Hospice’s Strong Long-Term Outlook Outweighs Potential Near-Term Reimbursement Methodology Changes


A successful hospice operation starts with an unyielding commitment to diligent compliance.  This commitment is complimented by superior workflow and workforce management across an interdisciplinary team that is made possible by easy to use, highly scalable technology.  Flawless execution upon these foundational elements enable fundamentally sound, nimble operations, which are especially important in today’s regulatory environment, where reimbursement methodology changes are again being proposed by MedPAC.

CMS’ 2014 hospice report alludes to MedPAC’s recommendations to change the hospice per-diem reimbursement methodology to more closely link payments to the actual cost of care.  If some of these changes are implemented, smaller agencies with long average length of stay populations, dominant referral sources, or skewed diagnosis mixes may experience difficulty in adapting their operations to comply with these changes.

Potential changes proposed being considered include:

  • A move to a U-shaped reimbursement model, where per diem reimbursements fluctuate depending on the number of days billed and whether the days billed are at the beginning, middle, or end of an episode
  • Short-stay add-on payments that would be applied in a similar manner to Low Utilization Payment Amount (LUPA) in home health whereby if few in-home visits are made during an episode, payments are made per visit instead of per patient day
  • Altering payments by patient mix
  • Reductions in payments for patients that reside in a skilled nursing facilities

Although these potential changes on the horizon for hospice may cause minor disruptions in the short term, the industry remains attractive in the long-term for several reasons:

  • Comfort care delivered by way of the hospice benefit creates an experience for patients and their families superior to other health care interventions at the end of life
  • Hospice has proven to be exemplary in controlling end of life costs for the population.  The average per diem costs for hospice care are over 6x less expensive than the average for other delivery settings (e.g. hospitals, long-term acute care centers, inpatient rehabilitation facilities, etc.)
  • The Medicare hospice benefit garners political support from all parties given its attractive cost profile and critical societal benefit
  • Increased hospice awareness and social acceptance has driven higher utilization of the Medicare benefit.  Hospice utilization for Medicare decedents has increased from 38.9% in 2007 to 44.0% in 2010
  • The aging of the population is a favorable demographic trend for end of life care

Our insights on this topic are timely as last week we announced that we were the exclusive financial advisor on the recapitalization of a leading hospice provider, St. Croix Hospice, by Clearview Capital, a private investment firm based in Old Greenwich, CT.  Our team is also finishing up new research related to this topic for publication later this quarter.

Let us know if you’d like a copy of the Report when its published, and until then, let us know what you think.

Justin Fengler
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