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Medicare cuts to put hospices in the red by 2019
Study shows rural hospices may face toughest challenges
As a result of two cuts to Medicare reimbursement, the hospice industry will see the overall median Medicare profit margin drop from 2% in 2008 to -14% in 2019, according to a study recently released by the National Hospice and Palliative Care Organization (NHPCO).1
The two reimbursement cuts evaluated in the study are:
The Centers for Medicare and Medicaid Services' (CMS) 7-year phase out of the Budget Neutrality Adjustment Factor beginning in 2009 (FY2010). The BNAF is a key element in the Medicare hospice wage index calculation. The phase out of the BNAF will ultimately result in a permanent reduction in hospice reimbursement rates of approximately 4.2%.
The additional change to the Medicare hospice rate formula imposed by the 2010 Patient Protection and Affordable Care Act (ACA). The change will further reduce payments by approximately 11.8% over the next 10 years through the introduction of a "productivity adjustment" that is applied to the annual payment updates for hospice.
"We commissioned The Moran Company to look at hospice financial data to assess the impact of the two rate cuts so we would have a neutral, third-party evaluation of the potential effect on our industry," says Jonathan Keyserling, JD, vice president of public policy for NHPCO. "It is one thing for a health care sector to make predictions based on a review of information but those reviews are viewed with skepticism by policymakers," he explains. Because NHPCO did not share any expected outcomes with The Moran Company, the study is a more credible tool to use when lobbying legislators, he says.
No one at NHPCO was surprised at the results of the study, admits Keyserling. "The results confirmed what we have already been telling policymakers and it bolsters our argument that these drastic cuts will affect access to hospice," he adds.
NHPCO has shared results of the study with members to help them prepare for the next 10 years, says Keyserling. "Hospices will need to evaluate and potentially adjust their service models to accommodate the reimbursement cuts," he explains. "The study was written using data from the entire hospice community so it is a broad brush look at financial implications," he says. The next step for individual hospice administrators is to look at the cuts from the perspective of their individual agency, he adds.
"If I were a hospice provider, I would look at my finances, determine if capital expenses can or should be deferred, evaluate staffing patterns, evaluate service areas, and look at specific services offered," recommends Keyserling. Every hospice has a number of initiatives that they can use to address the decrease in Medicare reimbursement, but the right solution for one hospice is different from the solution for another, he points out.
Because the cuts are spread out over a 10-year period, the impact is absorbed on a yearly basis, says Keyserling. "However, hospice administrators need to develop a short-, mid-, and long-term plan that addresses the next few years up to 10 to 15 years from now," he says.
Rural hospices to feel greatest impact
Rural hospices especially need to plan carefully, points out Keyserling. "Although the rate cuts are the same for all hospices, rural agencies, as a rule, start with a lower profit margin," he says. "This means the impact of the cuts will affect rural agencies more than agencies that have traditionally higher profit margins," he explains.
"Grim" is the word Linda L. Rock, executive director of Prairie Haven Hospice in Scottsbluff, NE, uses to describe the financial picture for rural hospices over the next 10 years. "Our program always struggles to stay in the black, so any reimbursement cuts are a concern," says Rock. "There are challenges for both urban and rural hospices but our hospice faces some resource challenges that urban hospices generally don't have," she says.
Rock's hospice serves 10 counties in Western Nebraska and Eastern Wyoming, an area that covers 10,000 square miles with a population of 50,000 people. "Some of the counties we serve are considered 'frontier'," Rock explains. Although the hospice's two offices are strategically placed for the area served, the staff of 17 full-time-equivalent employees spends a lot of time driving to see the average daily census of 35 patients, she says. "In January 2011, my staff drove 12,000 miles providing patient care," she adds.
Some of Prairie Haven's patients live as far as 60 miles from the nearest office, explains Rock. "Serving a patient that far away is not ideal, but there is no other hospice available," she says. "We inform our patients up front that we may take hours to get to them, but ranchers in our area are accustomed to isolation and driving long distances themselves," she adds.
Keeping staff members is a key concern for Rock. As she evaluates her financial projections, she wants to continue giving her employees a 3% increase to keep their salaries and benefits competitive. "We are working on a strategic plan that addresses other rising costs, such as our drug and supply costs, which are projected to increase between 3% and 5%," she says. "Retention and recruitment of employees is critical for us because more than 50% of my nurses are age 50 and older," she adds.
A number of ideas to increase income and expand the nursing staff's reach into the communities Prairie Haven serves are on the drawing board, says Rock. "We have to look for innovative ways to meet our challenges," she adds.
In addition to coming up with ideas for her hospice to better handle decreases in reimbursement, Rock is also talking with legislators to make sure they understand the challenges faced by hospice. Legislators don't understand how hospice reimbursement is handled, she explains. "In a recent meeting with a couple of legislators, I explained that we receive $137.57 per patient per diem," she says. When the legislators asked how much the hospice was reimbursed for the mileage driven to see patients, Rock told them there was no extra reimbursement for mileage. She says, "One of the legislators said 'That's not fair.'"
1. The Moran Company. Profit Margin Analysis for Urban and Rural Hospices, 2009-2019. Alexandria, VA: National Hospice and Palliative Care Organization; 2011.