Report pegs savings generated by hospice at $282 million annually

Study results used to fight state cuts in Medicaid hospice benefit

In an effort to persuade cash-strapped states not to reduce or eliminate their Medicaid hospice benefits, the National Hospice and Palliative Care Organization (NHPCO) in Alexandria, VA, delivered a strong argument to state policy-makers: Cut hospice programs for the poor, and you’ll end up spending almost $300 million a year in additional hospital days, nursing home care, and drug costs.

A study released in June by Milliman USA of Washington, DC, suggests hospices save states a significant amount of money in addition to providing quality care. The report, Value of Hospice Benefit to Medicaid Programs, maintains that hospice care saves Medicaid approximately $282 million annually, or approximately $7,000 per hospice-eligible beneficiary.

It’s no coincidence the report’s release comes at a time when states — many facing budget deficits as the nation’s economic recovery continues to stall — must make difficult budget decisions. Several states have considered eliminating the Medicaid hospice benefit in an attempt to reduce spending. Because hospice is an optional service, rather than a required one, it makes an easy target. According to state hospice organizations, California, Ohio, and North Dakota were among the states considering cutting the Medicaid hospice benefit.

"The compassionate and comprehensive care provided through the Medicaid hospice benefit is justification enough to ensure that this important funding not be reduced or eliminated," says J. Donald Schumacher, PsyD, president and CEO of the NHPCO. "The realized cost savings that are illustrated in this new report only reinforce the value of a hospice benefit."

According to NHPCO director of communications Jon Radulovic, the study has been distributed to state hospice organizations as part of a tool kit that includes other education materials aimed at convincing state lawmakers to preserve, and perhaps even enhance, the hospice Medicaid benefit.

The Milliman USA study reinforces the message conveyed by other studies that have shown the cost benefit of hospice care. The Milliman study, however, has a different twist. While past studies suggest hospice care reduces costs, the latest study demonstrates how costs would increase in the absence of the Medicaid hospice benefit. "It validates what we have been saying all along," says Cherry Meier, RN, MSN, Medicaid policy expert and specialist in long-term care with the NHPCO. "Only now we have the data to back up what we’ve been saying."

For now, states’ efforts to balance their budgets at the expense of hospice seem to have ceased, says Stephen Connor, PhD, vice president for research, development, and finance at the NHPCO. But no one at the industry’s largest trade association believes the matter has been resolved.

As long as states continue to struggle to pay for the most basic of services, hospice will continue to be at risk, adds Meier. One of the states at risk is California. The state faces a $38 billion deficit and started a new fiscal year in July without a budget. The California Hospice and Palliative Care Association (CHPCA) has been working to rebuff any initiative to cut hospice from Medi-Cal, the state’s Medicaid program, since the organization learned a proposed budget did not include hospice.

"In May we were off the chopping block," says Margaret Clausen, executive director of the CHPCA, in Sacramento. "But we are not totally out of the woods. California still doesn’t have a budget."

The CHPCA lobbied California officials prior to the release of the Milliman study and the distribution of the NHPCO tool kit. Yet, the tack they took was similar. Hospice officials successfully argued that hospice care saved state taxpayers $12 million per year. The hope is that hospices at the state and local level can use the data garnered from the Milliman USA study to persuade not only states, but other payers, including health plans, that hospice can lower their overall costs. While the study looks specifically at Medicaid, its message of cost savings is clear, says Meier.

The study, while not definitive, makes a persuasive argument when considered along with past studies that show hospice care is cost-effective, says Connor.

Milliman findings

According to the study, elimination of the hospice benefit in Medicaid would result in increased spending in the following areas:

  • Without hospice, more patients would continue to receive end-of-life care in a hospital. (Additional cost: $228 million.)
  • Without hospice, Medicaid would continue to pay for expensive pharmaceutical treatments. (Additional cost: $41 million.)
  • Without hospice, states will pay about 5% more per day for hospice-eligible Medicaid patients in nursing homes, due to technicalities in federal rules. (Additional cost: $13 million.)

The first two areas of increased spending apply to Medicaid-only patients, the study points out. The third area of increased spending applies to patients with Medicaid-only coverage (Medicaid patients without Medicare coverage) and dual coverage (Medicare and Medicaid).

According to the NHPCO, Medicaid recipients make up about 5% of hospice patients, and other hospice patients receive both Medicaid and Medicare. In 2001, hospices admitted approximately 775,000 patients; about 40,000 of these had Medicaid as their primary coverage. The authors of the Milliman report analyzed hospital discharge data that suggested approximately 64,000 Medicaid beneficiaries die each year in hospitals, 45,000 of whom suffer from typical hospice diagnoses.

Avoided hospitalizations

To estimate the cost of a terminal hospitalization, the study authors used 2001 hospital discharge data from the hospital discharge databases of 19 states and identified all Medicaid-only beneficiaries who died during a hospital stay (about 38,000 beneficiaries). The researchers then identified hospice-eligible beneficiaries based on ICD-9 codes for terminal illnesses often associated with hospice care. These included cancer, congestive heart failure, chronic obstructive pulmonary disease, end-stage renal and liver disease, HIV, and congenital anomalies.

From the data, the study authors identified about 70% of Medicaid beneficiaries who died during a hospital stay to be hospice-eligible. They used a per diem rate of $900 and an average length of stay of 15 days to estimate the average cost of a terminal hospitalization. Based on those assumptions, Medicaid spending on hospitalization for terminal illness would increase if hospice-eligible patients were not able to elect hospice benefits, the researchers concluded.

"We used the projected 40,000 Medicaid-only hospice deaths for 2003 to model the impact of the hospice program on shifting beneficiaries from dying in the hospital to dying in the home," the report said. "We assumed 10% of those receiving hospice would die in the hospital and 40% of those without hospice would die in the hospital. We added $100 per day cost of hospice care using an average 48-day hospice enrollment. The extra cost to Medicaid without a hospice benefit is $228,000,000 or $5,700 extra cost per Medicaid-only hospice patient." (See table.)

To estimate the impact on drug costs for Medicaid-only beneficiaries who would be deprived of hospice care, the Milliman researchers used a large commercial insurer database with claims for about 2 million covered lives in 2001. "Hospice provides all medications related to the terminal illness," they wrote. "Consequently, we believe that, without hospice, Medicaid’s drug costs would increase" if hospice were not available.

The study authors identified people who died and had hospice-eligible ICD-9 codes for terminal illness (almost 1,000 patients) and identified prescription drug claims for those patients, including oral, injectable, and parenteral drugs. After accounting for a 15% annual drug trend and a 20% price discount received by Medicaid programs, the researchers estimated that 2003 prescription drug costs would average over $20 per day during each of the last three months of a terminally ill patient’s life.

"We estimate the avoided drug costs for the 40,000 Medicaid-only hospice deaths for 2003 to be about $41 million or $1,032 per Medicaid-only hospice patient," the report said. (See table.)

The third cost savings area is simply a matter of removing a discount commonly associated with hospice care provided in nursing homes. According to federal rules, when a Medicaid-only or dually eligible nursing facility beneficiary with a Medicaid hospice benefit enrolls in hospice, Medicaid pays hospice 95% of room-and-board allowable charges, rather than the 100% Medicaid typically pays directly to the nursing facility. Hospice, in turn, reimburses the nursing facility 95% percent of room and board. For nursing facility hospice-eligible patients without a Medicaid hospice benefit, Medicaid would pay 100% of the room-and-board charges to the nursing facility.

The Milliman researchers used the hospice cost report to estimate that the national total room-and-board revenue paid for Medicaid beneficiaries receiving hospice care in nursing facilities is about $255 million in 2003. (See table.) "We estimate that, without the hospice benefit, Medicaid spending would increase by about $13 million," the report said.

"There is a silver lining to all this," says Clausen. "The threat of having the Medicaid hospice benefit cut has mobilized hospice providers. In the past we had to go out and sell hospice with anecdotal stories. We have never had data,and now we are forced to get it."