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Medicare and Medicaid Programs; Notice for the Solicitation of Proposals for the Private, For-Profit Demonstration Project for the Program of All-Inclusive Care for the Elderly (PACE)

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Centers for Medicare & Medicaid Services (CMS), HHS.


Notice for solicitation of proposals.


This notice solicits proposals from private, for-profit organizations for a fully capitated joint Medicare and Medicaid demonstration program. The purpose of this demonstration is to determine whether the risk-based long-term care model employed by the nonprofit Programs of All-Inclusive Care for the Elderly (PACE) can be replicated successfully by for-profit organizations Start Printed Page 42230in various communities nationwide with comparable costs, quality, and access to services. The PACE model focuses on frail community dwelling elderly, most of whom are dually eligible for Medicare and Medicaid, and all of whom are assessed as being eligible for nursing home placement according to their State's standards. The program of care includes as core services the provision of adult day care and case management through which a multidisciplinary team coordinates all health and long-term care services for a participant. This demonstration will include a maximum of 10 for-profit demonstration sites.


Letters of Intent: We will begin accepting letters of intent from interested private, for-profit organizations beginning on August 10, 2001. Proposals: We will accept proposals beginning December 10, 2001. An unbound original and 10 copies must be submitted.


Letters of intent and proposals should be mailed to the following address: Department of Health and Human Services, Centers for Medicare & Medicaid Services, Attention: Michael Henesch, Project Officer, Center for Health Plans and Providers, Room C4-17-27, 7500 Security Boulevard, Baltimore, Maryland 21244-1850.

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Michael Henesch at (410) 786-6685, or by e-mail at

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I. Background

A. Legislative History

On Lok Senior Health Systems, located in San Francisco's Chinatown, began operating in 1971. The intent of the program was to enable the frail elderly to remain in the community and live at home. Participants were transported to an adult day care center a few times a week where they visited their physicians, received supportive services, and socialized with other elderly community members.

Under section 9412(b) of the Omnibus Budget Reconciliation Act of 1986 (Pub. L. 99-509), the Congress authorized a demonstration program of all-inclusive care for the frail elderly for nonprofit entities that sought to replicate the model developed by On Lok in various communities nationwide. The demonstration came to be known as the Program of All-Inclusive Care for the Elderly (PACE) demonstration. The On Lok protocol was used as the guiding principle for creating new PACE sites, and the demonstration eventually grew to 26 sites, including On Lok, in 14 States.

Section 4801 of the Balanced Budget Act of 1997 (BBA) (Pub. L. 105-33) authorized coverage of PACE under the Medicare program. It amended title XVIII of the Social Security Act (the Act) by adding section 1894, which addresses Medicare payment to, and coverage of benefits under, PACE. Section 4802 of the BBA authorized the establishment of PACE as a State option under Medicaid. It amended title XIX of the Act by adding section 1934, which directly parallels the provisions of section 1894. Section 4803 of the BBA addresses implementation of PACE under both Medicare and Medicaid, the effective date, timely issuance of regulations, priority and special consideration in processing applications, and transition from PACE demonstration project status. On November 24, 1999, we published an interim final rule with comment period, “Program of All-Inclusive Care for the Elderly (PACE)” (64 FR 66234) that establishes the nonprofit PACE demonstration as a permanent provider program under Medicare and Medicaid. These PACE regulations appear at 42 CFR Part 460—Programs of All-Inclusive Care for the Elderly.

B. Nonprofit Program Versus For-Profit Demonstration

Section 4804(a)(2) of the BBA requires us to conduct a study to compare the costs, quality, and access to services provided by for-profit entities to those of nonprofit PACE providers. The for-profit entities must operate under demonstration project waivers granted under sections 1894(h) and 1934(h) of the Act.

The protocol developed by On Lok contained the program's guiding principles and was used to review the proposals for nonprofit PACE demonstrations. Section 4801(h)(2)(A) of the BBA states that the terms and conditions for the for-profit PACE program must be the same as those for PACE providers that are nonprofit, private organizations except that only 10 waivers may be granted (section 4801(h)(2)(B) of the BBA). Under the demonstration for for-profit entities, the existing PACE regulations at part 460 for nonprofit, private entities, will be the primary standard against which proposals will be reviewed.

C. Program Regulations for Nonprofit Entities

The description below summarizes key components of the November 24, 1999 final rule for the nonprofit organization PACE program.

• State's Role

An interested organization should contact the State Administering Agency in coordination with the State Medicaid Agency about applying to participate in the PACE demonstration. The PACE demonstration is intended to be a three-way partnership between us, the States, and the PACE organizations. The State plays an integral role in not only the process for reviewing a proposal, but in the monitoring of an organization and the annual certification of a participant's eligibility. We will review a proposal after we receive an assurance from the State Administering Agency indicating that it considers the applicant qualified to be a PACE organization and that the State is willing to enter into a PACE Program Agreement with the applicant.

• General

A PACE participant must meet the State's nursing facility eligibility criteria, be 55 years of age or older, be a resident of the PACE organization's service area, and be assessed by the PACE organization's multidisciplinary team. The multidisciplinary team must consist of a primary care physician, registered nurse, social worker, physical therapist, occupational therapist, dietitian, home care coordinator, PACE center manager, recreational therapist or activity coordinator, driver, and personal care attendant. Except for the physical therapist, occupational therapist, driver, and dietitian, the members of the multidisciplinary team must be employed by the PACE organization. A waiver may be granted by the State Administering Agency and us as specified in § 460.102(g). The multidisciplinary team assesses each participant during the intake process, and develops a plan of care tailored to that individual's needs as specified in §§ 460.104 and 460.106. On at least a semi-annual basis, the multidisciplinary team must reassess the participant and reevaluate the participant's plan of care, including defined outcomes, and make changes as necessary.

A PACE organization must operate at least one PACE center and should either own or contract with at least one hospital, nursing home, and transportation service. The PACE organization must provide primary care, social services, restorative therapies, personal care and supportive services, nutritional counseling, and meals at the PACE center. A PACE participant must be able to access services 24 hours a day, 365 days a year. The PACE organization's responsibility for the participant extends beyond the PACE Start Printed Page 42231center. If the participant requires help cooking, cleaning, bathing, etc., a home visit must be arranged by the PACE organization. If the center's physicians are unable to treat a participant for a particular condition, the organization must pay for treatment by an outside specialist or provider. In addition to the provision of all Medicare and Medicaid services, without the usual limitations and conditions, the PACE service package must include all primary, acute, and long-term care necessary to improve or maintain the participant's health status with the exceptions specified in §§ 460.94 and 460.96. Section 1894(b)(1)(A) of the Act prohibits the use of deductibles, copayments, coinsurance, or cost sharing in this program. The capitation rate covers all of the costs related to the participant's care.

The PACE program seeks to enhance the quality of life and autonomy of the participant, while maximizing the dignity of, and respect for, older adults and elderly persons. A PACE program's success hinges on conscientious preventative care to avoid costly hospital and nursing home stays. It is the attentiveness of the multidisciplinary team and the preventative care and social interaction at the PACE center that helps participants to avoid acute and long-term care settings.

• Payment

The nonprofit entities are currently paid the Medicare+Choice rate (§ 460.180) multiplied by a frailty adjuster of 2.39 for all PACE participants except those diagnosed with end-stage renal disease (ESRD). Payments for persons with ESRD are paid the ESRD statewide rate book amount multiplied by PACE specific adjustors of 1.46 for part A and 1.36 for part B. At the present time, we are developing a specific risk adjustment methodology to apply to the PACE program that is expected to change the payment methodology in the future.

States that elect PACE set Medicaid rates subject to Federal regulations. Each State develops a payment amount based on the cost of comparable services for the State's nursing-facility-eligible population. The amount is generally based on a blend of the cost of nursing home and community-based care for the frail elderly. The monthly capitation payment amount is negotiated between the PACE organization and the State Administering Agency and must be less than the amount that is paid under the State plan if the participant is not enrolled in the PACE program.

II. Provisions of This Notice

A. Purpose

This notice solicits proposals from for-profit entities to demonstrate that they can successfully provide comprehensive coordinated care for the frail elderly under a prepaid fully capitated payment system.

B. Duration of the Demonstration

The demonstration will operate for 3 years. There is no authority for payment to for-profit entities outside of this demonstration, absent a change in the law. Participating programs must be prepared to disenroll participating beneficiaries at that time subject to the requirements of §§ 460.166 and 460.168. Under section 4804(b)(2) of the BBA, an evaluation of the demonstration comparing the for-profit entities to the nonprofit entities must be conducted. A CMS contractor will design and conduct an evaluation of the demonstration.

C. Requirements for Proposal Submission

We will only consider proposals from for-profit organizations. Interested applicants must submit a proposal that provides a comprehensive array of benefits and must be willing to assume full financial risk for all primary, acute, and long-term care. A PACE organization must accept both Medicare and Medicaid capitation to participate, although individual participants who are not eligible for Medicare or Medicaid may enroll in the program. We will consider only one site per proposal and define a site as one contiguous service area.

D. Proposal Process

Proposals will be accepted until we choose 10 sites. After we have chosen 10 sites, we will notify the organization that submits a letter of intent that the limit of approved sites has been reached. We recommend the following steps to expedite a proposal submission:

Step One

An organization that wishes to apply to participate in the demonstration should review the PACE program regulations for nonprofit organizations at Part 460 (Programs of All-Inclusive Care for the Elderly), which can be accessed from various sources including websites​medicare (or Medicaid)/PACE/pacehmpg.htm or​mara/​index.html, or by calling 1-888-293-6498. These regulations should serve as the organization's guiding principles during the development of a demonstration proposal for a PACE program. A successful proposal will be one that satisfies the requirements of the PACE program regulations.

Step Two

An applicant interested in pursuing participation should send a letter of intent to us and to their State Medicaid Agency. An applicant should collaborate with the State in developing its proposal. The for-profit organization should submit a complete proposal, along with 6 copies, to its State Medicaid Agency.

Step Three

Once the State agrees to enter into a PACE program agreement with the for-profit organization, the applicant should submit a proposal to us. In addition, the applicant should include a letter obtained from the State indicating that the State considers the applicant qualified to be a PACE organization and that it is willing to participate in the demonstration.

III. Final Selection

A review panel will perform an independent review of proposals and will make recommendations based on organizational capabilities, fiscal soundness, service delivery, quality improvement plan, and data collection and record maintenance capabilities.

Our Administrator will make a final decision on awards taking into consideration proposals that observe the following priority areas:

1. An applicant should be able to serve the frail elderly in geographical areas that are currently not being served. Sections 1894(e)(2)(B) and 1934(e)(2)(B) of the Act state that we may exclude from designation an area that is already covered under another PACE program agreement. This is to avoid unnecessary duplication of services and avoid impairing the financial and service viability of an existing program. The organization's State Administering Agency will also be able to provide technical assistance on this issue.

2. We would prefer to have a rural site participate to determine if these sites are viable and how the sites differ from existing nonprofit entities.

3. We would prefer to limit sites to one for-profit organization per State.

4. We encourage for-profit entities of all organizational types to apply. We would prefer to have a variety of sites with differing organizational structures and backgrounds to participate in the demonstration.

5. Finally, considering that this program grew out of a community's interest in enabling its elderly members to age in a community-based setting, Start Printed Page 42232and the program's emphasis on community involvement, we would prefer for-profit organizations that have a longstanding relationship with the community they serve to participate in the demonstration.

In reviewing the proposals, we will give greatest consideration to an organization's development of policies and procedures. Due to the short time frame of this demonstration and the frailty of the population, we need to be certain that the organization can anticipate potential problems and is prepared to handle the problems efficiently and effectively. In addition, these policies and procedures will increase quality by providing safeguards to protect the beneficiaries.

We reserve the right to conduct site visits to the awardee's location before making awards. An independent contractor, selected and funded by us, will design and conduct an evaluation. The awardee will be required to cooperate with the contractor conducting the evaluation.

IV. Collection of Information Requirements

As referenced in this notice, we will award up to 10 sites. However, given that we expect less then 10 proposals on an annual basis and the proposals are not standardized, the requirements referenced in this notice do not meet the definition of an information collection, as defined under 5 CFR 1320.3(c) and as such are not subject to review by the Office of Management and Budget (OMB) under the Paperwork Reduction Act of 1995 (44 U.S.C. 3501 et seq.).

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Authority: Sections 1894(h) and 1934(h) of the Social Security Act (42 U.S.C. 1395eee and 1396u-4)

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(Catalog of Federal Domestic Assistance Program No. 93.778, Medical Assistance Program; No. 93.773 Medicare-Hospital Insurance Program; and No. 93.774, Medicare-Supplementary Medical Insurance Program)

Dated: August 6, 2001.

Thomas A. Scully,

Administrator, Centers for Medicare & Medicaid Services.

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[FR Doc. 01-20049 Filed 8-9-01; 8:45 am]