Recent news reports about the cost of Medicare’s hospice benefit might seem confusing. That would be true primarily because they are confusing—and the policy implications are unclear.

Last week the New York Times reported that hospice providers across the country are facing demands from Medicare for repayment of hundreds of millions of dollars. The problem, and the paradox: hospice patients often live longer than government projections allow, and almost ten percent of hospice organizations have exceeded the maximum per-patient allowance set by Medicare.

In order to keep the hospice benefit from becoming a general long-term care benefit, Medicare limits each hospice program to a maximum reimbursement of $21,410 (in 2007) multiplied by the number of patients it serves. Since the cap is applied retroactively, that means hospice programs may suddenly find that they owe the government thousands of dollars in repayment assessments.

Does this mean that the hospice benefit loses money for Medicare? Not at all. A recent study reported in the professional journal Social Science & Medicine, funded by the Robert Wood Johnson Foundation and conducted by analysts at Duke University, found that Medicare saves an average of $2,309 on the care of each hospice patient. An abstract of the study is available online from Science Direct, but the full study costs $30. The National Hospice and Palliative Care Organization has a brief report on the major findings of  the study, as well.

In fact, the Duke study calculated that the average time spent on the hospice benefit was, from an economic perspective, too short. With longer stays in their programs, about 70% of hospice patients would have saved Medicare even more money.

To be thorough, it should be noted that a Rand Corporation study in 2004 came to the opposite conclusion. Looking at the last three years of life for Medicare patients who died between 1996 and 1999, that study concluded that Medicare paid 4% more for patients in hospice programs. The more recent study criticizes that calculation, noting that no attempt had been made to compare the severity of illnesses and diagnoses of the patients before comparing their Medicare costs.

Among the causes cited for the changes in hospice financing patterns is a fundamental shift in the types of patients served by the program. Although the original hospice benefit was tailored for cancer victims, in recent years more than half of hospice patients have suffered from dementia and other illnesses with more difficult prognoses.

What does this conflicting news mean for patient care, and for the hospice industry? Congress has been asked to ease the repayment requirement for violations of the current cap. Meanwhile, Medicare officials suggest that the problem may be related to financial management in individual programs, and thus may not indicate a systemic problem.

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