Indiana long-term care (LTC) advocates scored a major win recently after the state’s governor signed legislation into law that carves out institutional LTC from the state’s managed Medicaid program following the exhaustion of a resident’s 100 days of Medicare eligibility.

The developments in Indiana may be instructive for other states. And while the law has received attention on its merits, it’s also gained traction because Indiana’s actions mark the first time a Republican-led state (governor, and super majorities in the legislative bodies) excluded LTC from managed care solely because it costs the state more than the state Medicaid program, according to analysis by Jay Gormley, chief investment officer, COO, Advisory, Zimmet Healthcare Services Group.

To get the story on the new law and how it came to be we spoke to Paul Peaper, the president of the Indiana Health Care Association/Indiana Center for Assisted Living (IHCA/INCAL). On the ramifications for other states, he said, “We were certainly focused on our membership here in Indiana, but now looking back and hearing from some of my colleagues who are providers in other states, there is certainly hope there's some opportunities for them to use this to their advantage, as they're working with their respective legislators.”

A Program in Trouble

From the start, when Indiana took the plunge into managed care in July 2024, Peaper said it was clear to the LTC sector that the plan was not going to succeed.

Despite efforts by IHCA to work collaboratively on what the state calls the PathWays for Aging program, the program did not work effectively for the state’s residents and IHCA/INCAL members as predicted by the association.

Eventually, financial losses made the point clear on the need for radical reforms to the system, he said.

“At this time last year, providers just a year into the program were owed over $100 million and delayed payments from the managed guarantees. So, we were able to kind of point to that saying ‘look, we set up what was going to work in this population. Now we're here into the program and they [health plans] can't even figure out how to pay us.’”

Fast forward to this year and the problems continued and got worse. Peaper said reports from year one of the program came out, and the managed care entity spent $300 million more than what was budgeted.

“From that we engaged CLA to do a kind of audit,” he said, which in turn led to CLA finding the states spent more than $91 million more on the managed care program than it would have spent on Fee-for-Service for beneficiaries.

Peaper cautioned that the success in getting the legislation approved and turned into law was a “four-year slog” built on IHCA/ICAL members staying disciplined and did not happen overnight.

“We led our advocacy with data all along the way saying it wasn't going to work. Not only is it not working. It's now costing you the state more money. And so, I think that was enough of for the legislature to say, okay, now at least for that long-term state population, we'll carve it out, because there's really no value to be had for the main care entity,” Peaper said.

What the Law Does

Due to the insurers’ administrative and financial failures in overseeing the PathWays for Aging program, HEA 1277 attempts to address their shortcomings by moving long-stay nursing home residents out of the PathWays for Aging program and into an FFS model that is not run by the insurance companies starting July 1, 2027.

Nursing home residents who are 59 years old and younger today are currently under an FFS program, so with this legislative change, long-stay residents would also be under FFS. Similar to what the CLA report identified for Indiana, New York instituted a similar transition for its long-stay nursing home population and saved $246 million per year as a result, according to IHCA/ICAL.

HEA 1277 also implements an individual cost limit for Medicaid beneficiaries on the PathWays waiver. The PathWays Medicaid waiver allows individuals who qualify for nursing home level of care and are 60-years-old and older to be served in their home or community. As has been shared publicly, thousands of individuals are costing the Medicaid program $150,000-$200,000 or more per year for care, while nursing home care is nearly half that and assisted living care is a fifth of that cost.

The association said HEA 1277 goes on to require FSSA [Family and Social Services Administration] to file a waiver application with the Centers for Medicare and Medicaid Services by Sept. 1, 2026, to establish a standalone waiver for assisted living services. Illinois, Ohio, and other states have similar assisted living Medicaid waivers, which have served as important Medicaid cost savings programs given the clear affordability and high quality of assisted living services.

“The waitlist was in response to exploding Medicaid costs, and assisted living is being unfairly targeted,” Peaper said. “A separate waiver creates a clear path to the most affordable HCBS service that generates the clearest savings to the state. A separate waiver also allows the state to specifically assess the population using those services and the resulting cost savings realized versus lumping assisted living in with more than a dozen other HCBS, as is currently the case for PathWays and the corresponding waitlist. These changes are a win-win for the state and the vulnerable, but there’s still work to be done. As Hoosiers and their health-care providers continue to live under the problematic PathWays program, we will continue to advocate for common-sense, evidence-based solutions to help ease the pain it causes.”

Why Indiana Move Is ‘Big’

Gormley said, in short, that Indiana is recognizing the operational realities of assisted living while also bringing more structure to how these services are financed under Medicaid. The most consequential provision, however, deals with managed care and institutional services.

“Beginning in 2027, once a Medicaid beneficiary has received nursing facility care for 100 consecutive days, that individual is removed from the managed care population and returned to traditional fee-for-service Medicaid,” he said.

This is a significant departure from the last decade of Medicaid policy thinking, “which assumed that capitated managed care models could control costs across nearly every population. Indiana is effectively acknowledging something operators have said for years.”

“Once someone is institutionalized, there is very little left to manage. Roughly 80 percent of the costs of operating a nursing facility are fixed. Staffing, regulatory compliance, clinical infrastructure, and the physical plant all exist regardless of who occupies the bed,” Gormley said.

“The variable costs that do exist are already addressed through acuity-based reimbursement systems tied to the individual resident. Layering a managed care intermediary on top of that structure rarely changes utilization or care patterns.”

What managed care often does instead is add administrative complexity, friction from prior authorization, and additional overhead that ultimately must be absorbed somewhere in the system.

“The [Indiana] bill also forces a more rational conversation about the relative costs of community-based care versus institutional care. Indiana requires that HCBS waiver services be structured so that the total cost of care for an individual does not exceed the cost of nursing facility services. In other words, there is now a clear ceiling tied to the institutional benchmark. That is an important policy acknowledgment,” he said.

Comments or questions? Contact Patrick Connole at pconnole@parkplacelive.com.