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Reimbursement Cuts Could Result in Negative Profit Margins for Hospices

March 8, 2011
by root
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Two recent cuts to Medicare reimbursement—the first regulatory and the second statutory—can potentially decrease the overall median Medicare profit margin for hospices from 2% in 2008 to -14% by 2019, according to a new study commissioned by the National Hospice and Palliative Care Organization (NHPCO). The analysis found that 88% of hospice programs could have negative margins by the same projected date.

“This analysis confirms our worst fears,” said J. Donald Schumacher, president and CEO of NHPCO, in a release. “With the entire hospice community—rural and urban, large and small, community-based and multi-state—being hit by the same devastating slope downward, there is no way for patient access to not be negatively impacted.”

Hospices caring for Americans in rural areas would be the most severely affected according to the study, with median profit margin decreases ranging from -2% in 2008 to minus 19% by 2019.

According to NHPCO, a seven-year phase out of the Budget Neutrality Adjustment Factor beginning in 2009 (FY2010) will permanently reduce hospice reimbursement rates by approximately 4.2%. The BNAF, which is being phased out by the Centers for Medicare & Medicaid Services, is “a key element in the Medicare hospice wage index calculation,” the organization said in a release.

The health reform law also imposed an additional change to the Medicare hospice rate formula that will cut payments by approximately 11.8% over the next 10 years through the introduction of a “productivity adjustment” applied to annual payment updates, NHPCO said.

The trend analysis was performed by The Moran Company using 2008 Medicare Healthcare Cost Report Information System and the 2008 Medicare Hospice Claims Standard Analytic File, in addition to information provided by NHPCO that projects annual estimated changes in hospice reimbursement rates outlined in the ACA and the proposed rule.

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Summary of Profit Margin Analysis for Urban and Rural Hospices, 2009-2019

(PDF format)

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