MONTPELIER, Vt. –– At just 53 years old, Marcy Ryan depends on a team of paid visitors to survive.

They help her out of bed each morning. They bathe her. They change her catheter six times a day. And they wipe leaks from her feeding tube to prevent infections.

Ryan suffers from muscular dystrophy, cerebral palsy, poor vision, a neurogenic bladder, chronic urinary tract infections and arthritis. She has spent the last two decades in a wheelchair.

“My arms work and that’s just about it,” she says.

With no family to help, Vermont’s health-care system pays aides to spend roughly seven hours each day in her Winooski apartment.

Ryan doesn’t want to live in a nursing home. And Vermont adopted unprecedented Medicaid changes three years ago aimed at keeping people like her out of costly institutions.

Rhode Island is trying to follow Vermont’s lead. Governor Carcieri’s negotiators are currently holding private meetings with federal officials to hammer out a deal.

Vermont’s system offers Ocean State policymakers a guide for what to do. And what not to do.

Three years into a five-year Medicaid agreement, all is not well in Vermont, according to interviews with state officials, advocates for the elderly and disabled, and health care providers.

The state has saved money. Some people have new health care choices. And many more are being cared for at home.

But dozens of elderly and disabled residents sit on waiting lists that were supposed to disappear under the new system. And thousands more, like Ryan, face reduced services as Vermont struggles to balance its budget.

Some advocates fear that the system is beginning to unravel. For example, the shift has actually made it harder for Ryan to live at home.

Just two months after adopting the new system, Vermont officials ordered her in-home services cut by 25 percent.

Vermont was the first state in the nation to negotiate a broad Medicaid agreement — waiving strict regulations for how the federally matched money may be used — with federal regulators in the fall of 2005. The state implemented two “waivers,” one that applied to its long-term-care system, and the other that effectively transformed a state department into a managed care organization for thousands of other Vermont Medicaid recipients.

In exchange for agreeing to a five-year cap on Medicaid spending, the federal government gave Vermont the flexibility to use billions of dollars in new ways, free of the bureaucratic hurdles that usually complicate state Medicaid reform efforts. Without a “global waiver,” each new idea – allowing Medicaid to pay for in-home aides, not just nursing homes, for example – required lengthy negotiations with the federal government.

The new system was supposed to let Vermont officials change their system as they desired, so long as they didn’t spend too much money.

The flexibility also gave state leaders new power to cut services for people whose health care was previously protected by law. Many services became available only “as funds are available.”

That allowed the state to cut Ryan’s care, forcing the disabled woman to turn to the legal system for help.

It would be more than two years before the case was decided by the state Supreme Court.

THERE IS NO doubt that Vermont’s new system has saved millions of dollars.

The state spent $78 million less last year on Medicaid nursing home care than it had projected, according to data provided by Vermont’s Department of Disabilities, Aging and Independent Living.

“We’ve taken away the institutional bias,” says DAIL commissioner Joan Senecal, noting the progress on a series of charts and graphs in an interview in her Waterbury office. “We’re serving more people in the community.”

There were roughly 250 fewer nursing home beds filled this summer compared with October 2005, according to department data. And nearly 1,500 people who qualified for nursing home care under the old system now live at home or in assisted living facilities.

But there are tradeoffs, according to Jeffrey S. Crowley, a senior research scholar for Georgetown University’s Health Policy Institute, who has been studying Vermont’s long-term-care waiver over the past year.

“Certainly they’re making progress because they’re serving more people in the community. That progress, though, has come at the expense of services for individuals,” he said. “We heard over and over, across the board, that people saw their services reduced…. It’s hard to know if the tradeoff is worth it.”

Indeed, there were 125 formal complaints filed with Vermont’s long-term-care ombudsman last year. Many were related to disputes over service cuts.

Vermont’s new long-term-care system works like this:

Elderly and disabled Medicaid recipients are placed into three categories: highest need, high need, and moderate need. Only the highest need group — less than half of those in Vermont’s long-term-care Medicaid system — is guaranteed services.

A state clinical coordinator determines the categories and eligibility for specific services for each person, down to the number of minutes allowed for in-home care.

The state allows people to appeal the clinician’s decision to the state’s Human Service Board, although Vermont’s human service commissioner can veto the board’s decision.

A draft of Rhode Island’s proposal suggests that similar categories would be developed for the Ocean State’s elderly and disabled. The 91-page draft notes the possibility of waiting lists and new co-pays for services, although those details are subject to federal negotiations.

It’s unclear how long that process will take. Vermont’s negotiations with the federal government spanned more than a year. And Rhode Island’s began just last month.

“We are confident that we will have resolution soon,” Gary Alexander, director of Rhode Island’s Department of Human Services, said last week, declining to be more specific.

The timetable is important, given that Carcieri has promised $67 million in savings this year as a result of the waiver, which was supposed to be in place last week.

VERMONT’S SYSTEM wasn’t supposed to be controversial, according to long-term-care ombudsman Jackie Majoros.

She remembers state leaders making “a hard sell” for the Medicaid waiver focusing on the potential benefits, much like Rhode Island officials in recent months.

“I think it took folks here awhile to sort of see beyond the hype and really figure out what kind of program this is, and what its benefits are and what its shortcomings are,” Majoros said.

And most of its shortcomings didn’t surface immediately.

Facing budget deficits, Vermont political leaders have struggled to shift as much nursing home savings into community programs as advocates for the elderly and disabled say is necessary.

The legislature cut $500,000 from the program this summer to help balance the state budget. And more cuts may be coming, according to Commissioner Senecal.

The money problems have helped create consistent waiting lists that weren’t supposed to exist under the new system. As of July 1, at least 45 disabled and elderly “high needs” Vermonters were waiting for services, according to state data. And at least another 215 people in the “moderate needs” group were on waiting lists.

Majoros acknowledged that the waiver’s name — Choices for Care — may be a bit misleading. (Rhode Island’s waiver proposal bears a similar title: The Rhode Island Consumer Choice Compact Waiver.)

“I think people probably have more of a choice than they had before. When there’s no waiting list, and people get to the point where they need long-term-care services, they can choose,” she said. “If there’s a waiting list, you don’t get services.”

Further, Vermont officials learned the hard way that there were limits to the flexibility promised under the new system.

A year after the waiver was in place, the legislature voted to provide health care coverage for low-income residents who earn between 200 and 300 percent of the federal poverty limit. But federal Medicaid officials blocked the state from using federal dollars for that change.

“In exchange for the cap, we were supposed to get more flexibility. One of the things we wanted was flexibility to insure more people,” said Theline Taormina, advocacy director for the Vermont chapter of the AARP. “So, I’m not so sure we got the flexibility we wanted.”

UNDER THE new system, the state refused to give Ryan the care her doctor felt was necessary.

A state clinician had reviewed her case manager’s assessment and determined it was too generous. The clinician ordered Ryan’s 51 hours of weekly in-home care cut by 3.5 hours every week.

It might not seem like much, Ryan acknowledges, but she depends on aides for everything from eating to keeping clean to moving around her home.

“It’s cutting back on my ability to function,” she said. “It’s cutting back on how many meals I get a day. I can’t cook. I literally can’t raise my arms high enough. I’m physically deteriorating.”

The dispute went first to the state Human Services Board.

Ryan’s longtime primary-care physician testified on her behalf, as did her case manager. She also presented a letter of support from a nurse involved with her care.

The state presented a single witness: the clinician who cut Ryan’s hours after speaking to her on the phone for less than an hour.

The board ruled in Ryan’s favor in March 2007. But the state refused to bend.

Less than two weeks later, Vermont’s Secretary of the Agency of Human Services reversed the board’s ruling, reasoning that the decision was “unsupported by the evidence.”

The next week, Ryan asked the state Supreme Court to intervene.

It was a difficult process, she says, especially for someone with chronic health problems. She has been to the hospital in recent months too many times to count.

“I knew it wasn’t just a fight for me,” she says. Vermont’s Disability Law Project covered the legal expenses.

Crowley, of Georgetown University, says that Vermont’s leaders do have more flexibility under the new system, but that largely gives the state new “systematic control” over Medicaid recipients’ care.

He said state decisions are directly tied to “how the state budget is doing.”

“They’re saving money, but that doesn’t mean there’s more money for this program. The money’s being diverted,” he said. “We’re seeing this playing out with waiting lists, with budget cuts…. This is only going to get worse.”

And Crowley says that states following Vermont’s lead ought to proceed carefully.

He cited a report issued by the Kaiser Family Foundation in 2006 suggesting that Vermont got a generous deal.

“As a small state that was willing to set the precedent of accepting an aggregate cap on federal Medicaid funds, Vermont secured a relatively generous financing arrangement and significant fiscal relief,” reads the report. “If other states were to seek similar waivers, they would likely receive more limited financing, making it more likely that they would fall short of federal funding and face pressure to reduce coverage.”

So far, there are no signs that Vermont will exceed spending caps.

The Office of Vermont Health Access director Joshua Slen last week said the state would probably finish the five-year period “around $200 million” under the cap.

“I’ve never seen any projections that show us anywhere near that cap,” he said.

Meanwhile, Ryan said she wants Rhode Island to learn from Vermont.

“In essence, the idea is great,” she says. “We were hoping to keep more people out of institutions.”

But too many people are denied necessary services, she says. And state bureaucrats — driven by the state’s fiscal condition — have too much control.

For a time, Ryan’s services were safe. She won her state Supreme Court case in June, effectively blocking the state from cutting her hours.

But in August, Vermont officials approved across-the-board cuts of one hour every week for all long-term-care Medicaid services, part of an $8-million budget “rescission” aimed at balancing Vermont’s budget.

The cut — which will apply to Ryan, despite her court victory — will take effect soon, Senecal said, noting that more cuts may follow as Vermont grapples with budget deficits, just as in Rhode Island.

Ryan said she’ll keep fighting.

“I don’t want to sit in a corner and drool and cry about how hard it is,” she said. “I want the system to be better, so if it’s adopted by anybody else, maybe they won’t make the mistakes we’ve made.”

speoples@projo.com