Medicare Hospice Care
Modifications to Payment Methodology May Be Warranted Gao ID: GAO-05-42 October 15, 2004The 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.
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Director: Team: Phone:GAO-05-42, Medicare Hospice Care: Modifications to Payment Methodology May Be Warranted
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Report to the Committee on Finance, U.S. Senate, and the Committee on
Ways and Means, House of Representatives:
United States Government Accountability Office:
GAO:
October 2004:
Medicare Hospice Care:
Modifications to Payment Methodology May Be Warranted:
GAO-05-42:
GAO Highlights:
Highlights of GAO-05-42, a report to the Committee on Finance, U.S.
Senate, and the Committee on Ways and Means, House of Representatives:
Why GAO Did This Study:
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.
What GAO Found:
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.
Costs of Services Provided During RHC as a Percentage of Total RHC
Costs, 1983 and 2001:
[See PDF for image]
[End of figure]
What GAO Recommends:
GAO recommends that the Administrator of the Centers for Medicare &
Medicaid Services (CMS) collect comprehensive, patient-specific
utilization and cost data on hospice visits and services, and using
these data, determine whether modifications to the payment methodology
are needed, including any adjustments needed for small providers. CMS
stated that it agreed with GAO‘s recommendations.
www.gao.gov/cgi-bin/getrpt?GAO-05-42.
To view the full product, including the scope and methodology, click on
the link above. For more information, contact Laura A. Dummit at (202)
512-7119.
[End of section]
Contents:
Letter:
Results in Brief:
Background:
Overall Medicare Hospice Payment Rate Higher Than Freestanding
Hospices' Estimated Average Costs, but Relationship Varied by Payment
Category and Hospice Characteristics:
Structure of Hospice Payment Methodology May Not Be Consistent with
Current Service Delivery:
Conclusions:
Recommendations for Executive Action:
Agency and External Reviewer Comments and Our Evaluation:
Appendix I: Scope and Methodology:
Appendix II: Comments from the Centers for Medicare & Medicaid
Services:
Tables:
Table 1: Utilization and Payment Rates for Each Hospice Payment
Category:
Table 2: Estimated Average Per Diem Costs by Payment Category for
Freestanding Hospices, by Size, 2001:
Figures:
Figure 1: Hospice Provider Types Participating in the 1980-1982
Demonstration and in 2001 (Percentages):
Figure 2: Unadjusted Per Diem Payment Rate and Estimated Average Per
Diem Costs for Freestanding Hospices, 2000 and 2001:
Figure 3: Costs of Services Provided during RHC as a Percentage of
Total RHC Costs, 1983 and 2001:
Abbreviations:
BBRA: Medicare, Medicaid, and SCHIP Balanced Budget Refinement Act of
1999:
CHC: continuous home care:
CMS: Centers for Medicare & Medicaid Services:
DME: durable medical equipment:
GIC: general inpatient care:
HAA: Hospice Association of America:
HCFA: Health Care Financing Administration:
IRC: inpatient respite care:
NHPCO: National Hospice and Palliative Care Organization:
RHC: routine home care:
TEFRA: Tax Equity and Fiscal Responsibility Act of 1982:
United States Government Accountability Office:
Washington, DC 20548:
October 15, 2004:
The Honorable Charles E. Grassley:
Chairman:
The Honorable Max Baucus:
Ranking Minority Member:
Committee on Finance:
United States Senate:
The Honorable William M. Thomas:
Chairman:
The Honorable Charles B. Rangel:
Ranking Minority Member:
Committee on Ways and Means:
House of Representatives:
Since the Medicare hospice benefit was implemented in 1983,[Footnote 1]
neither the payment methodology nor the payment rates for hospices have
been evaluated; however, there are indications that hospice services
and patients have changed. The payment methodology and rates for the
benefit were developed using cost data collected from 26 hospices
providing care to Medicare patients with terminal cancer under a 1980
to 1982 Health Care Financing Administration (HCFA)[Footnote 2]
demonstration. Since then, advances in medical technology, such as new
palliative drugs, chemotherapy, and radiation, have influenced the mix
of hospice services provided. In addition, the mean length of a hospice
stay has declined since 1983, and the number of patients with noncancer
diagnoses has grown considerably, representing approximately one-half
of all patients receiving hospice care in 2000.
In addition to changes in the delivery of hospice care, there has been
substantial growth in the hospice program. From 1992 through 2002,
Medicare payments for hospice care increased fivefold, to about $4.5
billion, and the number of Medicare patients increased fourfold, to
approximately 640,000. During the same period, the number of Medicare-
participating hospices grew by almost 90 percent to 2,275.
The Medicare hospice benefit was designed to provide patients who have
a terminal illness with comfort and pain relief, as well as emotional
and spiritual support, generally in a home setting. By law, Medicare
hospice services include nursing care, counseling, and home health aide
services, as well as drugs and medical supplies.[Footnote 3] Hospice
services are delivered by providers that operate as freestanding
entities or are based in hospitals, home health agencies, or skilled
nursing facilities. Under the law, Medicare pays hospices a daily
rate[Footnote 4] that covers all services provided to the patient,
except for physician services.[Footnote 5] HCFA developed four payment
categories, with corresponding per diem payment rates to reflect
variation in service intensity and the location of service.[Footnote 6]
These categories, as set out in Medicare regulations, are routine home
care (RHC), a typical day of home care; continuous home care
(CHC),[Footnote 7] home care that is provided during periods of patient
crisis for at least 8 hours in a 24-hour period; inpatient respite care
(IRC), care in an inpatient facility for a short period to provide
respite for primary caregivers; and general inpatient care (GIC),
inpatient care to treat symptoms that cannot be managed in other
settings. In 1986, annual updates to the rates for the four payment
categories were set in law.[Footnote 8] A hospice is paid for each day
that a patient is under its care, regardless of whether the patient
receives a visit or other service on that day. Medicare pays the RHC
payment category rate for days when a patient does not receive CHC,
IRC, or GIC. In 2001, RHC days accounted for 96 percent of all days
provided to hospice patients. By law, each hospice is subject to an
aggregate payment cap,[Footnote 9] which limits its total annual
Medicare payments to a specified amount based on the number of Medicare
patients it served.
The Medicare, Medicaid, and SCHIP Balanced Budget Refinement Act of
1999 (BBRA) directed us to study the feasibility and advisability of
updating Medicare's payment rates for hospice care.[Footnote 10]
Specifically, we (1) compared hospices' costs to the Medicare payment
rates and (2) evaluated the appropriateness of the per diem payment
methodology.
To compare hospices' costs to Medicare payment rates, we used 2000 and
2001 Medicare hospice cost reports, the most recent data available at
the time of our analysis. We confined our analysis to cost reports of
freestanding hospices.[Footnote 11] Hospital-based and home health
agency-based hospices must allocate overhead costs between the hospice
and the hospital or home health agency, which may distort the costs of
providing hospice services.[Footnote 12] For freestanding hospices, the
only costs incurred are for delivering hospice care to patients. We
verified the reliability of the cost report data by comparing
descriptive statistics calculated using the cost reports with those
calculated using the Medicare hospice claims for all hospices from the
same years, and we verified the reliability of the claims data by
comparing descriptive statistics we calculated using the claims with
statistics published by the Centers for Medicare & Medicaid Services
(CMS). We excluded certain cost reports; for example, those with fewer
than 11 total patients or an average of less than 1 patient per day. We
determined the remaining data were suitable for our purposes. For
freestanding hospices, we estimated average per diem costs by summing
the total costs for all hospices and dividing by the total number of
days of care for all hospices. We compared the estimated average per
diem cost for freestanding hospices to an unadjusted payment rate based
on national payment rates for each category.[Footnote 13] We also
determined average per diem costs for each payment category using the
same methodology and compared each to the unadjusted payment rate
calculated for that category. Because RHC and CHC costs are reported in
aggregate on the hospice cost report, we could only report hospices'
average combined RHC and CHC per diem costs.[Footnote 14] We refer to
combined RHC and CHC hospice costs and payment rates as home care costs
and payment rates. Because of data limitations in the Medicare hospice
cost report and claims data, we could not compare actual payments to
costs.[Footnote 15] We did not apply the wage adjustment, which
generally adjusts payments up for urban areas and down for rural areas
to account for geographic differences in wages, to the payment rates.
We estimated per diem costs for all freestanding hospices; for
freestanding hospices of different sizes, with size defined by the
number of days of care a hospice provided during the year; and for
rural and urban freestanding hospices.[Footnote 16]
To evaluate the appropriateness of the per diem payment methodology, we
compared the proportion of total costs attributable to different
services provided during RHC days when the payment rate was first
determined, in 1983, to the proportion in 2001. We used the 2001
freestanding hospice cost reports to calculate proportions of cost for
2001. Our estimates of RHC costs in 2001 include CHC costs because RHC
and CHC costs are reported in aggregate on the hospice cost
report.[Footnote 17] Using 2002 proprietary data on patient visits
collected by a large, for-profit hospice with multiple freestanding
facilities, which we refer to as patient-specific visit data, we
analyzed the types of visits provided to patients over the course of
their hospice stays. We used these proprietary data because Medicare
hospice cost reports and claims do not contain information on the
visits hospices provide to Medicare patients each day. We confirmed
that the distribution of visits in 2002 was consistent with the
distribution in 1997 and 1999 for this hospice. We also calculated
descriptive statistics for this hospice and compared them to statistics
calculated using the Medicare hospice claims. We determined these data
were suitable for our purposes. We interviewed officials at CMS, two
national hospice associations, 18 hospices and several national
independent and academic hospice researchers, and we conducted a site
visit to a freestanding hospice with an inpatient unit. Our methodology
is detailed in appendix I. We did our work from January 2003 through
October 2004 in accordance with generally accepted government auditing
standards.
Results in Brief:
We determined that for freestanding hospices, the unadjusted per diem
payment rate across the four payment categories was about 8 percent
higher than estimated average per diem costs in 2000, and over 10
percent higher in 2001. We estimate that the home care (RHC and CHC)
per diem payment rate was almost 10 percent higher than average home
care per diem costs in 2000, and over 12 percent higher in 2001. The
IRC payment rate was almost 53 percent lower than average IRC per diem
costs in 2000, and 61 percent lower in 2001. In both years, the GIC
payment rate was about 7 percent higher than average GIC per diem
costs. We could not compare actual payments to costs because of
limitations in the hospice cost report and claims data. In 2000, we
estimate that average per diem costs for small freestanding hospices
were over 13 percent higher than for medium freestanding hospices and
almost 7 percent higher than for large freestanding hospices. In 2001,
average per diem costs for small freestanding hospices were over 15
percent higher than for medium freestanding hospices and almost 8
percent higher than for large freestanding hospices. With the exception
of average GIC per diem costs in 2000, small freestanding hospices had
higher per diem costs for each payment category in both years. Small
freestanding hospices are more likely than other hospices to be located
in rural areas, and thus are more likely to receive lower Medicare
payments because the wage index adjustment generally reduces the
payments for providers in rural areas.
Several aspects of the hospice per diem payment methodology may not
reflect how hospices currently deliver services. For freestanding
hospices, the share of total costs accounted for by various services
provided during RHC days was considerably different in 2001 than when
the rates were developed in 1983. This suggests that the services
delivered or the resources necessary for those services have changed.
The proportions of RHC costs attributable to nursing, social services,
drugs, and medical equipment have increased, while the proportions
attributable to home health aide services, supplies, and outpatient
services have decreased. In addition, our analysis of proprietary 2002
patient-specific visit data showed that visit frequency varied during
the hospice stay, yet the payment rates remain the same throughout the
stay for each payment category. Also, the mean length of stay has
decreased. Additionally, hospice officials told us that some CHC and
IRC payment policy requirements limited their ability to deliver
services, although data were not available to determine whether these
requirements influenced the delivery of care to hospice patients.
Finally, the annual aggregate cap was intended to help limit Medicare
hospice spending, but the cap amount was not based on actual hospice
costs, and for each year from 1999 through 2002, few hospices reached
it.
We recommend that the Administrator of CMS collect comprehensive,
patient-specific data on the utilization and cost of hospice visits and
services. Using these data, the Administrator should determine whether
the hospice payment methodology and payment categories need
modifications, including any special adjustments for small providers.
The Administrator should implement modifications that would not require
a change in Medicare law, and submit a legislative proposal to the
Congress for those that do. In commenting on a draft of this report,
CMS stated that it agreed with our recommendations and intends to use
our findings to supplement and reinforce preliminary evaluations the
agency has made and future studies that are planned. In responding to
our recommendation that it collect comprehensive, patient-specific data
on hospice visits and services and the costs of these services and
reevaluate the payment methodology, CMS stated that it recognized the
need for these types of analyses but that its research funding is
limited. In its comments, CMS also stated that it believed additional
information is needed before modifying the payment methodology because
of the higher average costs of small hospices. We have clarified our
conclusion to indicate the need for comprehensive, patient-specific
data on the visits and services delivered by hospices and the costs of
these services to inform any changes to the payment methodology.
Industry representatives who reviewed a copy of this draft generally
agreed with our findings and recommendations.
Background:
Medicare hospice benefit services include nursing services, services
provided by a physician to a hospice, drugs and medical supplies
necessary for treating pain and other symptoms of a terminal illness,
as well as dietary, spiritual, and bereavement counseling; medical
social worker services; homemaker services; and short-term inpatient
care both to provide respite for caregivers and to treat a patient's
symptoms. Volunteers are an important resource in delivering hospice
care; Medicare requires each hospice to have volunteers provide
services equal to at least 5 percent of the total paid patient care
hours.[Footnote 18] The specific services that a patient should receive
are outlined in a plan of care, vary based on the type and intensity of
the patient's symptoms and psychosocial needs and the needs of the
patient's caregiver, and may vary throughout the hospice stay as the
patient's condition changes.
Hospice Eligibility:
To be eligible for the Medicare hospice benefit, a patient must be
certified by a physician as having a life expectancy of 6 months or
less if his or her terminal illness runs its normal course. A Medicare
patient who elects hospice care must waive Medicare coverage for all
other services related to the terminal illness, although the patient
retains coverage for services to treat other conditions. A patient may
opt out of the hospice benefit and return to traditional Medicare at
any time; a patient may also reelect hospice coverage at a later date.
While there is no limit on the number of days an individual can receive
hospice care, the prognosis of the patient's terminal illness must be
reaffirmed after the first 90 days, the first 180 days, and then every
60 days thereafter.
Medicare Hospice Payment:
Under the law, Medicare pays hospices a daily rate that covers all
services provided to the patient. HCFA developed four hospice per diem
payment categories, which reflect the intensity of the services and the
location of service delivery. In 1986, annual updates to the rates for
the four payment categories were set in law. A typical day of care
provided in a patient's residence is paid as RHC, and in 2001, the vast
majority of hospice care days, 96 percent, were billed as RHC (see
table 1). Unless a hospice provides CHC, IRC, or GIC, it is paid the
RHC rate for each day the patient is under its care. Hospice care
delivered during periods of crisis can be paid as CHC if the care is
provided in the home for at least 8 hours within a 24-hour period
beginning at midnight and at least half the care hours are delivered by
a nurse. To provide respite for primary caregivers, IRC can be provided
for up to 5 consecutive days in an inpatient setting. Inpatient care
for symptoms that cannot be treated in the patient's residence is paid
as GIC. Hospices provide the care in their own inpatient units or
arrange with hospitals, skilled nursing facilities, or other inpatient
facilities to provide these services. The payment rate is adjusted by a
wage index, which varies based on the patient's residence, to account
for geographic differences in wage costs.
Table 1: Utilization and Payment Rates for Each Hospice Payment
Category:
Payment category: RHC;
Percentage of total hospice days, 2001: 96.0%;
Payment rate, 2004: $118.08/day.
Payment category: CHC;
Percentage of total hospice days, 2001: 1.2%;
Payment rate, 2004: $28.72/hr, up to $689.18/day.
Payment category: IRC;
Percentage of total hospice days, 2001: 0.2%;
Payment rate, 2004: $122.15/day.
Payment category: GIC;
Percentage of total hospice days, 2001: 2.6%;
Payment rate, 2004: $525.28/day.
Source: GAO analysis of CMS data and Medicare payment rates.
[End of table]
The hospice payment categories and their corresponding payment rates
were developed from cost data from the 26 hospices that participated in
the 1980 to 1982 Medicare demonstration. To calculate the payment
rates, HCFA used cost data to identify the cost factors that
contributed to providing hospice services and summed the mean cost per
day of each cost factor for each of the four categories of hospice
care. The costs of bereavement and volunteer services were not included
in the rates.[Footnote 19]
By law, hospices are subject to an annual aggregate Medicare payment
cap that was meant to ensure that payments for hospice care would not
exceed what Medicare would have paid if patients had been treated in a
traditional setting, such as a hospital.[Footnote 20] Total annual
payments to a hospice may not exceed a per-patient amount multiplied by
the number of Medicare patients who received care from that hospice
during the year. The 2004 cap amount for the 12 months beginning
November 1, 2003, is $19,635.67 per Medicare patient.[Footnote 21]
Changes in Hospice Care:
Hospice patients, services, and providers have changed since the
demonstration. For example, the mean patient length of stay at hospices
participating in the Medicare demonstration from 1980 to 1982, was 70
days; in 2001, the mean length of stay was about 50 days. While
demonstration costs were based only on Medicare patients with cancer
diagnoses, patients with noncancer diagnoses, who may require a
different mix of services, represented approximately half of all
hospice patients in 2000. In addition, hospice providers have stated
that advances in end-of-life care, notably new, more costly pain-
management drugs and palliative chemotherapy and radiation, have
increased the costs of providing care to certain types of patients.
The mix of hospice providers today differs from the provider types in
the demonstration. In the demonstration, the predominant type of
hospice provider was hospital-based, whereas in 2001, the predominant
type was freestanding (see fig. 1). More recently, the proportion of
for-profit hospices increased from almost 13 percent of all hospices in
1992 to almost 28 percent in 2001, and the percentage of hospices
serving patients primarily living in rural areas rose from 32 in 1992
to 38 in 2001. In addition, the number of hospices participating in
Medicare grew from 1,208 in 1992 to 2,275 in 2002, the most recent data
available.
Figure 1: Hospice Provider Types Participating in the 1980-1982
Demonstration and in 2001 (Percentages):
[See PDF for image]
[End of figure]
Overall Medicare Hospice Payment Rate Higher Than Freestanding
Hospices' Estimated Average Costs, but Relationship Varied by Payment
Category and Hospice Characteristics:
We determined that for freestanding hospices, the unadjusted per diem
payment rate across the four payment categories was about 8 percent
higher than estimated average per diem costs in 2000, and over 10
percent higher in 2001. For the payment categories, we estimate that
the home care (RHC and CHC) per diem payment rate was almost 10 percent
higher than average home care per diem costs in 2000, and over 12
percent higher in 2001. We estimate that the IRC payment rate was
almost 53 percent lower than average IRC per diem costs in 2000, and 61
percent lower in 2001. In both years, the GIC payment rate was about 7
percent higher than average GIC per diem costs. In 2000, we estimate
that average per diem costs for small hospices were over 13 percent
higher than for medium hospices and almost 7 percent higher than for
large hospices. In 2001, average per diem costs for small hospices were
over 15 percent higher than for medium hospices and almost 8 percent
higher than for large hospices. With the exception of average GIC per
diem costs in 2000, small hospices also had higher average per diem
costs than medium or large hospices for each payment category.
Unadjusted Payment Rate Higher Than Freestanding Hospices' Estimated
Average Costs:
Medicare's hospice payment rate, across the four payment categories and
unadjusted for geographic differences in wages, was higher than
freestanding hospices' estimated average per diem cost. The unadjusted
payment rate was about 8 percent higher than average per diem costs in
2000, and over 10 percent higher in 2001 (see fig. 2). The 25 percent
of hospices with the lowest average per diem costs had costs that were
at least 27 percent below the unadjusted payment rate in 2000, and at
least 31 percent below the unadjusted payment rate in 2001. However, in
2000, average per diem costs for almost 34 percent of freestanding
hospices and, in 2001, almost 32 percent of freestanding hospices, were
higher than the unadjusted per diem rate. The costs of individual
hospices differ depending on the mix of services provided. In addition,
the payments to individual hospices differ because of the wage
adjustment and the mix of payment categories billed.
Figure 2: Unadjusted Per Diem Payment Rate and Estimated Average Per
Diem Costs for Freestanding Hospices, 2000 and 2001:
[See PDF for image]
Note: The unadjusted payment rate equals the rates of the four payment
categories weighted by their respective utilization as reported in
freestanding hospice cost reports in each year, accounting for the
annual October 1 update in the payment rates.
[End of figure]
We could not determine the relationship between payments and actual
costs for individual hospices because of data limitations in the
hospice cost reports and claims data. Unlike those for other providers,
Medicare's hospice cost reports do not include Medicare payment
information. In addition, Medicare hospice claims data contain only the
total payment for all services provided during the billing period,
including physician services, not the payment for each hospice payment
category.
Relationship between Estimated Costs and Unadjusted Payment Rates
Varied among Payment Categories:
The specific relationship between payment rates and costs for
freestanding hospices varied among payment categories. For home care
(RHC and CHC) days, we estimate that in 2000, the unadjusted per diem
payment rate for freestanding hospices was almost 10 percent higher
than the average per diem cost of over $92. In 2001, the per diem
payment rate was over 12 percent higher than the average home care per
diem cost of over $96. Nonetheless, about 35 percent of freestanding
hospices in 2000, and over 32 percent in 2001, had average home care
per diem costs that were higher than the home care per diem payment
rate.
We estimate that in 2000, the unadjusted IRC per diem payment rate for
freestanding hospices was almost 53 percent lower than the average IRC
per diem cost of about $218. In 2001, the IRC per diem payment rate was
over 61 percent lower than the average IRC per diem cost of over $279.
However, the GIC per diem payment rate was higher than average GIC per
diem costs for freestanding hospices; it was over 7 percent higher than
costs in both years. In addition, average per diem costs for IRC and
GIC varied widely among freestanding hospices. Our estimates of average
IRC and GIC per diem costs may understate actual costs because of data
limitations.
IRC costs may be much higher than the IRC payment rate because the
hospice continues to provide services and visits to the patient in
addition to paying the inpatient facility.[Footnote 22] Our analysis of
the proprietary 2002 patient-specific visit data found that the number
and type of visits provided per day to patients during IRC days were
comparable to the number and type of visits per day to patients during
RHC days. In 2001, IRC accounted for 0.2 percent of hospice days of
care.
Small Hospices Had Higher Per Diem Costs and Likely Lower Payments:
We estimate that for 2000 and 2001, small freestanding hospices had
higher average per diem costs than medium and large freestanding
hospices.[Footnote 23] In 2000, average per diem costs for small
hospices were more than 13 percent higher than for medium hospices and
almost 7 percent higher than for large hospices. In 2001, average per
diem costs for small hospices were more than 15 percent higher than for
medium hospices and almost 8 percent higher than for large hospices
(see table 2). With the exception of average GIC per diem costs in
2000, small hospices' average per diem costs were higher than medium
and large hospices' costs for each individual payment category for both
years. Cost disparities across providers of different sizes were
greatest for IRC and GIC.
Table 2: Estimated Average Per Diem Costs by Payment Category for
Freestanding Hospices, by Size, 2001:
Hospice size: Small;
Average costs: $116;
Home care average costs[A]: $112;
IRC average costs: $692;
GIC average costs: $564.
Hospice size: Medium;
Average costs: $101;
Home care average costs[A]: $94;
IRC average costs: $254;
GIC average costs: $460.
Hospice size: Large;
Average costs: $108;
Home care average costs[A]: $96;
IRC average costs: $264;
GIC average costs: $420.
Source: GAO analysis of CMS data.
Notes: The size of the hospice is based on the number of days of care
it provided during the year. Small hospices were those that reported
total days of care less than the 25th percentile of all hospices' total
days of care. Medium hospices were those that reported total days of
care equal to or greater than the 25th percentile and less than or
equal to the 75th percentile of all hospices' total days of care. Large
hospices were those that reported total days of care greater than the
75th percentile of all hospices' total days of care.
[A] Home care costs include RHC and CHC costs.
[End of table]
As small freestanding hospices are more likely than other hospices to
be located in rural areas, they are more likely to receive lower
Medicare payments because the wage index adjustment generally reduces
the payment rates for providers in rural areas. In 2001, 60 percent of
small freestanding hospices were located in rural areas, while 35
percent of medium freestanding hospices and 10 percent of large
freestanding hospices were located in rural areas.[Footnote 24]
Structure of Hospice Payment Methodology May Not Be Consistent with
Current Service Delivery:
The structure of the hospice payment system may not reflect how
hospices currently deliver services. For example, our analysis of the
relative costs for freestanding hospices for different services
provided during RHC days, the most common payment category, showed they
have changed considerably since the payment rate was initially
calculated, suggesting that the services delivered or the resources
necessary for those services have changed over the years. In addition,
our analysis of proprietary 2002 patient-specific visit data showed
that visit frequency varied during the hospice stay, although the rate
for each payment category does not. Also, the mean length of stay has
decreased. Hospice officials raised concerns about some of the payment
policy requirements for CHC and IRC, although our analysis of the
limited available data could not confirm that the requirements restrict
hospices' ability to provide care. Finally, the annual aggregate cap
was intended to help limit Medicare spending for all hospices, but it
was not based on actual hospice costs, and for each year from 1999
through 2002, few hospices reached it.
Relative Costs of Services Provided during RHC Differ from When Payment
Rate Was Developed:
The relative costs of services in 2001 have changed considerably since
the payment rate was developed in 1983, suggesting that the services
delivered or the resources necessary for those services have changed
over time. Specifically, the proportions of RHC costs attributable to
nursing, drugs, social services, and durable medical equipment
(DME)[Footnote 25] have increased, while the proportions attributable
to home health aide services, supplies, and outpatient services have
decreased (see fig. 3).[Footnote 26] In our analysis, this pattern is
present across freestanding hospices of all sizes and locations. The
largest cost increase occurred for drugs, which rose from 3 to 15
percent of RHC costs over this period. Hospice officials we spoke with
stated that this increase was due in part to the introduction of new,
more costly medications. Some stated that drugs have become one of
their greatest cost pressures.
Figure 3: Costs of Services Provided during RHC as a Percentage of
Total RHC Costs, 1983 and 2001:
[See PDF for image]
Notes: Percentages from 1983 are based on cost data collected in the
1980 to 1982 hospice demonstration. RHC costs for 2001 are slightly
overestimated, as they include CHC costs. CHC days accounted for just
over 1 percent of total hospice days in 2001.
[End of figure]
Fewer Days of Lower Visit Frequency with Shorter Mean Length of Stay:
Hospice visits are particularly concentrated at the beginning and end
of a hospice stay, yet the payment rate of each category does not vary
throughout a hospice stay. Our analysis of the 2002 patient-specific
visit data showed that patients have a higher mean number of visits per
day during the first, and especially the last, week of a stay.[Footnote
27] As a result, the costs of care are higher both at the beginning and
end of a hospice stay. Officials from almost all hospices with whom we
spoke also reported this pattern. They told us that at the beginning of
a hospice stay they provide more visits because the patient's symptoms,
including pain, must be stabilized and the family must be educated
about the patient's care. Near the end of life, hospice officials
indicated that the patient's symptoms and needs change, usually
requiring more hospice management, and the family often needs
additional psychosocial support. Our analysis of the 2002 patient-
specific visit data showed that patients with a length of stay of 2
weeks or less had a higher mean number of visits per day than patients
with a length of stay greater than 2 weeks.[Footnote 28] Hospice
officials we spoke with stated that patients who are in hospice care a
short time are relatively more costly on a per diem basis because there
are fewer days of lower visit frequency to balance the higher costs of
the days with more visits at the beginning and end of the stay.
In 1983, the Medicare hospice per diem payment amounts accounted for
the variation in daily hospice costs because they were based on the
mean daily costs incurred by the hospices in the demonstration over a
mean hospice stay of 70 days. However, hospice stays are considerably
shorter now; the mean length of stay was 50 days in 2001. Mean daily
costs may now be very different because of the change in the length of
stay. No data are available, however, to compare costs at different
points during a stay or for stays of different lengths.
Providers Raised Concerns about Payment Category Requirements:
Hospice officials we spoke with raised concerns about some of the
policy requirements for particular payment categories, although our
analysis of the available data could not confirm their concerns. For
example, to bill for CHC, Medicare requires that a nurse provide at
least half of billed CHC hours. Hospice officials stated that this
could restrict the hospice's ability to provide the most appropriate
care when a social worker was a more appropriate caregiver than a
nurse.
The officials were also concerned that the 8-hour minimum required for
billing CHC payment, counted from midnight of one day until midnight of
the next, could restrict their ability to bill for CHC. For example, if
a patient dies in less than 8 hours or the hospice provides 8 hours of
services over 2 calendar days, the hospice must bill for RHC. Our
analysis of 2001 Medicare hospice claims indicated that the mean number
of hours provided on a CHC day was 18 hours, considerably above the 8-
hour minimum. Similarly, our analysis of the 2002 patient-specific
visit data from one large, freestanding hospice showed a mean of 20
hours provided on each CHC day. Therefore, instances of continuous care
hours that fall just short of 8 hours, for which a hospice cannot bill
CHC hours, do not occur often based on the patient-specific visit and
claims data.
Hospice officials we spoke with also stated that the statutory
requirement that respite care be provided in an inpatient setting might
hinder its use.[Footnote 29] Specifically, they stated that while
primary caregiver respite is important, enabling patients to remain at
home rather than moving them to an inpatient facility is also
important; primary caregivers may not take respite in order to avoid
moving the patient to an inpatient facility. Few hospices we spoke with
currently provide home respite care for extended periods. They said
this is largely because the costs are higher than the RHC payment rate,
which is the payment category the hospices must bill for these
services. Data related to home respite care are not available, although
it is likely that the costs of providing 24 hours of home respite care
would be higher than RHC costs.
Few Hospices Affected by Annual Aggregate Cap:
According to our analysis of data from the regional home health
intermediaries, the contractors responsible for processing and paying
Medicare hospice claims, less than 2 percent of all hospice providers
reached the annual aggregate payment cap each year from 1999 through
2002.[Footnote 30] In 1982, the Congress required HCFA to calculate a
cap that limited a hospice's total payments to a specific per-patient
amount based on the Medicare costs incurred for patients with cancer
during the last 6 months of life.[Footnote 31] However, a subsequent
law enacted before the hospice benefit was implemented set a per-
patient cap amount that was not based on the cost data;[Footnote 32]
for the 12 months beginning November 1, 2003, the cap was $19,635.67
per Medicare patient. The cap is intended to ensure that payments for
hospice care do not exceed what Medicare would have spent if patients
had been treated in a traditional setting, such as a hospital. However,
it affects few hospices, and therefore may not represent a meaningful
limit. Hospice officials we spoke with who discussed the cap said it
did not affect them.
Conclusions:
CMS has not evaluated the hospice per diem payment rates and
methodology since they were developed to determine the relationship
between payments and costs and whether the per diem methodology is
consistent with current patterns of care. There are several indications
that hospice payments may not be appropriately distributed across days
of care or types of providers. The type of care provided during a
hospice stay appears to be different than when the hospice per diem
payment rates and methodology were developed. Comprehensive data are
not available, however, to evaluate the number of visits or costs of
services provided during a Medicare hospice stay. While our analysis of
the limited data available indicates that the overall Medicare payment
rate across all payment categories was above estimated costs, IRC costs
were considerably above the payment rate. Further, small freestanding
hospices had substantially higher average per diem costs than other
hospices. As a result, a comprehensive analysis of patient-specific
data may show that modifications to the hospice payment methodology are
warranted. Because the payment rates for the four hospice payment
categories, the per diem methodology, and the cap are set by law, CMS's
ability to make modifications to the payment approach is limited.
Recommendations for Executive Action:
We recommend the following three actions. First, we recommend 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. Second, using these data, the Administrator should
determine whether the hospice payment methodology and payment
categories need to be modified, including any special adjustments for
small providers. Third, 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 and External Reviewer Comments and Our Evaluation:
We received written comments on a draft of this report from CMS (see
app. II). We also received oral comments from two groups representing
industry organizations, the Hospice Association of American (HAA) and
the National Hospice and Palliative Care Organization (NHPCO), as well
as from the large, for-profit hospice that provided the patient-
specific visit data.
CMS Comments and Our Evaluation:
In commenting on a draft of this report, CMS stated that it agreed with
our recommendations and intends to use our findings to supplement and
reinforce preliminary evaluations the agency has made and future
studies that are planned. In responding to our recommendation that it
collect comprehensive, patient-specific data on hospice visits and
services and the costs of these services, CMS stated that it recognized
the need for this type of analysis. It stated that collection of these
data would require additional research funding, and it is uncertain
when such funding would be available. CMS noted that it has initiated
efforts to collect data on costs with the recent establishment of the
hospice cost reports. CMS stated that it hoped the recommendations in
our report could help the agency in developing a comprehensive research
strategy for the hospice benefit.
In responding to our recommendation that CMS determine whether the
hospice payment methodology and payment categories need to be modified,
including any adjustments for small providers, CMS agreed that the
methodology implemented in 1983 was based on a delivery model that may
have changed since that time. It concurred that the methodology should
be reevaluated to determine its current appropriateness. It again
stated that research funding is limited. CMS agreed that the costs of
drugs and other therapies, the number of hospice beneficiaries with
noncancer diagnoses, and the mean length of stay have all changed since
1983. CMS stated that we did not demonstrate in the draft report that
the provision of these and other therapies have increased the cost of
providing care beyond the present payment. In the draft report, we
stated that there may be problems with the distribution of hospice
payments, but that comprehensive data are not available to evaluate the
number of visits or costs of services provided during a Medicare
hospice stay. As noted in the draft report, the overall payment rate
across all types of care is higher than our estimate of hospices'
overall costs. In its comments, CMS also raised concerns that we
implied that payment methodology changes be made for small hospices
before CMS collects comprehensive data. We have clarified our
conclusion to indicate the need for comprehensive, patient-specific
data on the visits and services delivered by hospices and the costs of
these services to inform any changes to the payment methodology.
In response to our recommendation that CMS should submit a legislative
proposal to the Congress to implement those modifications that would
require a change in Medicare law, CMS stated that should it determine
changes are necessary, it would evaluate those changes as part of its
overall legislative strategy.
CMS also made technical comments, which we incorporated where
appropriate.
Industry Comments and Our Evaluation:
The external reviewers generally agreed with our findings and
recommendations. Comments on specific portions of the draft report
centered on two areas: our scope and methodology and the hospice
payment methodology.
Regarding our scope and methodology, HAA and NHPCO were concerned that
we based our findings on Medicare freestanding hospice cost reports
that had not been audited. The large, for-profit hospice noted that the
cost report is complex and that hospices' accounting systems are not
generally compatible with its structure. Similarly, HAA and NHPCO
stated that hospices may not have had sufficient experience with
completing the cost reports at the time of our review. NHPCO stated
that our exclusion of hospice cost reports with fewer than 11 total
patients or an average of less than 1 patient per day might have
excluded a substantial number of cost reports. In addition, HAA and
NHPCO recommended that we include bereavement counseling costs in our
per diem cost calculation. They stated that although Medicare is
precluded from paying hospices for bereavement counseling, it is a
required service, and excluding it from the per diem cost calculation
may misrepresent the amount by which payment rates exceeded hospice
costs.
Regarding reviewers' concerns about our use of unaudited cost reports,
BBRA directed us to examine hospice cost factors. Information on these
factors is available only from cost reports, which CMS has not audited.
As stated in the draft report, we assessed the reliability of the cost
reports by comparing descriptive statistics calculated using the cost
reports with those calculated using the Medicare hospice claims, and
found the data suitable for our purposes. Regarding reviewers' concerns
about data we excluded from our analysis, we excluded 51 of 992, or 5
percent, of freestanding hospice cost reports in 2000, and 48 of 975,
or 5 percent, of freestanding hospice cost reports in 2001, because
they had fewer than 11 total patients or an average of less than 1
patient per day. We excluded these cost reports because we believe that
these hospices either had too few patients to be representative of all
hospices, or may have been reporting data incorrectly. We do not
believe that these represent substantial numbers of cost reports and
consider our exclusion criteria appropriate. Concerning the comments
that we should include bereavement costs in our per diem cost
calculation, as stated in the draft report, we included only Medicare-
reimbursable costs in our calculations. If Medicare cannot, by law, pay
hospices for bereavement services, it is inappropriate to include them
in a per diem cost that is compared to a payment rate that is not
designed to cover these costs. In 2001, in comparison to total
Medicare-reimburseable costs, bereavement costs were small; they were
equal to less than 2 percent of total Medicare-reimburseable costs.
Reviewers also commented on the hospice payment methodology. NHPCO
stated that costs on the cost report may not reflect the provision of
all services that could potentially be provided because hospices may
manage their costs to more closely approximate the per diem rate.
Although the provision of additional services may be warranted,
hospices cannot pay for them and therefore do not provide them. HAA and
NHPCO stated that instances of CHC provision that fall close to 8 hours
may not seem to occur often because hospices avoid providing CHC if
they know they will not be able to provide at least 8 hours. However,
HAA and NHPCO also stated that data to determine whether this is the
case are not available.
Regarding industry comments on hospice costs and the hospice payment
methodology, we acknowledge that hospices may manage their costs to
closely approximate the per diem rate, and that hospices may not
provide CHC if they know they will not be paid for that level of care.
Data are not available to evaluate whether either of these situations
occur.
Reviewers also made technical comments, which we incorporated where
appropriate.
We are sending copies of this report to the Administrator of CMS and
appropriate congressional committees. The report is available at no
charge on GAO's Web site at http://www.gao.gov. We will also make
copies available to others on request.
If you or your staffs have any questions, please call me at (202) 512-
7119 or Nancy A. Edwards at (202) 512-3340. Other major contributors to
this report include Beth Cameron Feldpush, Joanna L. Hiatt, and Gordon
W. Richmond.
Signed by:
Laura A. Dummit:
Director, Health Care--Medicare Payment Issues:
[End of section]
Appendix I: Scope and Methodology:
To examine hospice costs and Medicare payments, we used 2000 and 2001
Medicare hospice cost reports, the financial documents that hospices
submit annually to the Centers for Medicare & Medicaid Services (CMS),
and 2000 and 2001 Medicare hospice claims data, bills submitted by
hospices to receive Medicare payment. We also used proprietary 2002
patient-specific visit data from a large for-profit hospice, which has
been collecting these data for its internal use since 1994. We
interviewed officials from CMS and one regional home health
intermediary, a contractor responsible for processing and paying
Medicare hospice claims, in addition to officials from AARP, the
Hospice Association of America, the National Hospice and Palliative
Care Organization, and the Visiting Nurse Associations of America. We
also spoke with representatives from 18 hospices, several national
independent and academic hospice researchers, and two physicians who
provide hospice care. Finally, we conducted a site visit to a
freestanding hospice with an inpatient unit.
To assess the reliability of the cost report data, we compared
descriptive statistics calculated using the cost reports with those
calculated using the Medicare hospice claims data. Because hospices
began submitting cost reports in 1999, we also compared our
calculations from the 2000 cost reports to those from the 2001 cost
reports to ensure that hospices had provided consistent data. To assess
the reliability of the claims data, we compared descriptive statistics
calculated using the claims with statistics published by CMS. To assess
the consistency of the 2002 patient-specific visit data, we verified
that the distribution of visits in the 2002 data was similar to the
distribution of visits in 1997 and 1999. In addition, before releasing
these data to us, the hospice performed quality assurance edits, which
consisted of confirming that the data provided to us were identical to
the data in its database for more than 20 randomly selected patients.
Finally, we calculated descriptive statistics and compared them with
statistics for all hospices calculated using the Medicare hospice
claims. We determined that the cost report, claims, and patient-
specific data were all suitable for our purposes.
The 2000 and 2001 hospice cost reports were the most recent data
available at the time of our analysis. The Medicare payment methodology
is the same for freestanding and facility-based hospices; however, we
confined our analysis to cost reports of freestanding hospices. We
excluded hospital-based and home health agency-based hospices because
we found that their per diem costs were generally much lower than those
of freestanding hospices, which may result from decisions made by these
providers in allocating overhead costs between the hospital or home
health agency and the hospice. For freestanding hospices, the only
costs incurred are for delivering hospice care to patients. We excluded
freestanding cost reports that reported no or low Medicare utilization,
those that had cost reporting periods of fewer than 10 or greater than
14 months, and those outside the 50 states or District of Columbia. We
also excluded cost reports that had fewer than 11 total patients or an
average of less than 1 patient per day, those with no costs, and those
reporting costs outside three standard deviations of the mean. Our
final sample included 82 percent of all freestanding hospice cost
reports in 2000 and 80 percent in 2001.
We calculated freestanding hospices' total Medicare-reimburseable
costs by subtracting nonreimburseable costs, such as bereavement and
fund-raising, from total costs. To obtain average per diem costs, we
summed total Medicare-reimburseable costs across all providers and
divided by total hospice days across all providers. In addition,
because of the cost report design, certain inpatient respite care
(IRC), general inpatient care (GIC), and physician costs may be
included in our estimate of combined routine home care (RHC) and
continuous home care (CHC), or home care, costs. As a result, home care
costs may be overestimated, which would result in our understating the
amount by which the unadjusted home care payment rate exceeds average
home care per diem costs. Because of the way cost centers are defined
on the cost reports, the costs of IRC and GIC may be underestimated.
We based the size of a hospice in each year on the number of days of
care it provided that year. Small hospices were those that reported
total days of care less than the 25th percentile of all hospices' total
days of care. Medium hospices were those that reported total days of
care equal to or greater than the 25th percentile and less than or
equal to the 75th percentile of all hospices' total days of care. Large
hospices were those that reported total days of care greater than the
75th percentile of all hospices' total days of care. We defined a
hospice as urban if it was located in a county that was in a
metropolitan statistical area and as rural if it was located in a
county that was not in a metropolitan statistical area, as determined
by the Office of Management and Budget as of June 30, 1999.
We could not compare the 2000 and 2001 per diem costs we calculated to
actual payments because hospice cost reports do not report Medicare
payment information. In addition, Medicare hospice claims contain only
the total payment for all services provided during the billing period,
including physician services, not the payment for each payment
category. Therefore, we calculated a 2000 and 2001 unadjusted payment
rate that encompassed all payment categories. We did so by weighting
the individual rates of the four payment categories by their respective
utilization in the freestanding hospice cost reports in our final
sample in each year. The costs for home care, combined RHC and CHC, are
reported in aggregate on the hospice cost report. Therefore, we
calculated a 2000 and 2001 unadjusted payment rate that encompassed RHC
and CHC. We did so by weighting the individual rates of these two
categories by their respective utilization in the freestanding hospice
cost reports in our final sample in each year. In addition, we weighted
the overall unadjusted payment rate and the unadjusted payment rate for
each payment category to account for the different payment rates in
effect during the year. The majority of freestanding hospices report
costs using a calendar year reporting period, while payment rates are
updated on a fiscal year basis, that is, on October 1 of each year.
Therefore, during a calendar year, one payment rate is in effect from
January 1 through September 30 and another from October 1 through
December 31. Our unadjusted payment rates do not account for the wage
adjustment Medicare applies to payments.
To determine the proportion of total cost in 2001 accounted for by each
service, such as nursing or home health aide services, that was
included in the 1983 RHC rate, we grouped the services on the cost
report into categories similar to the 1983 services, and divided by the
total cost. Our estimates of the proportions of 2001 RHC costs include
CHC costs because the costs of RHC and CHC are reported in aggregate on
the hospice cost report. It is likely that CHC costs were a very small
proportion of combined RHC and CHC costs, as CHC days accounted for
just over 1 percent of total hospice days in 2001.
To determine the percentage of total hospice days accounted for by each
payment category and the mean CHC hours per CHC day for all hospices,
we used 2000 and 2001 Medicare hospice claims data, the years that
matched most closely with the cost reports used for our analysis. We
excluded from our analysis patients who were younger than 20 or older
than 110 years of age, who lived outside of the 50 states or the
District of Columbia, and who had total hospice payments that fell
below 1 day of care at the lowest wage-adjusted RHC payment rate and
above 1 year of care at the highest wage-adjusted RHC payment rate. Our
final sample included over 98 percent of all claims in both 2000 and
2001.
To analyze the frequency and types of visits to hospice patients, we
used proprietary 2002 data on Medicare hospice patients collected by a
large, for-profit hospice with multiple freestanding facilities. We
determined the number of visits per day and the number of nurse, home
health aide, counselor, and other caregiver visits per day for all days
and for days within each of the four payment categories. We also
analyzed whether there were differences in the number of visits per day
provided by patient length of stay, patient residence, diagnosis,
number of secondary conditions, and age and determined the number of
visits in the first and last week of a stay and for the remaining days
of a stay.
We conducted our work from January 2003 through October 2004 in
accordance with generally accepted government auditing standards.
[End of section]
Appendix II: Comments from the Centers for Medicare & Medicaid
Services:
DEPARTMENT OF HEALTH & HUMAN SERVICES:
Centers for Medicare & Medicaid Services:
Administrator:
Washington. DC 20201:
DATE: SEP 15 2004:
TO: Laura A. Dummit:
Director, Health Care-Medicare Payment Issues:
United States General Accountability Office:
Initialed by:
FROM: Mark B. McClellan, M.D., Ph. D.:
Administrator:
SUBJECT: General Accountability Office's (GAO) Draft Report: MEDICARE
HOSPICE CARE: Modifications to Payment Methodology May Be Warranted
(GAO-04-794):
Thank you for the opportunity to review and comment on the draft
report. We appreciate the interest of the Congressional Committees and
the efforts of the GAO in the methodology used to determine Medicare
hospice payment rates.
The payment methodology and rates for the Medicare hospice benefit were
developed utilizing cost data from 26 hospices that were part of a
demonstration project run by the Centers for Medicare & Medicaid
Services (CMS), formerly the Health Care Financing Administration, from
1980 to 1982. At that time, patients receiving hospice care had a
diagnosis of tenninal cancer and received the hospice benefit for an
average length of stay of 70 days. This methodology has not been
systematically evaluated since the inception of the hospice benefit in
1983. The Balanced Budget Refinement Act of 1999 directed the GAO to
study the hospice payment methodology and rates.
The CMS is committed in ensuring that Medicare beneficiaries receive
current and appropriate hospice services and in providing the hospice
agencies with remuneration for the services rendered while preserving
the Medicare Trust Fund. We want to thoroughly evaluate what the cost
for delivering these services are and to make the necessary
modifications, if needed, to ensure that the triad of beneficiary/
hospice/Medicare is in a partnership. The CMS intends to utilize the
findings in this report to supplement and reinforce the preliminary
evaluations that have occurred and future studies that are planned.
The CMS thanks the GAO staff for their effort and recommendations. We
have enjoyed working with them through this process and hope to have
further opportunities as we venture forward.
Attached are specific CMS' comments to GAO's recommendations.
Attachment:
Centers for Medicare & Medicaid Services' Comments to the GAO Draft
Report: MEDICARE HOSPICE CARE: Modifications to Payment Methodology May
Be Warranted (GAO-04-794):
GAO Recommendation:
CMS should collect comprehensive, patient-specific data on the visits
and services being delivered by hospices and the costs of these
services.
CMS Response:
We concur with this recommendation and recognize the need for this type
of analysis. The CMS recognizes the importance of monitoring the
effects of payment changes and in improving and refining Medicare
payment systems over time. An effort to collect comprehensive patient-
specific data on visits and on the cost of services would require
additional research funding. We have initiated efforts in this regard
by establishing a cost report that provides basic data costs. With the
competing demands for research funding, we have been unable to analyze
this data. An even more costly research effort would be needed to
conduct primary data collection on resource use on a patient basis.
With the high priority research efforts needed to implement other
prospective payment systems, the Medicare Prescription Drug,
Improvement, and Modernization Act of 2003 provisions, including a new
drug benefit, we are uncertain when we would be able to fund this
effort. We are hopeful that the recent analyses conducted by MedPac and
the recommendations contained in this report will help guide us in
developing a comprehensive research strategy for the Medicare hospice
benefit.
GAO Recommendation:
Using data collected, CMS should determine whether the hospice payment
methodology and payment categories need to be modified, including any
special adjustments for small providers.
CMS Response:
We agree that the methodology employed in 1983 to develop the payment
rates was based upon a delivery model that may have changed, to some
extent, since that time. We concur that this methodology should be
reevaluated to determine its appropriateness at this time. The CMS
recognizes the importance of monitoring the effects of changes in the
cost for delivering services as well as improving and refining Medicare
payment systems over time. Once again, funding restrictions are a
limitation. We are hopeful that the information contained in this
report will help support the development of a comprehensive research
strategy for the hospice benefit when funding is allocated to this
effort.
The draft report identified factors that have emerged due to the
changing nature of delivering hospice care, which may need to be
reexamined. These included the cost of drugs and other therapies, the
increase in the number of hospice beneficiaries with non-cancer
diagnoses, and the change in average length of stay. The CMS agrees
that beneficiaries with non-cancer diagnoses are increasingly electing
the hospice benefit. We agree that the cost of some drugs may be more
costly today. We also acknowledge that chemotherapy and radiation are
used as palliative therapies today. However, this draft report does
not demonstrate that the provision of these and other therapies have
increased the cost of providing care beyond the aggregate payment that
hospice agencies receive for each beneficiary.
In terms of average length of stay, CMS does understand that hospice
visits tend to be concentrated in the beginning as well as at the end
of a hospice election. This concentration of care was factored into the
initial computation of hospice payment rates. We concur with the GAO
that the mean daily costs may be different today because of changes in
length of stay (pp 21). However, we are not sure that this translates
into insufficient payment to hospices. Payment rates have increased
each year by the market basket value. The wage index has reflected the
annual changes in wages by geographic location. While in the past,
hospice staff provided a large portion of care, today families and
friends are increasingly providing a larger portion of care, including
skilled nursing care traditionally provided by hospice nurses. It would
be useful to see if the number of visits and time spent by hospice
staff has changed over the years.
In terms of small providers, the draft report states, "...small
freestanding hospices had higher average per diem costs than other
hospices, which could signal problems with the distribution of
payments. As a result, modifications to the hospice payment methodology
may be warranted." The CMS does adjust the wage index by applying a
hospice specific wage index floor. Areas with a hospice wage index
below 0.8 are adjusted by the greater of. (1) the hospice budget
neutrality factor; or (2) the hospice wage index floor (a 15 percent
increase) subject to a maximum wage index value of 0.8. However, before
other payment methodology modifications are made, we believe additional
information would need to be obtained to ensure that inefficient
practices are not rewarded by additional payment. The CMS is not aware
that small freestanding hospices are experiencing deleterious effects
due to Medicare payment.
GAO Recommendation:
CMS 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.
CMS Response:
Should it be determined that legislative changes are required, CMS will
evaluate those changes as part of its overall legislative strategy.
[End of section]
FOOTNOTES
[1] Tax Equity and Fiscal Responsibility Act of 1982 (TEFRA), Pub. L.
No. 97-248, § 122, 96 Stat. 324, 356.
[2] In July 2001, the name of the agency that administers Medicare,
HCFA, was changed to the Centers for Medicare & Medicaid Services. In
this report, we refer to the agency as HCFA when discussing actions it
took under that name.
[3] 42 U.S.C. § 1395x(dd)(1) (2000).
[4] 42 U.S.C. § 1395f(i)(1)(B) (2000).
[5] Medicare pays physicians separately for services provided to
hospice patients.
[6] 42 C.F.R. § 418.302(b)(1) - (4) (2003).
[7] Although a per diem rate for CHC is determined, Medicare pays
hospices an hourly rate for CHC calculated from the per diem rate.
[8] Consolidated Omnibus Budget Reconciliation Act of 1985, Pub. L. No.
99-272, § 9123, 100 Stat. 82, 168 (1986).
[9] 42 U.S.C. § 1395f(i)(2) (2000).
[10] Pub. L. No. 106-113, App. F, § 132, 113 Stat. 1501A-321, 1501A-
333.
[11] In 2001, over half of all Medicare hospice patients were served by
freestanding hospices.
[12] Estimated per diem costs for these hospices were generally much
lower than those of freestanding hospices.
[13] To calculate a single unadjusted hospice payment rate, we weighted
the four rates by their respective utilization as reported on
freestanding hospice cost reports in each year, accounting for the
annual October 1 update in the payment rates.
[14] To calculate an unadjusted payment rate that encompassed RHC and
CHC, we weighted the individual rates of these two categories by their
respective utilization as reported on freestanding hospice cost reports
in each year.
[15] Unlike for other providers, Medicare's hospice cost reports do not
include Medicare payment information. In addition, Medicare hospice
claims contain only the total payment for all services provided during
the billing period, including physician services, not the payment for
each hospice payment category.
[16] We define a hospice as urban if it was located in a county that
was in a metropolitan statistical area and as rural if it was located
in a county outside a metropolitan statistical area, as determined by
the Office of Management and Budget as of June 30, 1999.
[17] It is likely that CHC costs were a very small proportion of home
care costs, as CHC days accounted for just over 1 percent of total
hospice days in 2001. We refer to proportions of combined RHC and CHC
costs as proportions of RHC costs.
[18] 42 C.F.R. § 418.70(e) (2003).
[19] By statute, hospices must provide bereavement counseling, although
Medicare is prohibited from paying hospices for such services (42
U.S.C. §§ 1395x(dd)(1)(H), 1395x(dd)(2)(A)(i), and 1395f(i)(1)(A)
(2000)). The statute also specifies that hospices must use volunteers
in the provision of care (42 U.S.C. § 1395x(dd)(2)(E)(i) (2000)). HCFA,
however, did not include volunteer costs (such as volunteer training
and program coordination costs) in setting the payment rates.
[20] 42 U.S.C. § 1395f(i)(2) (2000).
[21] Each year, the cap amount is updated by the annual percentage
change in the medical care component of the Consumer Price Index for
all urban consumers.
[22] During GIC, hospices also provide services and visits to the
patient in addition to paying the inpatient facility.
[23] The size of the hospice in each year is based on the number of
days of care it provided that year. Small hospices were those that
reported total days of care less than the 25th percentile of all
hospices' total days of care. Medium hospices were those that reported
total days of care equal to or greater than the 25th percentile and
less than or equal to the 75th percentile of all hospices' total days
of care. Large hospices were those that reported total days of care
greater than the 75th percentile of all hospices' total days of care.
[24] While urban freestanding hospices also had higher estimated
average per diem costs compared to rural freestanding hospices in our
analysis, urban hospices generally receive higher payments than rural
hospices to account for the higher wages they must pay.
[25] DME is equipment prescribed by a physician for the medical purpose
of addressing a patient's illness or injury that can withstand repeated
use, such as respirators, crutches, and oxygen equipment.
[26] RHC costs for 2001 are slightly overestimated, as they include CHC
costs. CHC days accounted for just over 1 percent of total hospice days
in 2001.
[27] We also analyzed patient visit frequency by certain patient
characteristics. Using 2002 patient-specific visit data, we found no
substantial differences in the mean number of visits per day among
patients of different ages, diagnoses, numbers of secondary conditions,
or residential locations. (The patient-specific visit data categorized
patients as residing in their home, a nursing home, an assisted living
facility, or a hospital. In this analysis, patients residing in a
hospital had a slightly lower mean number of visits per day than
patients residing in other locations.)
[28] We also found that patients with a length of stay of 2 weeks or
less had a higher proportion of CHC days, representing the delivery of
more intensive, and therefore more costly, services, compared to
patients with longer stays.
[29] 42 U.S.C. 1395x(dd)(1)(G) (2000).
[30] One regional home health intermediary had jurisdiction over at
least 71 percent of the hospices that reached the cap each year from
1999 through 2002. This intermediary had no additional information on
why these hospices reached the cap.
[31] TEFRA, § 122(i)(1), 96 Stat. 358-359.
[32] 42 U.S.C. § 1395f(i)(2) (2000).
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