The United States Department of Health and Human Services (HHS) Centers for Medicare & Medicaid Services (CMS) published its update to the hospice wage index and payment rates for fiscal year (FY) 2016 in the August 6, 2015, Federal Register (the Final Rule). The Final Rule announces an overall 1.1 percent increase in hospice payments for FY 2016, but also makes significant changes to the structure of hospice payments for certain patients to reflect the higher costs borne by providers at different stages of the hospice benefit. These changes have been largely welcomed by the community as a necessary evolution of CMS’s bundled payment structure for hospice services.

Medicare’s hospice reimbursement structure was one of the first “bundled” payment systems implemented under a federal health care program. Medicare reimburses for hospice services on a per diem basis, with the daily rate varying based on the applicable level of care. The four levels of care include routine home care, continuous home care, inpatient respite care and general inpatient care. In brief, these rates are intended to cover all of the costs incurred in furnishing services for the palliation and management of a patient’s terminal illness and related conditions, subject to limitations on the scope of the hospice bundle. 

The Final Rule announces a noteworthy shift in the payment structure for hospice services provided to Medicare beneficiaries residing at home and requiring the lowest level of care.  While CMS will continue to reimburse providers for hospice services as a bundled benefit, responding to a longstanding community concern, CMS is establishing higher reimbursement rates in the early and late days of a patient’s hospice stay to reflect the higher costs borne by providers at these times. CMS will implement a two-tier per diem rate for routine home care with a higher base payment rate for the  patient’s first 60 days of hospice care and a reduced base payment rate for all days following day 60 of hospice care. CMS will also make a supplemental payment available for care provided to Medicare beneficiaries in the last seven days of life if certain criteria are met. CMS will implement the revised payment structure on January 1, 2016.

Variation in Routine Home Care Payments Based on Length of Stay

Routine home care (RHC) refers to the basic level of care provided to a Medicare beneficiary while the individual remains at home. Under the current payment structure, hospice providers are reimbursed the same RHC rate each day, regardless of a patient’s length of stay.

Final Rule Implements Higher RHC Payments for First 60 Days

The Final Rule announces the establishment of a two-tier RHC rate, pursuant to which hospice providers will receive a higher rate for a patient’s first 60 days of hospice care and a lower rate for subsequent days in hospice care. In FY 2015, hospice providers receive $159.34 for each day in which they provide RHC services.  For FY 2016, RHC payment rates for the first 60 days will increase by 17.7 percent over the FY 2015 rate, inclusive of payment rate updates, and the RHC rate for days 60 and beyond will be 8.9 percent lower than the FY 2015 rate.  The FY 2016 RHC rate for the first 60 days ($187.54) will be $42.40 higher than the rate for days 60 and beyond ($145.14). 

If a patient changes hospice providers or is discharged from hospice and readmitted, the amount of time previously spent in hospice will follow the patient, such that the higher RHC rate will not be available for the first 60 days of the new hospice admission.  If there is a gap in hospice enrollment of 60 days or greater, the patient’s hospice provider will be eligible for the higher rate for the first 60 days of the patient’s new enrollment.

Reducing Disincentives Associated with Short-Stay Patients

This two-tier structure intends to more accurately align the per diem payments with visit intensity and the cost of providing care. Currently, hospices often offset significant cost outlays during long, low resource intensity middle portions of a stay.  Providing the same rate regardless of the cost of providing care has resulted in variations in the adequacy of the payment rate based on average patient length of stay. Notably, studies by CMS’s research contractor, Abt Associates, have shown that, excluding the last seven days prior to death, hospice visit intensity is highest during the first seven days of hospice enrollment and then declines slowly until day 60. At day 60, service intensity tends to become flat.  The new payment structure announced by CMS is intended to more accurately link payment rates to costs incurred in delivering care across a patient’s length of stay.

The elevated payment rate for the first 60 days of care could reduce the disincentives associated with hospice admission for certain short-stay patients, which is typically a resource-intensive and high-cost undertaking for hospice providers.  Whether the actual increase in the initial RHC rate over the FY 2015 rate will appropriately compensate providers for an appropriate mix of short-stay patients, remains to be seen.  That said, the increased RHC payment is coupled with the end-of-life supplemental payments, providing additional funds to support short-stay patients.

The CMS rule linking the initial 60-day period to the patient regardless of hospice transfer or relocation may have negative consequences for hospice providers that accept patients as transfers or new readmissions following a shorter-than-60-day gap in hospice enrollment.  For example, hospice patients that move to a different part of the country to, for example, move closer to family members towards the end of life, could trigger a change in hospice providers. The new structure could potentially make it harder for patients who have passed the initial 60-day period (or material portion thereof) to relocate or transfer from one hospice to another.

Service Intensity Add-On Payment for Skilled End-of-Life Care

Under the current hospice reimbursement model, the last days of life are reimbursed at the same rate as the other days during the hospice enrollment, despite the fact that additional resources are typically needed to support patients and families during this critical time.

Final Rule Implements Supplemental Payment for Last Seven Days of Life

The Final Rule announces a Service Intensity Add-On (SIA) payment that covers up to four hours of direct care provided by a Registered Nurse (RN) or social worker during the last seven days of a beneficiary’s life as long as certain criteria are met:

1. The patient is receiving the RHC level of care for that day;

2. The day of care is within seven days of death and the patient is discharged as deceased; and

3. Direct patient care is provided by an RN or a social worker.

The amount of the SIA payment is equal to the Continuous Home Care (CHC) hourly payment rate established by CMS (which is typically applicable during a CHC level of care), multiplied by the number of hours of direct patient care provided by an RN or social worker, up to four hours per day. The supplemental payment applies regardless of length of stay; any stay of seven days or less before death will be eligible for SIA payment on all RHC days and will be paid in addition to the current per diem rate for RHC level of care.

CMS’s Clinical and Value Judgments Regarding RN and Social Worker Services

In the Final Rule, CMS indicates that it intends for the SIA payments to address concerns regarding both visit intensity at the end of life and the inadequacy of the base payment rates for short stay patients.  The structure of the supplemental payment, which is tied directly to the provision of services by specific providers, primarily addresses skilled visit intensity and will have the effect of directing end-of-life resources primarily towards RN and social worker visits.

While the higher RHC rate available during the first 60 days can be used to supplement the costs of any items or services within the hospice bundle that are appropriate for a particular patient, the SIA payment will primarily benefit providers with ready access to skilled RNs and social workers, in situations where skilled services are necessary and appropriate. For FY 2016, the CHC hourly payment rate will be $38.75 per hour. It remains to be seen whether this additional payment will be sufficient to cover all the costs of the extra RN or social worker services that the payments are tied to. In addition, significant additional resources to cover other services needed near the time of death, including licensed practical nurse (LPN) services, spiritual counseling, grief counseling for patients and families, hospice aides and homemaker services are not directly accounted for. The supplemental payment rate also will not provide a significant supplement for the costs of additional equipment or medication that may be needed in the last seven days of life. This payment therefore addresses some, but not all, of the financial imbalances associated with end-of-life care, and in particular, the high costs associated with short stay patients. 

The application of the SIA payment to services provided only by RNs and social workers represents both a clinical and a value judgment on CMS’s part that will influence provider staffing patterns and demand for RN services. CMS cites the need for high quality skilled care in supporting this policy, but the structure of this supplemental payment may in some circumstances incentivize a higher level of care than is necessary, or result in RNs and social workers performing services for hospice patients that could be provided by other providers.

In addition, it may be difficult for hospice providers in rural or underserved areas to take advantage of the SIA payments if they have difficulty maintaining sufficient RN and social worker staffing levels. If a provider does not facilitate RN and social worker services, it would not be eligible for any supplemental payments, despite the provision of beneficial additional services, such as LPN and hospice aide services, during the last seven days of life.

Looking Forward

Together, the two-tiered RHC payment rate and the SIA payment represent a significant step in the evolution of Medicare’s bundled payment for hospice services. These changes address some, but not all, of the challenges associated with applying a per diem rate to a benefit with highly variable costs over time, given the unique circumstances of each beneficiary’s end-of-life needs.  Implementation of these new payment structures will have a significant financial and operational impact on hospice providers, with potential implications for referral patterns, billing systems, staffing models and clinical care guidelines. 

This significant change to one of the first bundled payment systems implemented by CMS may set a precedent for service bundling in other areas of health care.  While the specific payment structures implemented in the hospice context may not be applicable to all types of bundled services, other elements of the revised payment methodology, such as the emphasis on skilled RN and social worker care, may be relevant across the spectrum of health care services. The success of the changes to Medicare hospice reimbursement in achieving CMS policy goals and avoiding unintended consequences is likely to continue to influence the future development of bundled payment mechanisms in state and federal government health care programs as well as commercial health care cost containment initiatives. 

CMS published this Rule in the August 6, 2015 Federal Register, which can be found here.

Nonny Onyekweli also contributed to this article.