Seasonal Discharge Rates for Hospices

As we discussed in my last article, the ACA has allowed CMS to explore new payment models that might more accurately reflect the value or cost of the services rendered by healthcare providers.  For acute care facilities, we are experiencing the beginnings of value-based payments intended to blend outcome data with billed services to determine fair compensation.

For hospices, new payment models have been introduced this year that are an attempt to more accurately reflect the cost of treating these patients at various stages of care.  The hospice payment changes are an attempt to match the “cost curve” where patient care costs more in the early days of treatment and the final days of life compared to the days in between.  This study was used to document these “curved” resources and provide the basis for the current payment model:

Cost Curve Study

Seasonal Blog Picture

New payment models are not based on assumptions, but actual data collected at the expense of CMS.  Studies used to support new models explore the current systems of payment and the assumptions used to create these systems.  The firms conducting this research have access to claim data and other resources unavailable to the general public.

These studies provide some very valuable information that is useful to healthcare providers because they provide insight on how the reimbursement systems influence patient care.  They also provide clues about potential dangers and opportunities that may affect your bottom line.

The first study we will review was conducted to research pre-hospice spending and the impact of the hospice cap and how it has influenced patient care and reimbursement.  This study was financed by CMS and presented to the National Hospice and Palliative Care Organization 5/15/15.

Pre-Hospice Spending Study

There is a lot of interesting information in this study, but some of the most valuable information to me was related to the impact of the hospice cap on the industry, or more accurately, the lack of impact.

I was always under the impression that the hospice cap affected a large portion of the industry.  The reality is that only around 10% of hospices actually exceed the cap in a given cap year (page 7) and a vast majority of hospices are so far below the cap that they could double their census with completely healthy patients, and still not exceed the cap (page 8).

Despite this fact, it appears that a large portion of hospices take actions to avoid the cap that are unnecessary and actually may damage the financial position of the hospice more than the cap itself.

If a hospice exceeds the cap in a given cap year, it must return all revenue over the cap to CMS.  This figure is determined by taking the total number of beneficiaries for the year multiplied by a constant for the cap year that is the total lifetime payments allowed for a hospice patient and then comparing it to the actual revenue received for that period.  The penalty is an aggregate total where each patient under the cap subtracts from the penalty while each patient over the cap contributes to the penalty.  The cap position is the net of all patients for the cap year.  Each hospice makes this calculation at the end of the cap year to determine if a penalty is assessed.  Seasonal Discharge Rates for Hospices


During the cap year, if a hospice feels they may be on the path to exceeding the cap for the current year, they can make two decisions that might mitigate the damage.  They can refuse to admit patients that are more likely to exceed the cap.  These are patients with a previous history in hospice, since these previous payments already apply toward their lifetime cap or patients with less acute illnesses, like dementia, that although they can be classified as terminal, might lead to a longer remaining lifetime compared to other patients with cancer or end stage renal disease.

The other action is to discharge patients whose condition has improved or is no longer getting worse.  Most hospices would deny that they would ever make these decisions based on financial criteria, but it appears that another CMS study provides evidence to the contrary.

It is difficult to measure admissions that are not processed by a hospice since there is no verifiable record of this transaction, but discharges can be measured through claim data.  This study takes a look at some of the characteristics of live discharges by hospices:

Hospice Live Discharge Study

There are two types of live discharges, one is the “revocation” where the hospice takes the position that the patient is no longer terminally ill and revokes their hospice coverage.  The other type is when the patient determines that they are no longer terminally ill and leaves the hospice, normally to pursue aggressive treatment.

The hospice cap year runs from November through October.  If these discharge decisions were not related to the hospice cap, you would expect to see them evenly distributed throughout the year.  What we find is a significant increase in live discharges each year from 2011 – 2014 for the final four months of the cap year.  See the graph below from page 55 of this study:


Hospice Live Discharge Rates


This increase comes from both hospices over the cap and hospices under the cap.  Although you might expect that revocations might have a relationship with the upcoming hospice cap, what is even more interesting is that it appears that all discharges, even those thought to be originated by the patient, seem to increase along with the projected cap position of the hospice.  See this graph from page 57:

Hospice Live Discharge Rates 2


This chart shows that even discharges associated with patients classified as “no longer terminally ill” are almost twice as high for a hospice at 150% of the cap (13.4%) than hospices between 80% and 100% of the cap (7.1%).

It is difficult to understand how this could happen unless some relationship exists between the hospice cap and the decision leading to these discharges.


If we can assume that cap year end is influencing these discharge decisions, and the undocumented decision to refuse certain types of admissions, then we can assume that hospices are willing to knowingly terminate these patient relationships, and the associated revenue, to avoid a penalty that will only apply to a small portion of them.  Both of these last two studies show that this “revenue dumping” tactic is practiced by hospices below the cap as well as those above it.

The hospices that are making these decisions to reduce revenue at the end of the cap year are voluntarily discharging patients that are at their most profitable stage of care, the time between the beginning of care and the end of their terminal illness.  Even some hospices that might end up slightly over the cap without this tactic may be costing themselves much more in revenue than they would have ended up paying in penalties.

If you are managing one of these hospices that has adopted this tactic, my advice is to make a careful assessment of your cap position during the cap year, at least at the halfway point.  The same calculations that you make at the end of the cap year can be used to figure your interim cap position.  Unless you are sure you will exceed the cap by a significant margin, you can cause much more financial damage taking steps to bring your revenue down than you will experience through the cap itself.


By Kalon Mitchell, President MEDTranDirect

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