Medicare Hospice Care:

Modifications to Payment Methodology May Be Warranted

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

Additional Materials:

Contact:

Kathleen M. King
(202) 512-8942
contact@gao.gov

 

Office of Public Affairs
(202) 512-4800
youngc1@gao.gov

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: Closed - Implemented

    Comments: 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 had 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. As of June 2016 this contractor continues to conduct comprehensive data analysis of utilization and cost report data from hospices. Additionally, beginning fiscal year 2016, CMS created two payment rates for routine home care--one of four payment rate categories for hospice care--that resulted in a higher payment rate for the first 60 days of hospice and a reduced payment rate for subsequent days. At the same time, CMS created a service intensity add-on payment for services provided during the last 7 days of life based on the number of hours of direct patient care provided by a registered nurse or social worker. The fiscal year 2017 payment rule for hospice, finalized in August 2016, contained no additional changes to the payment rate categories for hospice care, but did state that CMS plans to continue monitoring the effects of hospice payment and policy changes. Monitoring the effect of hospice payment and policy changes, as well as changes in hospice utilization and patient characteristics, will be important to ensure that hospices are being paid according to their costs.

    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: Closed - Implemented

    Comments: Regarding the hospice payment methodology and payment categories, CMS has not submitted a legislative proposal to the Congress for changing the hospice payment methodology and payment categories. 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 had awarded a contract related to this payment reform, and that the contractor was to develop alternative payment models that do not require a change in Medicare law and assess whether there was a need to submit a legislative proposal to modify the Medicare law. Beginning fiscal year 2016, CMS modified the payment rate methodology by creating two payment rates for routine home care--one of four payment rate categories for hospice care--that resulted in a higher payment rate for the first 60 days of hospice and a reduced payment rate for subsequent days. At the same time, CMS created a service intensity add-on payment for services provided during the last 7 days of life based on the number of hours of direct patient care provided by a registered nurse or social worker. The fiscal year 2017 payment rule for hospice, finalized in August 2016, contained no additional changes to the payment rate categories for hospice care, but did state that CMS plans to continue monitoring the effects of hospice payment and policy changes. Monitoring the effect of hospice payment and policy changes, as well as changes in hospice utilization and patient characteristics, will be important to ensure that hospices are being paid according to their costs.

    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

 

Explore the full database of GAO's Open Recommendations »

Nov 17, 2016

Nov 15, 2016

Oct 27, 2016

Oct 20, 2016

Oct 17, 2016

Oct 13, 2016

Oct 6, 2016

Sep 29, 2016

Sep 28, 2016

Sep 21, 2016

Looking for more? Browse all our products here