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OIG on Hospice: Restructure Hospice Payments for SNF Residents

This past week, the OIG released a report that represents a more definitive study of hospice payments and utilization trends under Medicare.  The report is effectively a follow-up to recommendations made in MedPac’s annual report(s) to Congress.  The report provides a review of OIG’s analysis of the growth of Medicare covered hospice patients over the period 2005 – 2009, specifically as such growth relates to the provision of Hospice services within SNFs.  For the last three to four years, MedPac and to a lesser extent OIG, have commented about the rapid growth of hospice utilization under the Medicare benefit and the corollary relationship between this growth and SNFs, particularly as the same relates to for-profit hospice organizations.  For more on MedPac’s report to Congress and their recommendations/analysis regarding Hospice, see my related post on this site at .

Per OIG, Medicare spending for hospice services provided to SNF residents increased 69% between 2005 and 2009.  In total dollars, the amount grew from $2.55 billion to $4.31 billion.  During this period, the number of hospice beneficiaries residing in SNFs grew by 40%.  Not surprising, during this same period the total number of hospices participating in Medicare also grew; the growth dominated by for-profit organizations.  According to the OIG, hospices organized for-profit received higher levels of reimbursement on average (29%) compared to non-profit and governmental operated hospices.

Specifically related to hospice services provided to SNF residents, 8% or 263 hospices had two-thirds of their cases comprised of SNF residents.  Of this group of 263, 72% were or are, for-profit.  In total, 56% of all hospices participating in Medicare are for-profit.  Comparing reimbursement or payments and utilization, the group that incurred two-thirds of their cases via SNFs was paid more per beneficiary ($3,182) and the average length-of-stay in “benefit” was three weeks longer than the median average length of stay across the industry.

Table 1: Medicare Hospice Care from 2005 to 2009: Growth in Spending and in Number of Beneficiaries
2005 2009 Percentage Increase
Spending on hospice care in nursing facilities $2.55 billion $4.31 billion 69%
Spending on hospice care in all settings $7.92 billion $12.08 billion 53%
Number of hospice beneficiaries in nursing facilities 240,000 337,000 40%
Number of hospice beneficiaries in all settings 871,000 1,085,000 25%
Source: OIG analysis of CMS data, 2010; and OIG,Medicare Hospice Care: A Comparison of Beneficiaries in Nursing Facilities and Beneficiaries in Other Settings, OEI-02-06-00220, December 2007.

As I have written before, the dominant profile of SNF residents enrolled in hospice includes Medicaid as the primary payer source, a primary diagnosis for SNF residency of Alzheimer’s disease or some other form of dementia or mental disorder, and the SNF in which they (the residents) reside has a payer mix that is at least 42% Medicaid.  Additionally, the SNF resident has resided in the facility for a period of time (months) prior to enrollment within the hospice benefit.  None of this information is new or should I say “news”.  The SNF industry has quickly learned that transferring a certain liability for the cost of care of a Medicaid resident (drugs, certain supplies, some staffing) to a hospice that receives a routine hospice benefit under Medicare is financially advantageous, particularly since Medicaid continues to pay for the room and board costs of the SNF.  In fact, the vast majority of state plans do not coordinate benefits with the Medicare Hospice benefit, leaving the facility to collect the full Medicaid rate for the resident’s stay while transferring an increment of care costs to the Hospice.  Clearly, this niche is advantageous financially for the Hospice and the SNF.  The Hospice, given the infrastructure of caregivers and other on-site SNF staff, can minimize its visits (substantially less in number than provided to a typical home-bound patient), effectively increasing its marginal profitability.  The SNF transfers certain costs to the Hospice, now paid as part of the Hospice benefit while still receiving the total amount of the Medicaid payment.  While I won’t say this makes Medicaid a profitable payer, it certainly increases the marginal revenue contribution from a group of now, hospice covered residents.  As the OIG and MedPac have observed, the SNF resident hospice patient tends to be a patient with a terminal condition but arguably, one that is not necessarily imminent and/or in some cases, even clinically supported. The end or net result is a patient profile that stays longer (covered) under the Hospice benefit.

Concluding within their report, the OIG makes two recommendations that on their face, don’t vary much from recommendations made by MedPac.  Their first recommendation is to monitor the activities of hospices with a high percentage of cases occurring in SNFs.  Their second recommendation is for CMS to alter or lessen, the level of reimbursement paid to a hospice for care provided to an SNF resident.  The report contains no recommendation of “how much” less.  MedPac in comparison has recommended that the Hospice benefit be scaled for SNF residents – higher on admission, less in the middle term of the stay, and higher again close or precedent to death.  For MedPac, this method more closely reflects the resources used or costs incurred by a hospice during a patient’s length of stay.

As I have indicated, this information is not new nor are the concluding recommendations.  The Medicare Hospice benefit is dated and not reflective of how terminal care occurs and/or should occur.  The system is ripe for fraud as CMS has not taken its time to scrutinize claims or the validity thereof, particularly for diagnoses that traditionally do not correlate to quick or timely death.  All too many for-profit, non-hospital aligned hospices have realized that sans the SNF resident market, the actual hospice market is fairly limited and not sufficiently deep to support the current number of agencies.  In other words, a hospice organized for-profit would likely have a difficult time sustaining its margins and building a sufficient base of business without SNF contracts.  Given this reality, and the reality that SNFs with large Medicaid payer percentages and long-term stays among its residents also benefit via a favorable hospice relationship,  the market reality becomes the same as concluded by the OIG.  Changing this paradigm won’t occur until three core elements of reform pertaining to the Medicare Hospice benefit occur. First, refined clarity of diagnosis appropriateness and stronger requirements on re-certification for additional benefit periods.  There exists sufficient clinical information to create clarity, even for end-stage Alzheimer’s/Dementia diagnoses.  Second, payment changes that take into account coordinated or bundled payments for Medicaid SNF and private-pay residents.  Neither the SNF or the Hospice should benefit disproportionately when a patient is on hospice.  Third, requirements of disclosure for all hospice/SNF relationships and contracts and requirements that no one hospice may provide exclusive services to an SNF.  Too many of the most egregious situations I have encountered occur when one hospice has entered into multiple SNF contracts, dominating the market and creating blatant “sweetheart” relationships.  Additionally, CMS must take proactive measures to perform timely claim reviews of SNF residents receiving hospice services – for all diagnoses – particularly involving disproportionate case-mix hospice providers (hospices with large number of SNF residents enrolled with certain qualifying diagnoses such as dementia, failure to thrive, and Alzheimer’s).


July 25, 2011 - Posted by | Hospice, Policy and Politics - Federal | , , , , , , , ,


  1. The problem in understanding your post is that patients admitted to a nursing home under the Medicare skilled nursing facility payment system is very different than the patient admitted to the nursing home under a custodial care benifit which Medicare does not cover. The OIG’s report you mention does not refer to patients admitted under Medicare’s skilled nursing benefit but rather patients admitted to the nursing home under a custodial care benifit (either privately paid or, most likely, paid by Medicaid). The hospice industry standard in refering to admissions are SNF for the Medicare skilled nursing benifit (which also exist in some acute care hospitals, mostly Critical Access Hospitals) and NF for the, mostly, Medicaid reimubursed “custodial care.” The later are the patients that the OIG was refering to in their studies. To use the terms SNF and NF interchangably is extremely confusing and inconsistent with the “common” usage and definitions employed by the OIG and major hospice orangizations including the American Academy of Hospice and Palliative Medicine. In Louisiana, all nursing home beds are dually certified. The bed can be utilized for a patient admited to the nursing home with payment from Medicaid, predominantly, for a NF (nursing facility) admission (i.e. custodial care) or with payment from Medicare for a SNF (skilled nursing facility) admission. The contractual relationship between a hospital and a nursing home for both of these types of admits is a topic for another discussion. Thanks for the blog. I find it very informative and useful just a little confusing with the interchangable use of NF and SNF.

    Ty G. Hargroder, M.D.

    Comment by Ty G. Hargroder, M.D. | March 9, 2012

  2. Dr. Hargroder:

    Thanks for reading and for the comment. SNF is a generally accepted acronym meaning Skilled Nursing Facility. SNFs de facto are the same as NFs or Nursing Facilities, typically. A SNF generally is licensed or approved to receive reimbursement from Medicare and Medicaid. In addition, the SNF has a fee schedule that it uses for residents capable of paying privately. Custodial care is an age-old definition that truly is no longer applicable in the SNf industry. The “skilled” term often bandied about with respect to Medicare refers only to the limited Medicare payment definitions pertaining to “skilled nursing or therapy interventions required by the resident no less than daily”. Skilled by Medicare means fundamentally then, a Registered Nurse or Registered/Licensed therapists (PT, OT, Speech, Respiratory). As Medicare has long-ago prohibited distinct certified units within nursing homes, an SNF that participates in the Medicare program has “all beds” certified for Medicare payment, assuming the resident meets the applicable coverage critieria for a “skiied stay”. Concluding, my post uses the same fundamental language that is used in the industry and by the OIG. A resident in a nursing home is a resident in an SNF or NF if you prefer.

    Comment by Reg Hislop III | March 9, 2012

  3. Are you sure you are referring to Skilled Nursing Facility (SNF) beds in the nursing home which is reimbursed through Part A Medicare? It appears that you are refering to Nusing Facitlity (NF) beds which are reimbursed through private means or Medicaid. This reimbursement is for custodial care. Although one can be on hospice and in a SNF, it is not a common situation. The more common arrangement is for the patient to be under custodial care in the NF and to have hospice under that admission processes.

    Comment by Ty G. Hargroder, M.D. | March 8, 2012

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