medicare cuts hospice payment rates

Monday, August 04, 2008

Medicare Cuts Hospice Payment Rates

Medicare has published the wage index and payment rates for FY 2009, and the announcement is the finalization of one part of the feared rate cuts. Of course, that isn’t quite how CMS sees what it has done. They actually put out a press release that packages the whole thing as hospices getting a pay raise. Let me explain what’s happening and then tell you why this is really bad timing.

First, to understand how hospices can claim their rates have been cut while the government claims they gave hospices a pay raise, you must understand that there are two parts to the formula used to figure hospice payment rates. This explanation is overly simple, but good enough for our purposes. The first part of the formula is the national hospice payment rate. It is the amount of money that Medicare pays for a day of hospice services. The second part of the formula is the wage index, which basically accounts for the fact that it costs more to provide care in some parts of the nation as opposed to other parts. Typically, it costs more money to provide care in metro areas than in rural areas. Thus, the wage index assigns a “multiplier” to every county in the nation. To make the math easy – if the payment rate for a day of service is $100, an area that has a multiplier of 1.1 will actually get paid $110 per day while a hospice with a multiplier of .8 will only get $80 a day. With that in mind, let me explain how hospices across the nation got a pay raise and a pay cut in the same day.

Medicare’s press release focuses on the 3.6% increase in the hospice payment rate. Thus, that $100 per day of service will become $103.60 next year. The payment rate is increased every year, it is a raise that reflects the increase of the cost of living… Hospices know it is coming and know that it is usually around 3%. Thus, Medicare’s press release focuses on the normal pay raise that hospices get.

The pay cut comes on the wage index side of the formula. I’m not going to talk here about why this was done, because it makes my head hurt and involves much technical Medicare mumbo-jumbo. Basically, the wage index is the somewhat stable side of the formula. Yes, it changes every year, but most of the time you are look at a tenth of a percent here or there. Every once in a while a few counties across the nation get a major increase or decrease when Medicare determines that they are now metro areas or are no longer considered metro areas, but overall not much changes on the wage index side. This year, Medicare decided to totally phase out the “hospice wage index” and move hospices to the “hospital wage index”. Again, for reasons I don’t care to explain and you probably don’t care to understand, there were significant differences in the two wage indexes. In fact, the differences are so large, that they are going to allow this transition to be phased in over a three year period to ease the pain. According to Medicare, the average hospice’s pain will be a 1.1% decrease this year. Some are in much more trouble than that.

Again, to do the simple math. Hospices got a 3.6% raise because the cost of living has increased. It is a much needed raise. Then they took away 1.1% of the raise. Instead of the $103.60 a day, hospices will only get $102.50. Is that better than the $100? Yes. Is it enough? No.

My employee’s health insurance premiums rose 12% this year. The cost of gas, which is a huge expense for my employees at our rural hospice, has dang near doubled this year. Last but not least, those saints that show up every day and provide excellent care to dying people and their families deserve at least a nominal pay raise each year. Now, when you look at salaries, benefits, and mileage, you are looking at around 80% of a hospices expenses. Where do you propose I skimp next year?

According to the government the average hospice makes a profit of 3.4%. At the same time, the three year effect of this wage index change is 4.8% for the average hospice. (Both numbers are from NHPCO communications.) That math doesn’t work in the best of times, and these are not the best of times. Medicare has already established new rules to govern hospice care, and those rules will not be cheap to implement. Those rules are going to cut out some of the 3.4% profit. This new wage index change will take all the wind out of many hospice’s sails.

Make no mistake, some hospices are going to go out of business unless something changes. I just don’t see any way around it. Those that survive will most likely have to change the way they provide care. Since hospice saves Medicare money and is the most popular benefit Medicare has going, why in the world are they going to force us to either change or die? I’ll have to let you answer that question yourself. I can’t write an answer without sounding like some guy who is going to show up at the capitol building with a torch and a pitchfork.



Thank you for this explanation of the changes in the wage index. This has been such a difficult issue to advocate for because of all of the Medicare “mumbo jumbo” and your explanation will help me to more fully engage my nurses in advocacy by empowering them through education.


I’m curious if really the “average” profit margin for hospice has a lot of built in inefficient and wasteful hospices that need to go. As much as it puts a pinch on our industry, those that make it to the other side will be stronger and more efficient as a result.

Frances Shani Parker

Thank you for breaking this down. I notice you state, “Typically, it costs more money to provide care in metro areas than in rural areas.” This makes sense to me, but I recently read research concluding that “rural hospices fared no worse financially than urban hospices. These counterintuitive findings underscore the need to examine urban-rural hospice financial differences using a national sample.”

Although this study is about California, a lack of national samples is stated. I want to understand urban-rural hospice differences better. Would you please look this brief summary over and respond. The Pubmed research is located here.

Thank you.