Medicare Hospice Care:

Modifications to Payment Methodology May Be Warranted

GAO-05-42: Published: Oct 15, 2004. Publicly Released: Oct 15, 2004.

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The Medicare hospice benefit provides care to patients with a terminal illness. For each patient, hospices are paid a per diem rate corresponding to one of four payment categories, which are based on service intensity and location of care. Since implementation in 1983, the payment methodology and rates have not been evaluated. The Medicare, Medicaid, and SCHIP Balanced Budget Refinement Act of 1999 directed GAO to study the feasibility and advisability of updating Medicare's payment rates for hospice care. In this report, GAO (1) compares freestanding hospices' costs to Medicare payment rates and (2) evaluates the appropriateness of the per diem payment methodology. Because of Medicare data limitations, it was not possible to compare actual payments to costs or examine the services provided to each patient.

Using Medicare cost reports from freestanding hospices, GAO determined that the per diem payment rate for all hospice care was about 8 percent higher than the estimated average per diem cost of providing care in 2000, and over 10 percent higher in 2001. However, the relationship between payment rates and costs varied across the payment categories and types of hospices. For all hospice care provided in the home, which accounted for about 97 percent of care in 2001, GAO estimates that the per diem payment rate was almost 10 percent higher than average per diem costs in 2000, and over 12 percent higher in 2001. Small hospices, however, had higher estimated average per diem costs than medium or large hospices overall and for each of the four per diem payment categories in 2001. GAO's analysis indicates that the hospice payment methodology, with rates based on the historical mix and cost of services, a per diem amount that varies only by payment category, and a cap on total Medicare payments, may not reflect current patterns of care. For example, GAO determined that the relative costs of services, such as nursing care, provided during routine home care (RHC) have changed considerably since the rates were calculated. Using limited patient-specific hospice visit data, GAO found that more visits were provided during the first, and especially last, week of a hospice stay than during other times in the stay. Finally, few hospices reached the payment cap, which was intended to limit Medicare hospice spending.

Recommendations for Executive Action

  1. Status: Closed - Implemented

    Comments: In October 2004, we noted that the Centers for Medicare & Medicaid Services (CMS) had not evaluated the hospice payment methodology and resulting per diem payment rates since they were implemented in 1983. We reported that the type of care provided during a hospice stay appears to be different than the care provided when the per diem payment rates were developed and that comprehensive data to evaluate the number of visits or costs of services during a Medicare hospice stay were not available. In order to determine the relationship between payments and costs and whether the per diem methodology is consistent with current patterns of care, we recommended that the Administrator of CMS collect comprehensive, patient-specific data on the visits and services being delivered by hospices and the costs of these services. CMS agreed with GAO's recommendation and stated that it recognized the need for this type of analysis. Effective July 1, 2008, CMS requires hospice providers to report the number of visits by nurses, physicians, social workers, home health aides, and nurse practitioners on their claims for Medicare payment.

    Recommendation: The Administrator of CMS should collect comprehensive, patient-specific data on the visits and services being delivered by hospices and the costs of these services.

    Agency Affected: Department of Health and Human Services: Centers for Medicare and Medicaid Services

  2. Status: Open

    Comments: CMS has not determined whether the hospice payment methodology and payment categories need to be modified. In accordance with the Patient Protection and Affordable Care Act (PPACA) CMS is to reform hospice payments no earlier than October 2013. As of June 2012, CMS reported that it has awarded a contract to study this potential payment reform. The contractor is to develop alternative payment models and assess whether such models need to incorporate certain adjustments to account for patient and provider characteristics.

    Recommendation: The Administrator should determine whether the hospice payment methodology and payment categories need to be modified, including any special adjustments for small providers.

    Agency Affected: Department of Health and Human Services: Centers for Medicare and Medicaid Services

  3. Status: Open

    Comments: Regarding the hospice payment methodology and payment categories, CMS has not implemented modifications that would not require a change in Medicare law nor submitted a legislative proposal to the Congress for those that do. In accordance with the Patient Protection and Affordable Care Act (PPACA) CMS is to reform hospice payments no earlier than October 2013. As of June 2012, CMS reported that it has awarded a contract related to this payment reform, and that the contractor is to develop alternative payment models that do not require a change in Medicare law and assess whether there is a need to submit a legislative proposal to modify the Medicare law.

    Recommendation: The Administrator should implement those modifications that would not require a change in Medicare law and submit a legislative proposal to the Congress for those that do.

    Agency Affected: Department of Health and Human Services: Centers for Medicare and Medicaid Services

 

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