Cost-efficiency in Medicaid long-term support services: the role of home and community based services

Growth in home and community based services (HCBS) has been implicated in rising long-term care expenditure in the Medicaid program. Its efficiency impact has not been tested. Using Stochastic Frontier Analysis (SFA) and panel data methods, we evaluated the cost efficiency of long-term support services (LTSS) provided by state Medicaid agencies and examined its association with intensity of HCBS use. We compared the efficiency of state funded HCBS programs with federal waiver programs. We found substantial variation in cost efficiency of LTSS programs by states, but all showed improvement over time related to increased HCBS use. Higher participation in federal waivers programs yielded additional improvements in cost-efficiency. Results indicate that increasing HCBS services targeted at “high need” population and developmentally disabled individuals would improve efficiency in LTSS delivery. These results reveal the importance of measuring and comparing efficiencies across Medicaid funded LTSS programs, as we introduce reforms in the LTSS delivery system. We recommend that Medicaid agencies invest in the development of improved data sources for the estimation of cost efficiencies of their programs.