1). 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. 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. Unlike those for other providers, Medicare’s  hospice cost reports do not include Medicare payment information. In 2001,  IRC accounted for 0.2 percent of hospice days of 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. 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. 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. 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.
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.