< PreviousA PROFESSIONAL DEVELOPMENT JOURNAL for the CONSULTING DISCIPLINES 30 SEPTEMBER | OCTOBER 2020 t h e v a l u e e x a m i n e r This column provides summaries of contemporary research in valuation and forensic accounting. Summarized manuscripts—selected from numerous academic research outlets—cover significant developments that affect the ever-changing valuation and forensic accounting landscape. The objective is to increase awareness of recently completed research that advances knowledge of these subjects. As this column evolves, I encourage readers to forward relevant manuscripts or working papers for consideration. Please send links and/or files with Academic Research Briefs in the subject line. Bitcoin, Virtual Currencies, and the Struggle of Law and Regulation to Keep Pace Author: Lawrence A. Trautman, Western Carolina University. Source: Marquette Law Review, Vol. 102, No. 2, Winter 2018, pp. 447–538. Summary Trautman writes about the relentless battle of law and regulation to keep up with the never-ending technological changes affecting Bitcoin and other virtual currencies that began in 1982 with a cryptography journal article written by David Chaum.1 Blockchain, which serves as Bitcoin’s foundation, exceeds the ability of law and regulation to keep up with it on a continual basis. Worldwide, the use of virtual currencies has grown at an exponential pace, thus making it next to impossible for governments and banking systems to keep up with its oversight. In the U.S., Trautman points to the Commodity Futures Trading Commission (CFTC), the Securities and Exchange Commission (SEC), and the Treasury Department’s Financial Crimes Enforcement Network 1 David Chaum, “Blind Signatures for Untraceable Payments,” in Advances in Cryptology: Proceedings of Crypto 82, ed. David Chaum et al. (New York: Springer, 1983), 189. (FinCEN) as the primary sources of enforcement actions involving legal violations related to virtual currencies.2 Trautman’s article covers six topics on the financial and legal aspects of attempting to regulate Bitcoin and other virtual currencies.3 First, he provides a narrative of the development of virtual currencies and explains their technological basis, called blockchain. Second, he discusses the rapid speed of technological change and compares it to a major inflection point in history, marked by the arrival of the Guttenberg printing press and the Industrial Revolution. Third, Trautman examines regulation of the U.S. financial system, consisting of the Federal Reserve, the U.S. central bank that oversees much of the banking system; the Department of the Treasury, which prints money and offers economic advice to the President; the CFTC, which regulates commodity futures and options markets; and state banking regulators. Fourth, he looks at the SEC and its role in protecting the investing public from virtual currency fraud—specifically, by regulating initial coin offerings (ICOs). Fifth, he provides a discussion of the regulatory role of the CFTC, focusing on law enforcement. Sixth, Trautman examines the present state (as of early 2018) of regulatory developments, including the status of the Uniform Regulation of Virtual Currency Businesses Act (URVCBA). Cause of the Problem for Regulators Trautman asserts that 2017 was the year of Bitcoin. In that year, the SEC rejected a proposed Bitcoin exchange traded fund (ETF), Japan created new rules promoting Bitcoin, the CFTC approved Bitcoin options, China announced a ban on ICOs, SEC Chairman Clayton stated that U.S. ICOs may 2 It should be noted that the Internal Revenue Service (IRS) has placed virtual currency transactions under intense scrutiny in regard to reporting taxable transactions. See Alan Winston Granwell, Andrea Darling de Cortes, and Alexander R. Olama, “INSIGHT: Virtual Currency—The Taxman Is Coming,” Bloomberg Tax, January 7, 3 Trautman points out that as of September 11, 2018, Coinmarketcap.com listed 1,935 different cryptocurrencies. As of August 25, 2020, the site listed more than 2,000 different cryptocurrencies. Academic Research Briefs By Peter L. Lohrey, PhD, CVA, CDBV /////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////// /////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////// ACADEMIC REVIEWA PROFESSIONAL DEVELOPMENT JOURNAL for the CONSULTING DISCIPLINES t h e v a l u e e x a m i n e r SEPTEMBER | OCTOBER 2020 31 need to be registered as securities offerings, the CFTC said it would allow Bitcoin futures to start trading on two exchanges, and the Chicago Mercantile Exchange launched Bitcoin futures. The total value of Bitcoin in circulation in 2017 equaled almost $300 billion, making it the sixth largest currency in the world. In 2018, Trautman continues, the world woke up to the realization that it was next to impossible to regulate Bitcoin and other virtual currencies. Yale professor Dov Greenbaum wrote, “until governments figure out a coherent response to this technology, each regulatory agency will tend to move independently and inconsistently.”4 From a regulatory perspective, Trautman’s paper pinpoints the following question: “Is a virtual currency to be regulated as a currency, security, or commodity?”5 That, in a nutshell, is the dilemma facing regulators of financial markets. This is a worldwide problem, and no one seems to have a definitive answer that would be accepted universally. Further, even if regulators were able to arrive at a conclusive answer as to what Bitcoin is, how will we ever find a way to regulate its use throughout the world?6 Cryptocurrency Crimes Trautman points out that in 2013, Bitcoin gained acclaim as a shadowy vehicle used to transmit monies used in illegal activities, concealing the identities of the perpetrators. These activities included illicit drug trading, armament sales and purchases by terrorists, money laundering, ransomware attacks on businesses, payment of assassins, corporate espionage, sexual exploitation, stolen credit cards, high return investment schemes, and child exploitation. Trautman relates how researchers at Carnegie Mellon and Delft Technical University in the Netherlands used data collected from anonymous major online marketplaces between 2011 and 2017 to discover: First, the largest type of digital goods listings we observed (approximately 12,000 out of roughly 44,000 total offerings in the digital goods category) were “cash-out” schemes. These cash-out schemes primarily include: (1) synthetic credit card numbers not associated with any real account, but that would pass rudimentary automated validity checks— those are usually not harmful to any specific individual, (2) “fullz” that denote comprehensive records, pairing for instance stolen credit card 4 Dov Greenbaum, “What Bitcoin Needs is a Few Good Regulations,” Wall Street Journal, December 15, 2017. 5 Lawrence A. Trautman, “Bitcoin, Virtual Currencies, and the Struggle of Law and Regulation to Keep Pace,” Marquette Law Review 102, no. 2 (Winter 2018): 476. 6 Earlier this year, the Crypto-Currency Act of 2020 was introduced in Congress. The aim of the bill, according to its text, is to “clarify which federal agencies regulate digital assets, to require those agencies to notify the public of any federal licenses, certifications, or registrations required to create or trade in such assets, and for other purposes.” The bill defines “crypto-commodity,” “crypto-currency,” and “crypto- security.” It proposes that the CFTC be the primary regulator of crypto-commodities, that FinCEN and the Comptroller of the Currency be the regulators of crypto-currencies, and that the SEC be the regulator of crypto-securities and “synthetic stablecoins.” The act defines synthetic stablecoin as “a representation of currency issued by the United States or a foreign government” that “is collateralized on a one-to-one basis by such currency, and such currency is deposited in an insured depository institution.” See Kevin Helms, “U.S. Lawmaker Introduces Crypto-Currency Act of 2020 While Under Coronavirus Quarantine,” Bitcoin.com, March 10, 2020, Even if regulators were able to arrive at a conclusive answer as to what Bitcoin is, how will we ever find a way to regulate its use throughout the world?A PROFESSIONAL DEVELOPMENT JOURNAL for the CONSULTING DISCIPLINES 32 SEPTEMBER | OCTOBER 2020 t h e v a l u e e x a m i n e r numbers with the associated CVV codes, and in some cases the social security number or date of birth of the legitimate owner, and (3) various types of guides, including money laundering tutorials (e.g., how to recruit money mules). A smaller number of listings were for: (4) bank and financial account credentials (e.g., PayPal logins) and (5) money laundering services (e.g., “Bitcoin deals,” or cash payouts, such as vendors offering cash in the mail in exchange for Bitcoin).7 When it comes to cryptocurrency and terrorism, Trautman points out that the House Terrorism and Illicit Finance Subcommittee held hearings about “Exploring the Financial Nexus of Terrorism, Drug Trafficking, and Organized Crime” in March 2018.8 He then cites a memorandum from the House Financial Services Committee staff, which said: These organizations have an estimated value of $3.6 to $4.8 trillion, or seven percent of global Gross Domestic Product, and result in $130 billion in lost revenue annually to the private sector. TCOs should be regarded as a national security threat that is undermining U.S. government efforts to combat illegal drugs, arms, human trafficking, terrorism, 7 After the Breach: The Monetization and Illicit Use of Stolen Data: Hearing Before the Subcomm. on Terrorism and Illicit Finance of the H. Comm. on Fin. Servs., 115th Cong. 2 (2018) (statement of Nicolas Christin, Assoc. Research Professor, School of Computer Science, Institute for Software Research, College of Engineering, Dept. of Engineering and Pub. Policy, Carnegie Mellon U.). 8 Exploring the Financial Nexus of Terrorism, Drug Trafficking, and Organized Crime, Staff memorandum of the H. Terrorism and Illicit Fin. Subcomm., Mar. 15, 2018, 115th Cong. (2018). and other crimes to include money laundering, cybercrimes, fraud, and corruption. Given the profit potential, terrorist and insurgent groups have been steadily incorporating criminal activities into their business models, thus blurring the line between TCOs and terrorist organizations.9 Conclusion Are we facing a potential “COVID-19” for the U.S. and worldwide financial markets/banking systems? When the pandemic hit, many of the world’s public health care agencies were caught by surprise and, unfortunately, have been questionably effective in dealing with the problem. For business valuation and forensic litigation services professionals, the question is: Are we prepared for a potential epidemic of financial crimes that already have, and most likely will continue to take place in the years to come? And can we afford to wait for regulators to “catch up” to cryptocurrency crimes? In my humble opinion, the answer is “no.” We have a lot of work to do. Peter L. Lohrey, PhD, CVA, CDBV, is a director in the Forensic and Valuation Services Department for Prager Metis CPAs, LLC, an accounting firm located in Hackensack, NJ. Dr. Lohrey specializes in commercial damage calculations and business valuation for tax, litigation, forensic, and financial reporting purposes. 9 Ibid. VE Given the profit potential, terrorist and insurgent groups have been steadily incorporating criminal activities into their business models, thus blurring the line between TCOs and terrorist organizations.The time to start is now — Download the Free Playbook! In this brand new playbook, Hinge spells out what it takes to adapt to today’s Covid-19 market- place. You’ll learn how buyers have changed—and what specific strategies, tactics and tools you can use to reach your audiences, even if they are working from the seclusion of their homes. What You’ll Learn: • Whether you should rethink your business model, and what that might look like • What marketing strategies work best in today’s remote marketplace • How to establish trust in a world where face-to-face interaction is rare • How to build a more resilient and powerful business development and sales program hingemarketing.com/playbook Download the Playbook for free: GET BACK IN THE GAME How does your firm succeed in an uncertain world? What will it take to start winning the business development game again? HINGE’S UNCERTAINTY PLAYBOOKA PROFESSIONAL DEVELOPMENT JOURNAL for the CONSULTING DISCIPLINES 34 SEPTEMBER | OCTOBER 2020 t h e v a l u e e x a m i n e r By Todd Zigrang, MBA, MHA, FACHE, CVA, ASA, and Jessica Bailey-Wheaton, Esq. Valuation of Senior Healthcare (Part I of III) /////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////// /////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////// HEALTHCARE INSIGHTS Elderly adults have more options than ever be- fore when it comes to where and how to receive healthcare services. Many seniors who require healthcare services still desire some form of in- dependent living; consequently, new models of senior care have developed. These models vary as to care level and re- imbursement requirements to better meet the demands of this growing age cohort. In this three-part series on the valuation of senior healthcare, we examine the “Four Pillars” of the industry: the reimbursement, regulatory, competitive, and technological environments affecting senior healthcare services and organizations. Part I provides a brief overview of the various enterprises and services that make up the senior care industry. It also discusses the differing reimbursement levels and coverage for these enterprises and services, ranging from Medicare, Medicaid, and commercial insurance to no coverage at all (many long-term care options are paid for solely by the senior). Overview Independent Retirement Communities Retirement communities are residential areas where seniors are close to fully independent, but can access many medical services within the community or nearby.1 These communities have housing arrangements designed exclusively for seniors, which can include varied housing setups, such as apartments or freestanding homes.2 Most communities are designed compactly to ensure easy navigation and provide yard maintenance for the residents3 and may offer a variety of community-focused activities, 1 Lawrence Robinson, Joanna Saisan, and Doug Russell, “Independent Living for Seniors,” HelpGuide, updated July 2019, articles/senior-housing/independent-living-for-seniors.htm. 2 Ibid. 3 Ibid. services, and amenities that provide residents with opportunities to build bonds with others.4 Residents need little or no assistance with daily living activities and do not require continuous medical monitoring.5 Continuing Care Retirement Communities The continuing care retirement community (CCRC) model allows seniors the choice of where they live based on how much assistance they need, with the option to move on to a different, more intensive care option if needed. CCRCs may combine independent living, assisted living, and nursing home care (which may include memory care), in a “step-up” model.6 CCRC residents can start by living independently and, if needed, transition to assisted living or skilled nursing to receive medical care or help with daily activities.7 Resident living spaces are designed for elderly adults, and typically include nonslip floors, grip bars, elevators, and easily accessible entrances. Typically, the amenities these entities offer include a variety of meal plan options for residents. Adult Day Care Adult day care (ADC) centers look after the needs of seniors during the day in a safe and monitored environment.8 These facilities can provide an array of services, from health monitoring to speech therapy.9 ADC centers may also aid seniors with many nonmedical needs, such as entertainment or grooming.10 These facilities operate during regular business 4 Ibid. 5 Ibid. 6 “How Continuing Care Retirement Communities Work,” Family Caregiving, Basics, AARP, updated October 24, 2019, basics/info-2017/continuing-care-retirement-communities.html. 7 Ibid. 8 “What Is Adult Day Care?” National Caregivers Library, accessed March 9 Ibid. 10 Ibid.A PROFESSIONAL DEVELOPMENT JOURNAL for the CONSULTING DISCIPLINES t h e v a l u e e x a m i n e r SEPTEMBER | OCTOBER 2020 35 hours and are not available 24-7.11 There are three main types of ADC centers: those that focus on social interaction, those that provide medical care, and those dedicated to Alzheimer’s disease care.12 The average senior utilizing these services has some form of cognitive impairment and requires some assistance with daily activities.13 ADC centers provide caregivers (typically family members) relief from around-the- clock care, so that caregivers have time to go to work while also providing seniors with social interaction.14 Some centers also provide transportation, so that seniors can go to health appointments or participate in community functions.15 Assisted Living Facilities Assisted living facilities (ALFs), which may also be called residential care facilities, are intended for seniors who need a relatively small amount of assistance with some daily activities, but still wish to live independently in private apartment units.16 Most ALFs incorporate a community environment, with group dining and planned social activities.17 Much of the assistance provided to residents centers on basic living activities, such as bathing and eating, but the services provided can be tailored to each resident’s individual needs.18 While most ALFs are not equipped for advanced, skilled medical care, they often have nursing staff on premises for residents, and some ALFs may also be equipped to care for residents with memory impairment or other degenerative aging diseases.19 Meal service is typically considered a standard amenity at ALFs,20 and most facilities also provide transportation, so that residents can go to healthcare providers, grocery stores, or even the movies.21 ALFs are considered the middle ground between independent living communities and nursing facilities.22 ALFs may be the best options for seniors who may need help soon, but can still live somewhat independently at present.23 11 Ibid. 12 Ibid. 13 Ibid. 14 Ibid. 15 Ibid. 16 “Assisted Living Facilities—An Overview,” Paying for Senior Care, updated July 10, 2020, 17 Ibid. 18 Ibid. 19 Ibid. 20 Meal costs are usually included in the resident’s monthly bill. “Assisted Living Facilities—An Overview” (see n. 16). 21 Ibid. 22 Ibid. 23 Ibid. Adult Foster Care Adult foster care facilities, which are more common in rural areas, are usually more “home-like,” which provides comfort to the resident.24 These facilities focus primarily on nonmedical care, such as assistance with daily living, but also dispense medications.25 Most states limit the number of residents in a given foster home to five.26 Adult foster care is contrasted with ALFs in that foster care serves fewer residents and care providers typically live in the house with the residents.27 The level of care provided in an adult foster care facility can vary depending on the needs of the patient and the qualifications of the personnel; some adult foster care facilities can provide the same level of care as a nursing home facility. In contrast, other facilities provide minimal services, as if the residents were living in an independent living community.28 Many families find adult foster care facilities to provide greater flexibility than ALFs, because resident needs can change quickly, especially with degenerative aging diseases such as Alzheimer’s disease.29 Nursing Care Facilities Nursing care facilities dominate the senior healthcare industry, with approximately 1.3 million individuals residing in nursing homes in a given year.30 The two senior nursing care service lines, which are typically located within the same building, are skilled nursing facilities (SNFs) and nursing home facilities. SNFs provide a wide breadth of medical and nonmedical assistance,31 ranging from meal preparation to specialized nursing services, such as rehabilitation.32 SNF providers may include physicians, registered nurses (RNs), speech pathologists, audiologists, and rehabilitation specialists.33 Skilled nursing care is provided for rehabilitation patients 24 “Adult Foster Care for the Elderly & Financial Assistance Options,” Paying for Senior Care, updated August 20, com/adult-foster-care. 25 Ibid. 26 Ibid. 27 Ibid. 28 Ibid. 29 Ibid. 30 “Nursing Home Care,” National Center for Health Statistics, Centers for Disease Control and Prevention, reviewed May 20, 2020, nchs/fastats/nursing-home-care.htm. 31 “The Difference Between Skilled Nursing and Nursing Home Care,” FamilyAssets Group LLC, updated March 8, 2018, com/nursing-homes/resources/skilled-nursing-vs-nursing-home. 32 Ibid. 33 Ibid.A PROFESSIONAL DEVELOPMENT JOURNAL for the CONSULTING DISCIPLINES 36 SEPTEMBER | OCTOBER 2020 t h e v a l u e e x a m i n e r who do not require long-term care services,34 with most SNF stays lasting between 20 and 100 days.35 Care provided at an SNF is referred to as post-acute care, because it serves as a transitional care point for patients between hospital discharge (typically after an emergency stay) and their return home.36 Nursing home care is similar to SNF care, but it often provides more nonmedical assistance and lacks on-site licensed medical practitioners.37 Unlike SNFs, nursing homes offer permanent custodial care, which may last for the remainder of the senior’s life (indefinite custodial care).38 Residents may require more daily custodial nonmedical assistance, such as bathing, grooming, and help with mobility.39 Patients in nursing homes are distinguished from patients in SNF care because they may not recover to the extent necessary to live independently. Hospice Care Facilities Hospice care facilities provide seniors with symptom relief and pain management near the end of life,40 administering care in terms of comfort to seniors with life-limiting illnesses or diseases.41 Hospice care providers may be an interdisciplinary team of care professionals to aid the patient and the family with the process of death.42 Hospice care, which is utilized when a patient has six months or less to live,43 can sometimes be provided in the home of the patient, although hospice clinics are used for complex patients.44 Seniors do not always choose end-of-life care, but it is becoming a more frequently preferred option as knowledge about these services increases and the stigma surrounding them decreases.45 34 Ibid. 35 Ibid. 36 Ibid. 37 Ibid. 38 Ibid. 39 Ibid. 40 Jack Curran, “IBISWorld Industry Report 0D4952: Hospice & Palliative Care Centers in the U.S.,” IBISWorld (April 2019): 2. 41 Ibid. 42 “What is Hospice?,” Hospice Foundation of America, Health and Medical Research Charities of America, accessed March 3, 43 Ibid. 44 Ibid. 45 “Hospice Care,” Aging in Place, updated August 2020, aginginplace.org/hospice-care. Reimbursement Independent Retirement Communities The cost of retirement communities can vary greatly. Some communities, such as subsidized senior housing, are funded by the U.S. Department of Housing and Urban Development (HUD), making this option more affordable.46 Other communities target affluent seniors and offer numerous amenities to community residents, such as spas and housekeeping services.47 Retirement communities branded as all-inclusive will often have an entrance fee,48 and generally, the more expansive the amenities list, the more expensive the option. Entry fees to retirement communities can range from $1,800 to $600,000.49 Additionally, retirement communities may have monthly fees based on the level of service chosen and the scope of benefits.50 Retirement communities do not necessarily provide any medical services, but rather housing and amenities. There is no Medicare or Medicaid coverage, and minimal commercial insurance reimbursement, for housing or nonmedical services provided in these communities. Consequently, retirement communities receive entry fees and monthly fees from the resident. Continuing Care Retirement Communities The flexibility of CCRCs renders them a more expensive option, so they are typically marketed to the more affluent senior community. Two-thirds of CCRCs charge entry fees,51 which average $329,000, but can reach well over $1 million.52 And residents pay additional fees, such as maintenance or service fees averaging $2,000 to $4,000 per month.53 For CCRCs offering no up-front costs, rental units average $3,000 to $6,000 per month in addition to maintenance or service fees.54 46 Robinson et al., “Independent Living for Seniors” (see n. 1). 47 Ibid. 48 “What is the Average Cost of a Senior Independent Living Community?,” Acts Retirement-Life Communities, February 13, actsretirement.org/latest-retirement-news/blog/2019/2/13/what-is-the- average-cost-of-a-senior-independent-living-community. 49 Ibid. 50 Ibid. 51 “How Continuing Care Retirement Communities Work” (see n. 6). 52 Ibid. 53 Ibid. 54 Ibid.A PROFESSIONAL DEVELOPMENT JOURNAL for the CONSULTING DISCIPLINES t h e v a l u e e x a m i n e r SEPTEMBER | OCTOBER 2020 37 There are five categories of residency agreements offered by CCRCs:55 1. Extensive: Residents pay an entry fee and a monthly fee that does not increase upon transfer to an assisted living or skilled nursing facility at the CCRC. The entry fee and monthly fee prepay the costs of healthcare and long-term care. 2. Modified life care: Residents pay an entry fee and monthly fee that may increase upon transfer to higher levels of care, but not to the full cost of that care. There is still a prepayment of some future healthcare and long- term care costs through the entry fee, but it is limited. 3. Fee-for-service: Residents pay an entry fee and monthly fee that changes as the level of care changes. Residents must pay the full costs of any care provided, and there is no prepayment. 4. Equity model: Residents do not have to pay an entry fee, but instead must purchase a unit, membership, or equity stake in the community. Upon death, the resident’s estate sells the unit, membership, or equity stake to a new resident, which provides additional funds to the estate. Future healthcare is provided by prepayment via monthly fees or a separate healthcare fee. 5. Rental/lease: A monthly fee is paid that increases with the level of care— no prepayment or entry fee is required. CCRCs may also offer a variety of services on-site, including pharmacies, wellness centers, and outpatient centers.56 A CCRC may provide some or all of the other service lines mentioned throughout this article. Depending on the service provided, the CCRC may be reimbursed by Medicare, Medicaid, or the patient. Adult Day Care State Medicaid programs are increasingly covering the care provided at ADC centers,57 and many programs are insisting on the use of ADC centers over the use of nursing homes because it reduces the number of nursing home admissions, which are also paid for by Medicaid, and usually at a much higher rate.58 In 2019, the average annual cost for an ADC center was $19,500.59 As of 2019, all states offer some form of Medicaid assistance for ADC, although the circumstances under which Medicaid will pay for ADC varies.60 The state programs most likely to cover ADC facilities are called Medicaid waivers, also referred to as HCBS waivers, 1915(c) waivers, 1115 demonstration waivers, or 55 “Older Americans: Continuing Care Retirement Communities Can Provide Benefits, but Not Without Some Risk,” United States Government Accountability Office (June 2010): items/d10611.pdf. 56 Ibid. 57 “What Is Adult Day Care?” (see n. 8). 58 Gabriel Heiser, “Does Medicare Cover Adult Day Care Expenses?,” Aging Care, updated October 1, 2019, “What Is Adult Day Care?” (see n. 8). 59 “Cost of Care Survey 2019,” Genworth Financial, finances/cost-of-care.html. 60 “Medicaid’s Adult Day Care/Adult Day Health Care Benefits & Eligibility,” Paying for Senior Care, updated January 27, 2020, There is no Medicare or Medicaid coverage, and minimal commercial insurance reimbursement, for housing or nonmedical services provided in these communities. A PROFESSIONAL DEVELOPMENT JOURNAL for the CONSULTING DISCIPLINES 38 SEPTEMBER | OCTOBER 2020 t h e v a l u e e x a m i n e r home and community-based services waivers.61 Medicaid waivers allow states to provide long-term care outside of nursing homes.62 The states with Medicaid waiver programs often have higher income limits than regular Medicaid programs,63 resulting in a greater number of potential ADC patients; however, this often leads to enrollment caps and waiting lists.64 Fifteen states offer ADC benefits through regular Medicaid programs,65 with no cap on enrollments; however, there may still be waiting lists.66 Access to ADC centers has become more prevalent as such facilities have begun providing services for patients with dementia or Alzheimer’s disease.67 Significantly, ADC centers offering such specialized services may be costly to the patient, or their families, if those services are not covered by Medicaid.68 In addition to Medicaid coverage, many Medicare Advantage plans provide partial coverage for ADC services.69 Assisted Living Facilities ALF services are not reimbursed by most private payors, Medicare, or Medicaid.70 Due to the lack of reimbursement, this option can be costly for many seniors—in 2019, the average annual cost for an ALF was $48,612.71 However, certain ALF services may be reimbursed by Medicaid, such as nursing care, medical exams, and medication management.72 While 44 states now provide some form of financial assistance to seniors in assisted living,73 no Medicaid program is permitted to pay for room and board.74 Additionally, the state may offer supplemental Social Security assistance to cover some ALF living costs.75 Consequently, most ALF reimbursement comes from the patient. Adult Foster Care As with other senior care options, the cost of adult foster 61 Ibid. 62 Ibid. 63 Ibid. 64 Ibid. Note that all Medicaid programs have some limit on the number of ADC benefits that a single beneficiary can receive. 65 Ibid. 66 Ibid. 67 Ibid. 68 “What Is Adult Day Care?” (see n. 8). 69 Heiser, “Does Medicare Cover Adult Day Care Expenses?” (see n. 58). 70 “Assisted Living Facilities—An Overview,” (see n. 16). 71 “Cost of Care Survey 2019” (see n. 59). 72 “Assisted Living Facilities—An Overview.” 73 Ibid. 74 Ibid. 75 Ibid. care can vary depending on the geographic region76 and other factors, but averages between $24,000 and $48,000 per year.77 And seniors seeking more privacy and a higher level of service can expect a 30 percent premium or more.78 Nevertheless, adult foster care generally costs less than an ALF or nursing home.79 Adult foster care is increasingly popular in the private pay market, allowing facilities to cater to specific clientele at different price points.80 Consequently, the majority of adult foster care reimbursement comes from individual senior payment.81 While Medicare offers no coverage for adult foster care, Medicaid may cover a portion of the monthly fee for these facilities.82 The model has been adapted to work for low-income and Medicaid-eligible seniors, with states utilizing adult foster care as an alternative to nursing homes for Medicaid waiver beneficiaries.83 However, Medicaid does not typically cover room and board.84 Notably, state-specific Social Security benefits, in some cases, can be paid directly to an adult foster care facility to help cover the cost of care.85 Nursing Care Facilities Nursing care facilities dominate the senior healthcare industry in terms of market share, and house approximately 1.3 million people in a given year.86 Nursing facilities generally care for older patients who are more prone to injury and illness and thus are more likely to require more intensive medical services.87 The two senior nursing care service lines, which are typically located within the same building, are SNFs and nursing home facilities. SNF facilities provide care to patients for short durations 76 “Medicaid’s Adult Day Care/Adult Day Health Care Benefits & Eligibility” (see n. 60). 77 Ibid. 78 Janet O’Keeffe, Christine O’Keeffe, and Shulamit Bernard, Using Medicaid to Cover Services for Elderly Persons in Residential Care Settings: State Policy Maker and Stakeholder Views in Six States (Washington, D.C.: U.S. Department of Health and Human Services, 2003), 2, system/files/pdf/72811/med4rcs.pdf. 79 “Medicaid’s Adult Day Care/Adult Day Health Care Benefits & Eligibility” (see n. 60). 80 O’Keeffe, et al., Using Medicaid to Cover Services for Elderly Persons. 81 Ibid. 82 “Medicaid’s Adult Day Care/Adult Day Health Care Benefits & Eligibility.” 83 O’Keeffe, et al., Using Medicaid to Cover Services for Elderly Persons. 84 O’Keeffe, et al., Using Medicaid to Cover Services for Elderly Persons, 3. 85 “Medicaid’s Adult Day Care/Adult Day Health Care Benefits & Eligibility.” 86 “Nursing Home Care” (see n. 30). 87 Dmitry Diment, “IBISWorld Industry Report 62311: Nursing Facilities in the U.S.,” IBISWorld (October 2019): 5.A PROFESSIONAL DEVELOPMENT JOURNAL for the CONSULTING DISCIPLINES t h e v a l u e e x a m i n e r SEPTEMBER | OCTOBER 2020 39 after an inpatient hospital stay.88 Medicare fully covers SNF stays for up to 20 days, and partially covers SNF stays over 20 days and up to 100 days.89 SNF admissions and payments have declined in recent years as hospital inpatient stays (a prerequisite to Medicare coverage of an SNF stay) have decreased.90 Declines in SNF use may also reflect broader trends toward value-based reimbursement, such as accountable care organizations (ACOs) and bundled payment models, which incentivize lower use of SNF facilities.91 ACOs have lowered spending by shortening stays in SNFs.92 Value-based healthcare delivery and reimbursement trends have negatively affected SNFs, causing the reduced volume of patients, mandatorily shortened stays, and claims denials.93 Currently, Medicare’s SNF payment model favors treating rehabilitation patients over medically complex patients.94 However, in October 2019, CMS adjusted the SNF payment model to better reflect the clinical needs of patients.95 The redesign seeks to increase payments for medically complex patients who may have higher costs.96 In 2018, the SNF value-based purchasing (VBP) program began providing incentive payments97 to SNFs based on the achievement of certain quality measures, such as readmissions for any cause within 30 days of hospital discharge.98 In 2019, 73 percent of SNFs failed to meet the prescribed quality measures (resulting in payment reductions), and only 3.1 percent of SNFs have achieved the “best performance” category.99 Payment reductions are likely to persist in the industry due to the mixed quality results.100 The Medicare profit margin varies widely across facilities, which may reflect the shortcomings of SNFs or of the payment system generally.101 In 2018, the average Medicare margin for SNFs was 10.3 percent, the 19th year it was above 10 percent.102 Perhaps in a move to rectify this discrepancy, CMS increased 2020 SNF payments by 2.4 percent from 2019 levels.103 Long-term nursing care (nursing homes) caters to an older demographic, with 80 percent of all nursing home residents over 65 years old (i.e., Medicare 88 “Skilled Nursing Facility Services,” chap. 8 in March 2020 Report to the Congress: Medicare Payment Policy (Washington, D.C.: Medicare Payment Advisory Commission, 2020), docs/default-source/reports/mar20_medpac_ch8_sec.pdf. 89 “The Difference Between Skilled Nursing and Nursing Home Care” (see n. 31). 90 “Skilled Nursing Facility Services,” 226. 91 Ibid. 92 Ibid., 226–227. 93 Ibid., 227. 94 Ibid., 220. 95 Ibid. 96 Ibid. 97 Equal to 2 percent of payments withheld from SNFs. Ibid., 228. 98 “Fiscal Year 2020 Payment and Policy changes for Medicare Skilled Nursing Facilities (CMS-1718-F),” Centers for Medicare & Medicaid Services, July 30, fiscal-year-2020-payment-and-policy-changes-medicare-skilled-nursing-facilities-cms-1718-f. 99 “Skilled Nursing Facility Services,” 228 (see n. 88). 100 Ibid. 101 Ibid., 220. 102 Ibid. 103 “Fiscal Year 2020 Payment and Policy changes for Medicare Skilled Nursing Facilities.” The Medicare profit margin varies widely across facilities, which may reflect the shortcomings of SNFs or of the payment system generally.Next >