As Congressional lawmakers consider additional funding for home and community-based services (HCBS) in Medicaid and the pandemic underscores the importance of enhanced support for community-dwelling seniors, a small but growing segment of the Medicare market is experiencing a resurgence. Programs of All-Inclusive Care for the Elderly (PACE) are designed to support frail, elderly Americans who require a nursing home level of care by providing comprehensive medical care and social supports to help them remain at home, and sources tell AIS Health that PACE competition is heating up as more venture capital firms look to invest in PACE organizations and as multiple states expand their programs.
The PACE market has seen steady growth in recent years and currently serves about 51,000 participants in 30 states, up from 34,000 participants in 2015 (see infographic), according to AIS’s Directory of Health Plans. Serving roughly 6,300 lives, private equity-funded InnovAge is by far the largest PACE organization, while other organizations on average serve about 380 participants. The PACE market has grown from about 30 to 140 organizations over the last two decades, according to the National PACE Association (NPA), and will see 14 new plan IDs in 2022, according to Clear View Solutions, LLC.
The PACE concept dates back to the early 1970s, when a public health dentist and a social worker founded On Lok (which means “peaceful, happy” abode in Cantonese) as a community-based model of culturally appropriate health care and supportive services for seniors in San Francisco. On Lok helped expand the model across the country, and it became a permanent part of Medicare in 1997. Individuals who meet eligibility criteria — age 55 or older, qualify for nursing home care, living in a PACE service area and able to safely live in the community — enroll and disenroll on a voluntary basis and never have to pay deductibles, coinsurance or any other type of Medicare or Medicaid cost sharing. It is a Medicare program that is separate from Medicare Advantage, and states can elect to provide PACE services to Medicaid beneficiaries as an optional Medicaid benefit. The program then becomes the sole source of Medicaid and Medicare benefits for PACE participants, most of whom are dual eligibles.
“It’s a model that works and delivers quality care — and what became unmistakably clear — during COVID, is just how well the model does work,” says Jade Gong, who consults nationally with PACE organizations. She points to strong evidence recently published in 2021 by the HHS Office of the Assistant Secretary for Planning and Evaluation (ASPE), which compared utilization and outcomes across integrated care models for duals and highlighted PACE as a “consistently high performer.” In the September report, ASPE observed that full-benefit dual-eligible beneficiaries in PACE “are significantly less likely to be hospitalized, to visit the ED [emergency department], or be institutionalized, while their mortality risk is not significantly higher, compared to regular MA enrollees.” That analysis did not include dual-eligible beneficiaries in Medicare-Medicaid Plans (MMPs) under the Financial Alignment Initiative demonstrations, which are being evaluated separately, ASPE noted.
Additionally, PACE participants fared better than their institutionalized counterparts during the COVID-19 pandemic, with comparison data consistently showing that PACE participants are at approximately one-third the risk of nursing home residents for contracting or dying from COVID-19, according to the NPA. As of June 2021, nearly one-third of all U.S. coronavirus deaths had been linked to nursing homes.
Setting Up PACE Is Resource-Intensive
So with nearly 3.7 million MA enrollees in a Dual Eligible Special Needs Plan and an estimated 2.2 million PACE-eligible individuals in the U.S., why is PACE such a small market? For starters, it is “capital-intensive,” explains Stephen Wood, co-founder and partner at Clear View. It takes several years and millions of dollars to set up a PACE program, which primarily involves the delivery of services through a physical site. That adult day center is where the participant meets with primary care physicians and other members of an interdisciplinary team that assesses the enrollee’s needs and develops a care plan. The organization must provide transportation to and from the center, which also allows opportunities for socialization through classes, games and other activities, and any other wraparound services to carry out the care plan.
PACE organizations receive capitated payments from Medicaid and Medicare that are used to cover all medically necessary care (including prescription drugs), and they assume all the financial risk. And if the participant were to experience an event that required hospitalization and long-term care in an inpatient facility, the organization would have to pay for that, too. As a result, the PACE organization is incentivized to provide all the supports necessary to manage participants’ care, “so by funneling all of your care activities through the center, you can manage the patient better and get better outcomes,” explains Clear View Co-Founder and Partner Kirk Twiss.
Compared with the MA application process, the lead time to open a PACE program is much longer and more complex, as it involves securing state approval to set up a PACE program — possibly through a competitive request-for-proposal process — approvals from the federal government, securing and building out the physical center, hiring of staff in advance of the center opening, and operating or contracting with a full range of Medicare- and Medicaid-funded services such as acute care, specialty physician services and transportation, sources tell AIS Health.
When managed appropriately, the business can be very profitable — with combined Medicare/Medicare capitation rates ranging from $6,000 to $8,000 on average — but scale has historically been the biggest challenge, asserts Wood. “Contrast that with the MMPs, which really didn’t take off…PACE seems to be getting its second or third wind, and now there’s a lot of activity in that space,” adds Twiss.
Programs Can Address Overutilization
And PACE has all the “right ingredients” for managed care investors: “good revenue flow, lots of unnecessary health care utilization that could be reduced, and unaddressed market need,” says Gong. But because of the heightened interest, states are going through “very deliberate processes, gathering information from interested organizations, in some cases doing a request for information before a request for proposal, then making selections through a formal RFP process,” she explains. States also have different approaches to establishing new PACE programs. The District of Columbia, for example, just awarded a contract to one entity to serve one defined service area, while other states, like Illinois and Maryland, are looking for multiple organizations to serve more than one service area. Other states that are in various stages of expanding their PACE programs include Massachusetts, Ohio and New Jersey, according to Gong.
“It is just an unprecedented, competitive environment for establishing new PACE organizations,” she says. “We are at a point where policymakers and consumers can clearly see that PACE had the unique flexibility to deliver quality care during COVID — so the case for expansion is so much more compelling, and we’ve never had this many states at the same time interested in expanding. It’s an incredible, exciting opportunity.”
Historically, the competition would have been among not-for-profit, provider-led entities but since 2016, CMS has let for-profit entities participate. One company that’s grown exponentially in recent years is Denver-based InnovAge, which as of 2016 had received the most private equity funding for a PACE organization, including from Welsh, Carson, Anderson & Stowe, the New York Times reported. (Hg Capital Partners and Welsh, Carson, Anderson & Stowe share control of MMIT, the parent of AIS Health.) The company went public in March and plans to expand its footprint of 16 centers in five states.
When asked why traditional managed care organizations, like a D-SNP carrier, haven’t started a PACE program, Gong says there is “definitely interest” among the MCOs. “Even a large health plan like UnitedHealthcare or another plan must go through the process of securing state and federal approval to operate a new PACE program. You don’t just get to operate a PACE program without specific approvals even if you already operate other plans.”
The NPA, which is based in Alexandria, Va., seeks to advance the efforts of PACE programs nationwide. Robert Greenwood, senior vice president, communications and member engagement, tells AIS Health that the association’s mission is to “have a PACE model of care available to as many people as could benefit from it,” and it is working with states and PACE organizations to expand access to the program. The ongoing PACE 2.0 initiative is “looking at the model and public policy and trying to figure out how we could grow PACE exponentially,” he explains, and has a goal of enrolling 200,000 participants by 2028. The NPA also continues to assess and advocate for PACE risk adjustment improvements to better reflect the acuity of PACE participants.
He adds that the NPA is supportive of increasing private equity interest. “Having as many sources of investment as possible is very helpful and we do think that will contribute to faster growth in the future,” says Greenwood. “We’ve seen waves of growth and we’re experiencing one now; the pandemic has really focused a lot of attention on the need to provide more services in the community for older people.”
The Build Back Better Act, which passed the House on Nov. 19 and is currently being debated in the Senate, includes a $150 billion investment in HCBS so that states could make long-term, systemic changes to improve access to HCBS, such as by addressing workforce challenges, streamlining HCBS eligibility and enrollment and providing supports to family caregivers, according to a summary from the Center on Budget and Policy Priorities.
Greenwood says the additional funding could further the NPA’s mission. “It’s really been very encouraging to see caregiving and community support for seniors talked about in a public policy way as part of the basic infrastructure, so I think as far as the future workforce and being able to attract and train the type of workers that we’ll need as we grow, I think those monies could be helpful,” remarks Greenwood. “And I think as states look for ways to provide care and services for a population that is growing, I think these are monies that they could use to expand and support PACE development. And so, we’ve worked to make sure that legislation recognizes PACE as a type of home and community service so that states will have the option to use those funds to support PACE.”