Medicare Hospice Care: Modifications to Payment Methodology May Be Warranted
Published: 2004-10-15T00:00:00

Fast Facts:

Highlights:
section_title: Why GAO Did This Study
paragraphs: 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.
section_title: What GAO Found
paragraphs: 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.

section_title: Letter
paragraphs: Since the Medicare hospice benefit was implemented in 1983, 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) 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. 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 that covers all services provided to  the patient, except for physician services. HCFA developed four payment  categories, with corresponding per diem payment rates to reflect variation  in service intensity and the location of service. These categories, as set  out in Medicare regulations, are routine home care (RHC), a typical day of  home care; continuous home care (CHC), 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. 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, 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. 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. 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. 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. 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. 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. 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.
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. 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.
subsections: section_title: Background
paragraphs: 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. 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.
subsections: section_title: Hospice Eligibility
paragraphs: 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.
section_title: Medicare Hospice Payment
paragraphs: 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.
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.
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. 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.
section_title: Changes in Hospice Care
paragraphs: 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.
section_title: Overall Medicare Hospice Payment Rate Higher Than Freestanding Hospices’ Estimated Average Costs, but Relationship Varied by Payment Category and Hospice Characteristics
paragraphs: 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.
subsections: section_title: Unadjusted Payment Rate Higher Than Freestanding Hospices’ Estimated Average Costs
paragraphs: 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.
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.
section_title: Relationship between Estimated Costs and Unadjusted Payment Rates Varied among Payment Categories
paragraphs: 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. 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.
section_title: Small Hospices Had Higher Per Diem Costs and Likely Lower Payments
paragraphs: We estimate that for 2000 and 2001, small freestanding hospices had higher  average per diem costs than medium and large freestanding hospices. 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.
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.
section_title: Structure of Hospice Payment Methodology May Not Be Consistent with Current Service Delivery
paragraphs: 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.
subsections: section_title: Relative Costs of Services Provided during RHC Differ from When Payment Rate Was Developed
paragraphs: 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) have increased,  while the proportions attributable to home health aide services, supplies,  and outpatient services have decreased (see fig. 3). 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.
section_title: Fewer Days of Lower Visit Frequency with Shorter Mean Length of Stay
paragraphs: 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. 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. 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.
section_title: Providers Raised Concerns about Payment Category Requirements
paragraphs: 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.  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.
section_title: Few Hospices Affected by Annual Aggregate Cap
paragraphs: 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. 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. 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; 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.
section_title: Conclusions
paragraphs: 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.
section_title: Recommendations for Executive Action
paragraphs: 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.
section_title: Agency and External Reviewer Comments and Our Evaluation
paragraphs: 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.
subsections: section_title: CMS Comments and Our Evaluation
paragraphs: 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.
section_title: Industry Comments and Our Evaluation
paragraphs: 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.
section_title: Appendix I: Scope and Methodology
paragraphs: 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.
section_title: Appendix II: Comments from the Centers for Medicare & Medicaid Services
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