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In the care you provide to Medicare patients, determining how much the federal government will pay is simple because the Centers for Medicare and Medicaid Services (CMS) determines the per diem rate on which payment is based. But where commercial payers are concerned, the process can be a lot like haggling with a used car salesman: After both sides have agreed on a payment rate, the hospice may be left wondering whether it has bought a lemon.
"The Medicare rate is as low as you should go," says managed care expert Lisa Spoden, president of Strategic Healthcare in Columbus, OH. "Beyond that, the rate has to be adjusted for various factors."
These factors can vary from one payer to the next, and each must be addressed before a hospice can determine with certainty that a proposed per diem rate is sufficient to cover the cost of caring for commercially insured patients.
According to Spoden, hospices should consider the following factors when determining a managed care or commercial rate:
Contract negotiations cover a wide range of topics, from required services to office hours, all of which can affect the payment rate. But with the plethora of items that must be covered, it would be easy to slack off on the details surrounding commercial rate determination.
So how do you determine whether a commercial rate is fair after considering the above factors? According to Spoden, the starting point should be your current Medicare per diem rate. The reason for this is that any contracted package of services described as hospice must contain the services that are required by Medicare’s conditions of participation (COPs). Outside of commercial rate negotiations, general contractual negotiations should strive to keep COPs intact when deciding which services would be provided to commercially insured patients.
What hospices fail to recognize is that the way managed care organizations (MCOs) operate can directly contradict federal and state regulations that govern hospices. For example, MCOs normally insist that their own case manager manage the patient, but Medicare’s COPs require hospices to retain medical management of a patient during a hospice stay.
The first business of managed care contracting is to make sure a number of non-negotiable items are included. If the MCO balks at including language stipulating that the hospice maintains medical management of the patient, for example, negotiations should be ended.
In addition, Spoden recommends that hospices use the following points to ensure that the MCO understand the importance of maintaining the Medicare standard for non-Medicare patients:
When commercial payers are convinced that contracted hospice services should reflect Medicare COPs, hospices can begin negotiating a fair commercial per diem rate. While there is no set "fair rate" or a handy pricing guide to use like a shopping list, Spoden says there is one rule of thumb that may help hospices determine a fair rate — the 20% rule.
In the past, commercial payers traditionally paid 80% of the Medicare rate, leaving providers with the options of either swallowing the difference or getting patients to make up the difference.
Hospices are already aware that Medicare’s per diem rate is outdated and does not allow for rising costs in hospice care. The difference is often subsidized by donations. But while hospice boards feel it is justified to subsidize government-sponsored programs that fund health care for the elderly, poor, and disabled, they are likely to be less inclined to subsidize a profit-making organization such as an MCO.
So rather than take a 20% cut from the Medicare rate, Spoden says, hospices should strive for a rate 20% above the Medicare rate — a tall order for organizations that aren’t very experienced in negotiating contracts with companies that are quite experienced in getting contracts that favor their interests.
But it can be done, says Spoden. Hospices must prove to MCOs that the proposed rate is justified by making the case that the Medicare rate is inadequate and that more money is needed to care for the insurer’s patient population adequately.
You can also use cost reports, those dreaded documents that hospices have been required to submit to the CMS, to help you out. Some hospices now have two years’ worth of cost reports, which can show an organization’s rising costs, particularly in the areas of drugs and nursing.
If a hospice is not prepared to use its cost report data, then it may help to explain changes in the industry that have directly affected a hospice’s costs. Last year, Milliman USA, a Chicago-based actuarial and consulting firm, released a landmark study that showed Medicare rates were based on outdated cost data.
According to the study of 10,000 patients cared for in large hospice settings, the current reimbursement rate for routine home care, which accounts for 95% of hospice days used by Medicare patients, does not cover the costs incurred by hospices. It says the gap between what hospices are paid and how much it costs to deliver care poses a real threat to hospice programs nationwide.
Specifically, hospices can cite the following information from Milliman USA’s report:
In 1982, when the hospice benefit was established, prescription drug costs amounted to about $1 of the $41.46 per diem payment. Prescription drug costs have soared since then, totaling $16 per day of a $98.96 per diem payment.
Prescription costs across the health care landscape are a hot topic among lawmakers, many of whom want to see beneficiaries get a break from rising drug costs. Depending on the source of information, drug costs are increasing 15% to 20% per year, experts say. Hospice drug costs are rising 18.3% per year, according to Hospice Pharmacia, a Philadelphia-based consulting firm. Because drug costs make up a significant portion of a hospice’s direct costs, the firm predicts those expenses will likely double in three to five years if left unattended.
Experts blame a combination of factors for the rising cost of drugs: higher drug utilization, inappropriate drug utilization, and an increasingly aging population.
"Average length of service has dropped to 40 days, while the original Medicare Hospice Benefit set the rate based on a 70-day length of service," the report stated.
Hospices have suffered from short length-of-stay allowances and have struggled to come up with ways to bring patients into hospice more quickly. Most hospice leaders blame current eligibility requirements that force physicians to make the uncertain prediction that a patient will die within six months as a result of their illness. In addition, reimbursement rules also mean physicians lose revenue as a result of a hospice referral.
Declining length of service exacerbates the already low reimbursement rate, widening the gap between cost and reimbursement. That’s because hospices encounter higher costs in the first few days following admission and in a patient’s final days. Medicare per diem payments are often not enough to cover the cost of program introduction at admission and intensive care at the end of a patient’s life.
The Milliman USA report represents the first of a series of hospice reports. With hospices filing cost reports this year, CMS will have its own cost data on hospices to help determine future reimbursement.
The end result, Spoden says, is a rate that will likely fall somewhere between Medicare’s current hospice rate and 20% above it.
The prevailing message is that hospices shouldn’t go into contract negotiations blindly.
"You have to go in armed with evidence and ready to stand up for yourself," says Spoden.