1730 K Street, NW• Suite 800 • Washington, DC 20006

(202) 653-7220 • Fax: (202) 653-7238 • www. m e d p a c . g o v
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2 The Secretary should research differences in the care and resource needs of hospice

patients and determine whether a case-mix adjusted payment system for hospice care

is feasible. He also should study ways to establish a high-cost outlier policy. 

YES: 14 • NO: 0 • NOT VOTING: 0 • ABSENT: 3 

*COMMISSIONERS’ VOTING RESULT S
M e d i c a r e B en e f i c ia r i es ’ A c ce ss t o H o s p i c e | M a y 2 0 0 2 

Although Medicare’s payment policies do not appear to explain the increase in short stays—Medicare

pays for hospice on a per diem basis—the Commission is concerned that Medicare’s payment rates for

providing hospice care may differ from the efficient costs of care for hospice patients, as payment rates are

based on information from a demonstration project conducted in the early 1980s. A c c o r d i n g l y, we recommend that the Centers for Medicare & Medicaid Services (CMS) reevaluate hospice rates to ensure their

a d e q u a c y. Better information is needed about the services patients need and use, and about differences in

use of services among hospice patients. Research on these topics is needed to lay a foundation for a payment

system that accounts for differences in the resources needed to care for patients. It also will help improve

payments for costly patients, whether in concert with the existing payment policy or with a case-mix

adjusted payment system. 

What is hospice? 

Terminally ill beneficiaries—those certified by an attending physician and a hospice medical director to

have life expectancy of six months or less (if the disease runs its normal course)—may elect to receive

hospice care. To be eligible for the rich package of hospice services, beneficiaries must give up other

Medicare services related to curative treatment of their terminal illness. For beneficiaries who elect hospice,

Medicare still covers treatment of illnesses and injuries unrelated to the terminal illness. Beneficiaries can

disenroll from hospice at any time. 
4 M e d i c a r e B e n ef i ci a ri e s’ A cc es s t o H o s p i ce | Ma y 2 00 2 

1 To respond to the Congre s s ’s request, we contracted with Direct Research, LLC to review the literature and analyze data from administrative

re c o rds and the Medicare Current Beneficiary Survey (Hogan 2001). The Summit Business Group, LLC, another contractor, interviewed key

i n f o rmants familiar with hospice and convened a focus group of experts to develop and prioritize ways to improve beneficiaries’ access to

hospice care (Mahoney 2002).

1992 1994 1996 1998 2000

Non-Cancer

Cancer

Source: Direct Research, LLC.

500

450

400

350

300

250

200

150

100

50

0
M e d i c a r e B en e f i ci a r i es ’ A c ce ss to H o sp i ce | M a y 2 0 02 

of the urban rate; in 1992, rural beneficiaries used hospice at 57 percent of the urban rate. 

The number of hospices participating in the Medicare program increased by 89 percent (from 1,208 to

2,283) from 1992 to 2002. From 1992 to 1999, the number of for-profit hospices and hospices serving

more than 500 beneficiaries per year increased at the fastest rates—293 and 216 percent, respectively.

Hospices in rural areas experienced greater growth than urban hospices—116 percent versus 64 percent

(GAO 2000). Nationally, less than 1 percent of decedents lived in areas with no hospice available in 2000

(Hogan 2001).2 Counties without hospices were sparsely populated, less likely than counties with hospices

to have a hospital, and predominantly located in totally rural areas (not adjacent to urban areas and having

no town exceeding 2,500 people). In four states (Montana, South Dakota, Wyoming, and Nebraska) b e t w e e n

10 and 30 percent of rural Medicare beneficiaries lived in counties without apparent access to hospice care.

Despite the increases in use and availability of hospice care, two groups of beneficiaries use hospice care

less frequently—minority beneficiaries and people without supplemental insurance coverage (such as

Medigap, Medicare+Choice, retirement coverage, or Medicaid) (Hogan 2001). Low use rates could suggest

access problems for these groups or could result from other causes. For example, hospice experts interviewed for this study attributed lower use among minority beneficiaries to their cultural beliefs and attitudes

toward health care (Mahoney 2002). The literature also supports cultural attitudes as the reason minority

individuals do not use hospice as frequently as those who are white (Krakauer et al. 2002). As for people

without supplemental insurance, their less frequent use of hospice is more difficult to interpret because

copayments for hospice care are minimal.

2 Counties were identified as having evidence of hospice service if 5 percent of hospice claims revealed at least two beneficiaries residing in

that county who used hospice at some time during the period of 1993 to 1999, the CMS provider of service file showed at least one active

hospice provider headquart e red in that county in 2000, or some member of the National Hospice and Palliative Care Organization re p o rt e d

p roviding service to that county.
6 M e d i c a r e B e n ef i ci a ri e s’ A cc es s t o H o s p i ce | Ma y 2 00 2 

Short hospice stays

Some observers express concern that short hospice stays indicate that beneficiaries have problems a c c e s s i n g

hospice. From 1992 to 2000, the fraction of hospice patients dying within one week of admission i n c r e a s e d

from 21 percent to 30 percent (Hogan 2002). A diagnosis of congestive heart failure, myocardial infarction, or lung cancer significantly predicted admission to hospice within two weeks of death (Hogan 2001).

The difficulty of predicting death for people with congestive heart failure or myocardial infarction and the

rapid decline of patients with lung cancer may help explain why patients with these conditions would be

more likely to have shorter hospice stays. 

We conclude that Medicare payment policies are not a primary contributor to beneficiaries having short

hospice stays. Instead, more important main causes of late referrals appear to be the d i fficulty of making

prognoses of death within six months, unwillingness of beneficiaries to give up curative care, and the greater

availability of non-toxic therapies that make continuing treatment more palatable. 

Our key informants also reported that many physicians are reluctant to identify their patients as having a

six-month prognosis (Mahoney 2002). The literature supports this reluctance (Christakis 2000). In addition,

research has shown that only 20 percent of prognoses are accurate and 63 percent overestimate survival

time; the more familiarity physicians have with patients, the more inaccurate the prognosis (Christakis and

Lamont 2000).
M e d i c a r e B en e f i c ia r i es ’ A c ce ss t o H o s p i c e | M a y 2 0 0 2 

y p, y 

possible, however, that some patients will continue to prefer home health services with familiar providers

to hospice services with new providers.

M e d i c a re payment rates need to be evaluated for adequacy

Notwithstanding improvement in access in the past decade, Medicare’s payment rates must be adequate to

protect beneficiaries’continued access to care without financial burdens on them or on taxpayers.

Medicare pays a fixed amount to hospices for each day a beneficiary is eligible and under hospice care,

regardless of the services furnished on any given day. These per diem payment rates are based on a fee

schedule with separate rates for four broad categories of care: routine home care, continuous home care,

inpatient respite care, and general inpatient care.3 Patients are assigned to these categories based on the type

of care they actually receive each day; the default category is routine home care.

Hospice payment rates are based on information from a Medicare demonstration project completed in the

early 1980s. Although the rates have been updated for inflation over time, they probably are not consistent

with the costs that efficient hospices incur in furnishing care. Rapid growth of providers suggests that rates

are sufficiently generous, although the hospice industry maintains that rates are too low. To resolve this

issue, rates must be reevaluated as soon as cost reports are available for hospices.4

3 Inpatient respite care provides short - t e rm relief for patient caregivers. General inpatient care may be necessary to perf o rm pro c e d u res for

pain control or symptom management when they cannot be furnished in other settings.

4 B e f o re April 1, 1999, hospices were not re q u i red to submit cost re p o rts. CMS estimates that cost re p o rts will be available beginning in June 2002.
8 M e d i c a r e B e n ef i ci a ri e s’ A cc es s t o H o s p i ce | Ma y 2 00 2 

Another issue that may merit attention is whether hospices should be paid the same rate when furnishing

care to nursing home residents and patients at home. The Office of the Inspector General (OIG) found that

hospice patients in nursing homes received fewer services than similar patients in their homes and has

expressed concern that rates are the same for both types of patients (OIG 1997).

Additional re s e a rch on diff e rences in hospice patients is needed

Hospice payment rates are currently the same for all types of patients, with no adjustment for case mix.

H o w e v e r, some patients may be systematically more costly than others, while others are less costly. Before a

case-mix adjusted payment system can be developed, however, policymakers need more information on the

care patients need, the services they receive, and differences among types of patients. For example, the care that

cancer patients require may be very different than that needed by patients with non-cancer diagnoses. In

addition, lung cancer patients frequently have shorter stays and may require different resources than other

cancer patients because of the nature of their illness. Systematic differences also may exist among noncancer patients, such as those with congestive heart failure or AIDS. These questions cannot be answered

without research.

Because the hospice payment rates are currently the same for all patients, some hospices may avoid patients

who need more care or more expensive care than the average patient (Huskamp et al. 2001). For example, our

key informantsreported that patients receiving palliative chemotherapy or radiation may have problems accessing

care because these interventions can be costly (Mahoney 2002). Older beneficiaries who have no caregiver also

m a y be perceived as being costly because they may need more services than the average patient. Providers might

be more willing to admit potentially costly patients if they could be assured of recovering most of their costs. 
percent of payment and home health agencies are reimbursed at 80 percent of costs above the threshold. 

If a case-mix adjusted payment system is feasible, it also should include a high-cost outlier policy. ■

M e d i c a r e B e n ef i ci a r i es ’ A cc e s s to H o sp i ce | M ay 2 00 2 
19921998. Unpublished report prepared for the Medicare Payment Advisory Commission. June 2001.

Huskamp HA, Buntin MB, Wang V, Newhouse JP. Providing care at the end of life: do Medicare rules

impede good care? Health A ffairs. May/June 2001, Vol. 20, No.3, p. 204-211 .

Krakauer EL, Crenner C, Fox K. Barriers to optimum end-of-life care for minority patients, 

Journal of the American Geriatrics Society. January 2002, Vol. 50, No. 1, p. 182-190.

Mahoney J, Summit Business Group, LLC. Beneficiaries’access to the Medicare hospice benefit. Report

prepared for the Medicare Payment Advisory Commission. Unpublished paper. Written February 2002.

O ffice of Inspector General, Department of Health and Human Services. Hospice patients in nursing

homes. No. OEI-05-95-00250. Washington (DC), OIG, September 1997.

1 0 M e d i c a r e B en ef i c i a ri e s’ Ac c es s t o H o s pi c e | M a y 2 0 0 2 
Medicare hospice services

and payment rules

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

M e d i c a r e B e n ef ic i ar i es ’ A cc e s s to H o sp ic e | M ay 20 0 2 1 

p a t i e n t ’s death.

Payment for hospice services

Medicare pays hospices a fixed rate for each day beneficiaries are eligible and under the care of a h o s p i c e .

The per diem rates are predetermined by a fee schedule with four categories of care: routine home care, continuous home care, inpatient respite care for the short-term relief of patients’caregivers, or general inpatient

care as necessary for pain control or symptom management. The labor portions of per diem rates are

adjusted by a version of the hospital wage index to account for d i fferences in local wage rates in the

locations of beneficiaries receiving services. Total inpatient care days per year provided by any one hospice

may not exceed 20 percent of all patient care days (excluding patient care days spent as a custodial resident

of a nursing home).

Aggregate reimbursement to any hospice is subject to an annual cap. The limit for each agency is 

determined by a fixed rate per beneficiary ($16,651 for fiscal year 2002) multiplied by the number of new

beneficiaries enrolled by the hospice during the fiscal year. The national per diem rates for each payment

category of care are updated annually by the acute care hospital market basket index.

Beneficiaries may have some coinsurance payments for hospice care. They are liable for a maximum

$5 copayment for drugs or biologicals furnished by the hospice while they are not receiving inpatient c a r e .

They also are liable for 5 percent of the rate for a day of inpatient respite care, subject to an annual limit

equal to the inpatient hospital deductible. 
1 4 M e d i c a r e B e n ef i ci a ri e s’ A cc es s t o H o s p i ce | Ma y 2 00 2 
Commissioners

 voting 

on recommendations

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

M e d i c a r e B e n ef ic i ar i es ’ A cc e s s to H o sp ic e | M ay 20 0 2 1 

, , , , p, , , , p, 

Raphael, Reischauer, Smith, Stowers, Wa k e f i e l d

Absent: Burke, Rosenblatt, Rowe

More about MedPAC

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M e d i c a r e B e n ef ic i ar i es ’ A cc e s s to H o sp ic e | M ay 20 0 2 2 

p

P a c i f i C a re Health Systems

Santa Ana, CA

C a rol Raphael

Visiting Nurse Service of New Yo r k

New York, NY

M a ry K. Wakefield, Ph.D., 

R.N., F. A . A . N .

Center for Rural Health

University of North Dakota

Grand Forks, ND

Washington, DC

R o b e rt D. Reischauer, Ph.D.

David A. Smith

A F L - C I O

Washington, DC

Ray E. Stowers, D.O.

Oklahoma State University College of

Osteopathic Medicine

Tulsa, OK

Sacramento, CA

Ralph W. Muller

University of Chicago 

Hospitals and Health Systems

Chicago, IL

Joseph P. Newhouse, Ph.D.

H a rv a rd University

Boston, MA

Alice Rosenblatt, F.S.A., M.A.A.A.

WellPoint Health Networks

Thousand Oaks, CA

John W. Rowe, M.D.

Aetna Inc.

Hartford, CT

M e d i c a r e B e n ef ic i ar i es ’ A cc e s s to H o sp ic e | M ay 20 0 2 2 3

Craig K. Lisk, M.S.

Marian Lowe

Anne Mutti, M.P. A .

Susanne Seagrave, Ph.D.

Mae T h a m e r, Ph.D.

Ariel Wi n t e r, M.P. P.

Chantal Worzala, Ph.D.

Daniel Zabinski, Ph.D.


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(202) 653-7220 • Fax: (202) 653-7238 • www.medpac.g