The Capitated Payment System: The Core of PACE Funding
At the heart of the PACE program's financial model is a capitated payment system. Instead of being paid for each individual service provided (a “fee-for-service” model), a PACE organization receives a predetermined, fixed monthly payment for each person enrolled. This payment, known as a capitation payment, is based on the participant's eligibility for Medicare, Medicaid, or both.
This monthly, per-person payment covers all of the enrollee's healthcare and social service needs, regardless of how many services they use in a given month. The PACE organization then pools these funds into a single budget. This structure gives the program the flexibility to provide a full range of services—including those not traditionally covered by Medicare or Medicaid—as determined necessary by the interdisciplinary care team to keep the participant healthy and independent in the community.
Understanding the Different Payment Sources
PACE programs receive funding from a combination of sources, depending on the participant's specific eligibility. The primary payment streams are Medicare and Medicaid, but private payment is also an option for some individuals.
Medicare Payments
For participants who are eligible for Medicare, the PACE organization receives a monthly capitation payment from the federal government. This payment covers all services that would typically be covered under Medicare Parts A, B, and D. The payment amount is adjusted based on the participant’s health status through a risk-adjustment process. The program takes on the full financial risk for delivering all necessary care to these individuals.
Medicaid Payments
States that have chosen to offer PACE as a Medicaid option provide a monthly capitation payment for participants who are eligible for Medicaid.
- Dual-Eligible Participants (Medicare and Medicaid): For the majority of PACE participants who are eligible for both Medicare and Medicaid, the program receives a capitated payment from both federal (Medicare) and state (Medicaid) sources. The Medicaid payment covers the long-term care portion of the PACE benefit.
- Medicaid-Only Participants: In some cases, a person may be eligible for Medicaid but not Medicare. In this scenario, the state pays the full capitation amount to the PACE organization to cover the participant's costs.
Private Payments
For individuals who are not eligible for Medicaid and do not have Medicare, a third option exists: private payment.
- Medicare-Eligible, Non-Medicaid Participants: If a participant has Medicare but is not eligible for Medicaid, they will pay a monthly premium equal to the Medicaid portion of the capitation payment, plus a premium for Medicare Part D prescription coverage.
- Private Pay (No Medicare or Medicaid): While less common, individuals who do not have either Medicare or Medicaid can opt to pay for the PACE program entirely out-of-pocket through a private premium. These private premiums are often quite high and are typically a barrier to enrollment for many.
How the Funding Model Benefits Participants
The capitated payment model is designed to be beneficial for participants by promoting a more holistic and flexible approach to care. Because the program's funding is not tied to the volume of services provided, the PACE team is incentivized to focus on preventative care and wellness to keep participants healthy and at home. This helps avoid costly hospitalizations and nursing home stays, which are ultimately more expensive for the program.
This funding arrangement also means that PACE participants have no deductibles, co-insurance, or other cost-sharing for any service or drug approved by their interdisciplinary team. This predictability eliminates financial surprises and allows participants to receive the exact level of care they need without worry.
Comparison of PACE Payment vs. Traditional Home Health
To better understand the value of the PACE payment model, it's useful to compare it with the traditional fee-for-service model often used for home health services. This comparison highlights the key differences in financial structure and service delivery.
| Feature | PACE Program | Traditional Home Health |
|---|---|---|
| Payment Structure | Capitated (fixed monthly payments) | Fee-for-Service (paid per visit/service) |
| Incentive | Focus on prevention and proactive management to reduce overall costs; higher quality care can lead to lower expenses. | Maximizing the number of visits and services can increase revenue, potentially leading to unnecessary care. |
| Coverage | All medically necessary Medicare- and Medicaid-covered services, plus any other services deemed essential by the team to maintain independence. | Covers only services specifically billable under Medicare/Medicaid; does not cover many non-medical social services. |
| Co-payments/Deductibles | None for approved services for Medicare/Medicaid enrollees. | Standard co-payments and deductibles may apply, creating unpredictable costs for participants. |
| Coordination | Highly integrated care managed by a dedicated interdisciplinary team that meets regularly. | Coordination is often fragmented, with multiple providers potentially not communicating with each other. |
| Financial Risk | The PACE organization assumes full financial risk for the care of its participants. | The payer (Medicare, insurance, etc.) assumes the financial risk. |
The Financial Advantages and Considerations
For PACE organizations, the capitated payment system allows them to manage risk and innovate. By pooling funds, they have the flexibility to allocate resources to where they are most needed. This financial flexibility means they can invest in social services, transportation, and other supportive care that, while not typically reimbursed by traditional insurance, are crucial for keeping participants healthy and in the community.
However, this model also requires strong financial management, as the program assumes full risk for the entire cost of a participant's care. For participants, the clear benefit is the comprehensive, all-inclusive nature of the care and the peace of mind that comes with predictable costs. It removes the complex financial navigation often associated with navigating the healthcare system for long-term care needs.
Conclusion
The Program of All-Inclusive Care for the Elderly (PACE) operates on a capitated payment model, a significant departure from the traditional fee-for-service system. By receiving fixed monthly payments from Medicare, Medicaid, and sometimes private premiums, PACE programs gain the financial flexibility to provide and coordinate all necessary medical and social services for their participants. This integrated, all-inclusive approach not only simplifies the financial aspect for seniors and their families but also focuses on preventative, community-based care, leading to improved health outcomes and a higher quality of life.
