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Hospice

Paying for Hospice Care

Fact Sheet

Stephanie Bernell, AARP Public Policy Institute

Steven Gregory, AARP Public Policy Institute

December 2000

Table of Contents: Background | Hospice Expenditures | Medicare Financing | Medicaid Financing

Background

Hospice care is the provision of palliative and supportive services, as opposed to curative care, for terminally ill individuals who have been diagnosed as having six months or fewer to live. Hospice services, which are provided in the home, a freestanding hospice center, or a skilled nursing facility, typically include:

physician services
nursing care
home health aide and homemaker services
medical social services
counseling services
short-term inpatient care
medical appliances and supplies
prescription drugs
physical therapy

In general, the services must be related to managing the patient's terminal illness, controlling pain, or enabling the individual to maintain activities of daily living and basic functional skills. In 1998, hospices served close to 600,000 patients in the United States.

In the 1970s hospice care began in the United States as an informal, unregulated industry. As of February 1998, 44 states license hospices. A multidisciplinary team that includes, but is not limited to, physicians, registered nurses, home health aides, and volunteers usually provides hospice services.

Today, as a result of 1982 legislation creating a Medicare hospice benefit, Medicare is the primary payer for nearly two-thirds of hospice patients. In addition, Medicaid, private insurance, grants, and patients and their families finance hospice care.

Hospice Expenditures

Limited information is available on total national expenditures for hospice care. The National Hospice and Palliative Care Organization, however, does provide information on the distribution of primary payment sources to hospices (see Table 1).

Table 1 Distribution of Hospice Primary Payment Sources, 1995

Detailed data are available on Medicare and Medicaid hospice expenditures and utilization. Less is known about hospices that do not participate in the Medicare or Medicaid program.

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Medicare Financing

Through Medicare, a physician-certified terminally ill patient, with a life expectancy of six months or less and entitled to Medicare Part A, can elect hospice care services. The Medicare hospice benefit is divided into two 90-day periods followed by an unlimited number of 60-day periods.

Medicare hospice participation has grown at a dramatic rate, particularly after a 1989 congressional mandate that increased reimbursement rates by 20 percent. The number of Medicare certified hospices increased on average 16 percent each year between 1989 and 1997 (see Table 2).

Along with the growth in the number of Medicare certified hospices, there has been a concurrent increase in the number of clients served and in Medicare's total reimbursement to hospices. Expenditures climbed on average 35 percent each year between FY89 and FY97. This increase notwithstanding, hospice services represent a small part, about one percent, of total Medicare Part A payments.

Medicare hospice rates vary according to the level of care furnished to the beneficiary each day. The FY01 published rates are listed in Table 3.

The out-of-pocket expense for the patient is a 5 percent copayment for patient respite care and prescription drugs (not to exceed $5 for prescriptions). There are no deductibles under the Medicare hospice program.

Medicare beneficiaries who reside in a skilled nursing facility and elect to receive general hospice care must pay for their room and board out-of-pocket. The vast majority of hospice patients, however, elect to receive general hospice services at home.

Medicaid Financing

In 1986 states were given the option to include hospice services in their Medicaid programs. Forty-three states and the District of Columbia offer a hospice benefit to all individuals who qualify for Medicaid.

Like Medicare, Medicaid reimbursement for hospice care is made at one of four predetermined rates for each day in which an individual is under the care of the hospice. Payment rates are calculated based on the annual hospice rates established under Medicare, adjusted to reflect geographical differences in wage levels.

Hospice services represent a small part of total Medicaid payments. According to the Health Care Financing Administration, Medicaid spending for hospice care totaled $345 million in FY99, less than one-half of one percent of all Medicaid payments for the fiscal year.