth in per-beneficiary spend, and a 138% growth in the total PAC spend. That growth is notable because it exceeds the expenditure growth in hospitals and other parts of the healthcare system.

It’s also important to note, however, that PAC per capita costs vary considerably by region. There are parts of the country, such as Texas, Florida, and Louisiana, where per capita costs are much higher and supply is much greater.

The Affordable Care Act (ACA) authorized new Medicare payment models, a number of which, like payment bundling and Accountable Care Organizations (ACOs), not only increase risk-taking for providers but also put more pressure on them to integrate PAC and make sure that the proper site of care is being used. Looking ahead, there are six areas that the Centers for Medicare & Medicaid Services (CMS) will continue to focus on that affect Medicare PAC payments:

  1. Broadening the readmission penalties for acute care providers and extending those penalties to PAC providers.
  2. Emphasizing site-neutral payments for comparable services in different PAC settings for clinically similar patients. 
  3. Eliminating financial incentives to provide excess services and shrinking payment rates.
  4. Piloting new payment programs to encourage coordinated, efficient care in clinically appropriate settings.
  5. Using common assessment instruments to identify more clearly the optimal PAC setting for each patient.
  6. Adopting common, consistent processes for measuring, collecting and reporting quality, cost and outcomes across settings.

In addition, there is a new emphasis on measuring patient quality and PAC performance. On October 6, 2014, the President signed a new law in the PAC area called IMPACT (Improving Medicare Post-Acute Care Transformation). IMPACT requires PAC providers to report standardized patient assessment data, data on quality measures, and data on resource use. It requires interoperability of data to coordinate care and improve Medicare beneficiary outcomes. It also provides performance feedback to PAC providers. Finally, it allows the Department of Health and Human Services (HHS) to reduce market basket percentages for skilled nursing facilities by 2% for failing to report data.

As PAC and LTC providers look to move from volume to value, they face continuing IT challenges, though change is on the horizon. PAC and LTC providers were not included in the Health Information Technology for Economic and Clinical Health (HI-TECH) Act and have been late in adopting electronic medical record (EMR) capabilities. They’ve struggled because of the significant capital needed, as well as the interoperability challenges.

We are beginning to see movement, however, with PAC providers starting to adopt EMR technology. Technology is improving with the development of PAC-specific capabilities. In addition, health systems are seeking tools to integrate with PAC EMRs, easing transitions and optimizing patient care. There has been an increase in IT tools used in PAC settings, including remote monitoring for home care, e-hospitalist and e-ICU programs, as well as other telehealth capabilities. Reimbursement remains an issue, however, though recent national attention to telehealth reimbursement is promising.

The key takeaways for the volume-to-value trend are:

  • There is a push to reduce payments and pay for bundles of services across care sites.
  • There is an increased focus on quality reporting and clinical outcomes as CMS and other payers seek to minimize variations in spending and identify higher-quality, lower-cost PAC providers to include in narrowing networks.
  • Providers are innovating to integrate care coordination and care management services and will continue to do so at a rapid rate.
  • New technologies are moving into the LTC space more quickly, helping providers manage patients in these care settings and connect to other providers to optimize patient management.

Trend #3: Mega Health Systems

The mega health system trend includes the rising power of consolidated organizations and affiliated networks, as well as the increase in national providers and continuing care networks. It is important to realize that over one-third of Medicare patients require some form of post-acute care after an inpatient stay—and many require multiple levels of care, a trend that’s expected to increase.

Currently, the highest percentage of discharges continue to go to skilled nursing facilities, but home healthcare has been increasing steadily in terms of its share of discharges. On the readmission side, 23% of those from PAC sites and 22% from skilled nursing facilities are readmitted to the hospital. Home healthcare has the highest readmission rate at 28%.

In a “race-to-scale” for health systems, we are seeing an acceleration in consolidation and the formation of integrated delivery systems. Integration is happening horizontally as well as vertically, and the super systems that are emerging are blurring the lines between traditional insurance, hospital systems and provider networks. They also are focusing more than they have historically on PAC and LTC.

At the same time, there is the emergence of larger PAC providers in the marketplace. For example, the merger of Genesis Healthcare and Skilled Healthcare in 2014 created a $5.5 billion PAC provider. In addition, the merger of Kindred and Gentiva creates the largest ($7.1 billion) integrated PAC provider in the United States.

The key points to remember about the mega health systems trend are:

  • System formation nationally is creating larger integrated delivery systems that are seeking to include LTC providers through acquisition or strategic partnerships.
  • Emerging health systems are looking to create networks of high-performing, collaborative LTC providers in continuing care networks, forcing LTC providers to establish formal relationships and demonstrate value.

Trend #4: Centrality of the States

States are becoming increasingly important players in the LTC space. There are three areas where states are focusing—transitioning to new models of Medicaid payment and delivery, transforming Medicaid into a proactive purchaser and extending managed care to high-cost beneficiaries.

Medicaid is a significant driver of the payment and delivery system reform happening throughout the country. There are a number of ways that states are partnering with the federal government to support payment and delivery system innovations:

  • State Innovation Models (SIM). CMS awarded more than $300 million in SIM grants to states to support multipayer payment and delivery system transformation.
  • Center for Medicare & Medicaid Innovation (CMMI). CMMI oversees $10 billion in transformation funding, including the $2 billion Healthcare Innovation Awards (HCIA).
  • 1115 waivers and Delivery System Reform Incentive Payments (DSRIP). Reform funding ties investments in provider-led delivery system reforms to improvements in quality, population health and cost containment.
  • Coverage expansion. Many states are expanding Medicaid to ensure the sustainability of delivery system and payment reforms. With expansion, Medicaid becomes the single largest payer.

In addition, many states are seeking to advance multipayer initiatives for long-term, sustainable reform. Seven states are testing models to align Medicaid and commercial payers. Nine states are participating in Dual Eligible Demonstrations to align incentives for PAC and LTC between Medicare and Medicaid.

It’s interesting to see each state bring its own approach to Medicaid payment and delivery reform, based on its own dynamic and political situation. For simplicity’s sake, we’ve bucketed the approaches into three areas:

  • Provider-led care management. States are not relying on an insurance company-based model to drive reforms. Instead, providers are either delivering a care-management model themselves through patient-centered medical homes (PCMHs) or health homes (as in Arkansas), or coming together and assuming risk through a global capitation (as in Oregon).
  • Managed Care Organizations (MCOs) and ACOs. States like New Jersey and Minnesota are requiring insurance companies to contract with ACOs or PCMHs to drive reform through provider-based organizations. There’s still the insurance model, however, that is assuming risk for the state.
  • MCO Expansion. New York and Texas are examples of states focusing on expanding managed care. New York is probably most well-known for this approach, having moved virtually everyone in its Medicaid program to some sort of MCO, including those using LTC services.

The ACA provides a number of different levers for states and providers to improve the access and delivery of long-term services and supports (LTSS). Many of these—including The Money Follows The Person, The Community First Choice, and The Balancing Incentive Program—are aimed at transitioning individuals out of facility-based settings and into community settings.

Several states also have taken up the Health Home Option Program, which supports intensive-care coordination and a case-management approach for the chronically ill. The benefit is that the federal government picks up 90% of the cost for the first two years of the program.

The Duals Demonstration has proven to be another interesting experience in terms of integrating Medicaid and Medicare programs. States, providers and health plans have struggled for years with navigating the two programs. The ACA created a Duals Office, and 26 states initially showed interest. With a number of states pulling out for various reasons, that has now been whittled down to nine—but there still is a significant focus on trying to integrate both Medicaid and Medicare.

Another key issue is improving access to community-based LTSS for the medically frail. When states expand Medicaid, they have the option of determining which benefit package the medically frail will receive. States either can provide services through their current plan or use an alternative benefit plan, which is essentially the suite of benefits that is offered to the Medicaid expansion population. For the most part, states are choosing the state plan option, but we’re watching this area to see exactly how LTSS will be delivered to the medically frail population.

We have seen soaring growth in Medicaid Managed LTC programs, expanding coverage to more complex patient populations—and we expect that trend to continue. Medicaid managed LTC plans are focused on keeping individuals out of facilities and in the community. It will be interesting to see the role nursing homes play in Medicaid-managed LTC programs, as they have not traditionally been included in these risk-based models.

The key points to focus on around the centrality of the states trend are:

  • Medicaid programs are becoming significant drivers of system transformation in their states, often creating platforms for integrating LTC into the Medicaid benefit.
  • Managed care will continue to increase in states, including managed care for LTC services, forcing PAC/LTC providers to demonstrate value to payers.
  • Emerging delivery models, including ACOs, PCMHs and others, will increasingly impact how LTC providers interact with Medicaid patients, encouraging them to become part of networks responsible for overall cost and quality.


There is increasing activity in the PAC and LTC arenas—and this trend will continue as the population ages and demand grows. The soaring need for services is forcing providers to target patients more effectively through differentiated interventions and new models of care. Providers need to focus on those with multiple chronic conditions and better coordinate medical and supportive care.

In addition, both fee-for-service and managed care systems are facing considerable payment pressures, with a growing need to increase productivity and demonstrate value. It will become essential to be agile and adapt to different accountability and payment structures, incorporating broader clusters of services and increasing levels of risk.

At the same time, the consolidation, both horizontal and vertical, to create mega health systems will drive PAC and LTC providers to integrate into networks or become valued partners. Large systems are beginning to recognize the importance of LTC services to their quality and clinical outcomes, yet are finding them hard to provide.

In this new environment, new competencies—such as marketing, negotiating, understanding costs and creating a culture and infrastructure around quality and accountability—will be necessary. With the growing demand for services and the new skills required, workforce capacity and technology, both internal and external, will require extensive attention and investment, at a time when capital is scarce.