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If you want to know one reason why Medicaid is out of control, look at the nearly empty Our Lady of Victory Hospital in Lackawanna.

The Catholic Health System wants to transform the campus into a village for the frail elderly, including an innovative program to keep people out of costly nursing homes and at home for as long as possible.

Advocates say the program would cut Medicaid costs and improve care.

With a tidal wave of aging baby boomers about to hit and Medicaid stripping county budgets across New York, the plan seems like a slam dunk.

It isn't.

Medicaid, for the most part, pays nursing homes or home care agencies when poor elderly need long-term care.

But ideas like OLV's to create new -- and less costly -- venues for frail seniors struggle for support. Regulations and inadequate financing stifle change.

"We need people in the state to be courageous enough to take risks, to spend more in the short run to save more in the future," said Thomas Briody, vice president of long-term care with the Catholic Health System.

Erie County Executive Joel A. Giambra and other critics rail against Medicaid as a "Cadillac" program with generous benefits that must be cut. They complain that New York spends more than California, a state with more residents in Medicaid.

But the optional services New York provides Medicaid clients, such as access to podiatrists, don't account for the bulk of the expenses.

Compared with other states, New York's Medicaid is fairly generous. But this state also has high concentrations of elderly and disabled, as well as a long-standing practice of using Medicaid to pay for services that other states pay for in other ways.

What else accounts for Medicaid's cost?

Among other things, New York in 2001 expanded Medicaid to cover low-income working adults who lack health insurance in Family Health Plus. More than 340,000 individuals have enrolled.

Medicaid pays the bills of most nursing home residents in New York, yet few less-expensive, less-institutional alternatives exist for the low-income aged. What's more, individuals with money can shelter their assets to get the government to finance their long-term care.

Proposals have been made to reduce the cost of Medicaid. Studies by state officials and others point to many possible fixes. But Medicaid is very difficult to put right.

The federal government pays half the cost, with New York and its counties sharing the rest.

Hard to make cuts

New York for years took advantage of the matching funds by aggressively broadening Medicaid to assist such groups as the mentally ill and developmentally disabled.

But it means that for every $1 the state cuts in the program, total Medicaid spending will decline by at least $2.

Trim benefits to poor recipients, an unpopular action politically, and the burden of caring for them falls to hospitals and other institutions.

Trim Medicaid reimbursement rates to hospitals and nursing homes, which the politically powerful health care unions and industry oppose, and the likely result will be layoffs, perhaps closings.

Such are some of the difficult tradeoffs any major reforms of the program entail.

"Medicaid has become an economic development program. If you try to cut it, the same people who scream about property taxes going up begin screaming about losing health care jobs," said James Fossett, director of the Rockefeller Institute's health and Medicaid studies.

A huge program

Medicaid is so big that it pays for 31 percent of all the hospital admissions and 78 percent of nursing home days in New York, according to the United Hospital Fund.

The money doesn't go to recipients. The state pays hospitals, nursing homes and others to provide services.

Critics say the system should instead move toward spending on exactly what services patients need and away from its reliance on institutions.

But many physicians don't accept Medicaid patients because payments have been so low. That's why Medicaid patients tend to use expensive emergency rooms.

Meanwhile, efforts to move Medicaid recipients into managed care plans that might control costs have gone more slowly than expected and exempted some of the costliest patients.

"Medicaid is no more out of control than health care in general. Yes, it's going up, but not because it's a total giveaway to the poor," said Charles Zettek Jr., project director of a Medicaid study by the Center for Government Research in Rochester.

The politics and economics of Medicaid can be perverse.

Dennis Rivera, president of Local 1199 of the Service Employees International Union, negotiated a deal two years ago with Gov. George E. Pataki and the State Legislature to provide $1.8 billion in raises for health care workers.

The agreement was harshly criticized because those raises caused Medicaid costs to rise.

"We should not be using Medicaid to solve the problem of nurse's aide pay," said E.J. McMahon, a senior fellow at the Manhattan Institute.

But the union represents 250,000 employees, many of them low-wage aides who are in short supply whom hospitals and nursing homes rely on to provide the day-to-day basic care to patients.

More than 3.4 million New Yorkers rely on Medicaid, the majority of them children. But the costliest recipients are the elderly.

Per person, New York in 2000 spent $22,138 per aged beneficiary and $20,400 per disabled compared with $4,059 for an adult and $2,142 for a child, according to the Center for Government Research.

The number and proportion of elderly is on the rise as people live longer thanks to the growing sophistication of care.

At the same time, a legal industry has developed to help middle-class individuals shelter their assets and turn to Medicaid to finance their long-term care. Federal law makes it difficult to change the rules.

Experts say many nursing home residents don't need such a high level of care. But few affordable alternatives exist.

Adult homes, which provide less-intense services, are struggling to survive in New York. In the Buffalo area, they receive $27 a day to care for a Medicaid resident.

"Medicaid was never intended for old people, and we have no national policy for aging. Everything has been patched together," said David Dunkelman, president of Weinberg Campus in Getzville.

To Dunkelman and others, the explosive growth of the aged population must be addressed.

"We are keeping people alive in twilight zones, people whose major bodily systems are compromised. It's like a new species, and society can't grapple with it. We have an inexhaustible number of old people eligible for Medicaid," he said.

Experts say the answer lies in creating less-institutional settings for care, such as the new program the Catholic Health System wants to open.

Change is costly

Nationwide, the Program for All-Inclusive Care for the Elderly, or PACE, has been slow to grow because of high start-up costs and regulations that stifle development. The only site in this region, which opened last year, operates at Weinberg Campus.

"It's the hardest thing I've ever done," said Dunkelman.

PACE rolls into one package all care, activities, meals, social work and transportation, with the philosophy of keeping individuals living at home for as long as possible.

"It aligns the incentives," Dunkelman said. "In a nursing home, we get paid more as residents get (more frail). In PACE, we get a capitated amount of money that makes us focus on prevention, but more flexibility in how we can spend it."

Medicaid critics often compare New York with California, where the Medicaid program covers more people for less money.

There isn't a clear answer as to why. The two states have different health systems, not just Medicaid programs.

Experts cite New York's bias toward focusing care in institutions and shifting additional services to Medicaid to increase federal matching funds.

New York's Medicaid program has a greater concentration of elderly and disabled than California's. There also is a high proportion of AIDS patients.

Some research suggests New York may have higher quality standards in health care and greater political influence than in California.

"We spend a lot on Medicaid in New York, but we all agreed to do it. And to be fair to the state, counties have benefited from using Medicaid to pay for other services," said Fossett.

Another comparison that gets less notice, but may be more instructive, is the wide variation of costs across New York.

Statewide differences

Erie County, for instance, spent $6,438 per Medicaid recipient in 1999-2000, compared with $17,709 in Putnam County, according to a study by Albany health care consultant John Rodat.

Differences in demographics, wages and cost of living account for part of the difference. It's also possible that differences result from unnecessary hospitalizations and surgery, gaps in community based care and unnecessary use of nursing homes.

The state has been slow to adopt information technology, disease management and other modern techniques to track the cost and effectiveness of care, Rodat said.

"We're running a $40 billion enterprise, and the board of directors is not demanding to know what the results are," he said.

Moreover, New York's managed care for Medicaid exempted some of the most expensive clients, such as substance abusers, individuals with AIDS and HIV infections, and the mentally ill.

"Let's face the reality that some of these patients need a lot of expensive care," Rodat said. "Let's figure out how to do it well."


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