The Program of All-Inclusive Care for the Elderly (PACE) provides Medicare and Medicaid services for people aged 55 and older who require a nursing-home level of care but can safely live in the community with supports. Because PACE is a small program, enrolling about 56,000 Medicare beneficiaries in 32 states in 2023, relatively little research has focused on the PACE payment system. The DUALS Act, currently under consideration in the Senate Finance Committee, would expand access to the PACE program to enrollees under 55 and make it more broadly available across states. However, the current approach to paying PACE programs for the Medicare services they provide is based on the Medicare Advantage (MA) payment benchmarks that were in place before the Affordable Care Act (ACA), which were overly generous. In addition, since for-profit PACE organizations have entered the program in recent years, private equity has taken an increasing interest in acquiring PACE programs. These facts suggest that a closer look at Medicare payments to PACE programs is warranted to ensure that PACE expansion does not lead to unnecessary Medicare spending.
This brief compares Medicare payments to PACE programs across counties and assesses how PACE Medicare payments compare with payments to Dual Eligible Special Needs Plans (D-SNPs), a type of MA plan that enrolls beneficiaries with similar eligibility characteristics to those enrolled in PACE. We also explore state Medicaid payments to PACE programs, though publicly available data is lacking. We find the following:
- PACE programs differ from other care programs for beneficiaries dually enrolled in Medicare and Medicaid because they generally enroll a higher-need population, can fully blend Medicare and Medicaid payment to provide all-inclusive care, and focus on team-based care centered around a PACE day center.
- Research suggests that PACE enrollment leads to fewer hospitalizations and better patient satisfaction than other models of care, including D-SNPs.
- However, PACE enrollment remains very low, covering about 56,000 Medicare beneficiaries in 2023. Low enrollment may be related to PACE start-up costs, state and federal restrictions on establishing new PACE programs or expanding existing programs, and the need for beneficiaries to switch to a primary care provider affiliated with the PACE program upon enrollment.
- The DUALS Act would expand access to PACE by making it a required Medicaid program in all states, removing the requirement that beneficiaries be 55 or older to enter, and removing several restrictions on PACE development and expansion. The DUALS Act does not include any changes to the PACE payment system, however.
- Medicare payments to PACE programs to provide Part A and B services vary widely nationwide and within states. For example, PACE programs in Miami-Dade County, Florida, were paid $1,831 per member per month to provide Medicare Part A and B services in 2021, compared with $1,356 in neighboring Broward County, a difference of 35 percent. Such large differences in payments are driven partly by large differences in traditional Medicare spending and service use across counties that do not appear to be related to differences in the underlying costs of providing care.
- The ACA changed the MA benchmark system to reduce MA benchmarks across the country, but PACE was exempt from these changes.
- In 2011, before the implementation of ACA changes to MA benchmarks, Medicare payments to PACE programs were roughly equal to Medicare payments to D-SNPs in the 83 counties that had both options available. By 2021, Medicare paid PACE programs 20 percent more than D-SNPs in the same counties before risk adjustment. This suggests that PACE programs have benefited financially from being exempt from ACA reductions in MA benchmarks.
- Part D payments to PACE programs also exceed those to SNPs, but the gap narrowed between 2011 and 2021.
- Part D data shows that, while PACE enrollees have higher average risk scores than SNP enrollees, SNP and PACE enrollees look more similar in 2021 than in 2011.
Overall, our findings suggest that refinements to the PACE payment system are needed to align Medicare Parts A and B payments with other capitated programs like MA. Such payment changes should be accompanied by additional research and data collection focused on the PACE program. Policy changes to consider based on the evidence include:
- align PACE Medicare payment benchmarks with the ACA-created benchmarks for MA plans
- apply medical loss ratio requirements to PACE programs and consider developing a PACE bidding system similar to the MA bidding system to promote high-value care
- assess state variations in PACE Medicaid payments to ensure payment accuracy and adequacy to support the PACE model
- collect and report data on PACE financial performance and care quality
- conduct further research to explore risk adjustment coding intensity in PACE programs to determine whether incentives to code as many diagnoses as possible that lead to overpayment in MA also affect PACE payment.