One Pennsylvania Plaza, 38 th Floor New York, NY 10119 Tel 212-279-7166 Fax 212-629-5657 www.milliman.com Value of Hospice Benefit May 2, 2003 Milliman USA, Inc. New York, NY Kate Fitch, RN, MEd, MA Bruce Pyenson, FSA, MAAA Commissioned by the National Hospice and Palliative Care Organization
Table of Contents I. Executive Summary...1 II. Limitations... 1-2 IV. Methodology and Findings... 2-7 VII. Appendix A: Background NHPCO and Milliman...8 VIII. Appendix B: Demographics Hospital Discharge Data...9 IX. Appendix C: Demographics Drug Cost Data...10
Executive Summary The National Hospice and Palliative Care Organization (NHPCO) retained Milliman USA, Inc. (Milliman) to examine the value of hospice for Medicaid programs. Hospice care seeks to enhance the quality of end of life care for terminally ill patients whose disease is not responsive to curative treatment. Almost all states have chosen to provide hospice benefits to Medicaid recipients. However, federal rules do not require states to provide hospice benefits. The view of Medicaid as covering mostly mothers and children does not lend itself to thinking about hospice benefits. There are, of course, deaths among that young population, but Medicaid also covers populations with much higher mortality, including those suffering from HIV and the poor elderly. NHPCO reports that Medicaid recipients make up about 5% of hospice patients, and additional 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. Many more Medicaid recipients could benefit from hospice care. Our analysis of hospital discharge data suggests that approximately 64,000 Medicaid beneficiaries die annually in hospitals and about 45,000 of these suffered from typical hospice diagnoses. Certainly, other Medicaid beneficiaries that will die out of the hospital could also potentially benefit from hospice. Using the methodology and conservative assumptions described in the body of this report, we estimate that, in 2003, if all states discontinued hospice coverage, national Medicaid spending would increase by about $282 million or approximately $7,000 per beneficiary that would have enrolled in hospice. The increased spending comes from the following components: $228 million: Without hospice, more patients would continue to receive end of life care in a hospital. $41 million: Without hospice, Medicaid would continue to pay for expensive pharmaceutical treatments. $13 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. The third component category applies to patients with both Medicaid-only coverage (Medicaid patients without Medicare coverage) and dual coverage (Medicare and Medicaid) while the first two components apply to Medicaid-only patients. Other published and unpublished studies suggest that hospice care reduces costs. The authors of this study have a somewhat different focus -- we demonstrate how removing hospice benefits can increase costs for Medicaid patients. Limitations The conclusions in this report are based on the assumptions and methodology stated in the
Value of Hospice Benefit 2 April 25, 2003 body of the report. The reader should not make decisions based on this Executive Summary alone. While key elements of our analysis came from relatively large and credible datasets, variations may well exist that are not reflected in our results. In particular, little data exist on mortality and end-of-life costs for Medicaid populations, so some of our assumptions were formed by data from commercial and Medicare populations. We present national average figures. States and locales have circumstances that will affect the applicability of our results. Local reimbursement levels and the existence of managed care programs are especially important. These and other factors should be used in applying our findings to particular states or locales. Hospice selection bias has become a significant controversy in hospice studies. The question, Are most hospice patients the kind of people who would refuse aggressive end of life care even if there were no hospice benefit? raises the bias issue. The authors have performed studies that suggest cost savings for hospice despite potential bias. However, the bias issue has not been resolved generally, and our results would overstate cost increases if such bias is significant in the Medicaid population. We believe our estimates for cost increases due to ending hospice benefits are based on relatively conservative assumptions; cost increases could well be higher. However, technology changes, reimbursement changes, and other circumstances could occur to reverse such increases or make them very difficult to observe. Variability is inherent in any economic forecast, and that applies to our work here. In performing this study, Milliman USA, Inc. does not intend to take a position on any particular legislation. If this report is copied, it must be distributed in its entirety. The conclusions of this report are based on the authors analysis and should not be interpreted as representing the position of Milliman USA, Inc. We hope the analysis presented here will be useful to all concerned parties. Methodology and Findings Several studies have identified cost savings for Medicare beneficiaries utilizing hospice services compared to similarly matched beneficiaries not utilizing hospice services. 1, 2 The cost savings is in large part, driven by hospice programs focus on maintaining and supporting terminally ill individuals at home, avoiding some hospital stays. In particular, hospice care can help patients avoid dying in a hospital (terminal hospital stays) and ambulatory sensitive hospital stays. In addition to avoiding unnecessary and undesirable hospital utilization, hospice reduces spending because the hospice provides for all medications related to the terminal illness as well as durable medical equipment (DME), medical supplies and home care visits. 1 Mor V, Greer D, Kastenbaum R. The hospice experiment. Baltimore: Johns Hopkins University Press. 2 National Hospice Organization. An analysis of the cost savings of the Medicare Hospice Benefit. (Item No. 712901). Alexandria, VA: Author.
Value of Hospice Benefit 3 April 25, 2003 Medicaid-Only Hospice Population The Medicaid-only hospice population for which we modeled our results was identified using NHPCO Facts and Figures data, Hospice Cost Report Summary through 10/31/02, and Hospice Standard Analytic Files 100% Final Action Claims illustrated in Table I. Hospice admissions, in recent years, have grown 10% annually. About 13% of the individuals who begin hospice care discontinue it. We used these considerations to estimate that about 40,000 Medicaid-only recipients will die with hospice care in 2003. Table I Projected Medicaid-Only Hospice Recipients 2003 2001 Deaths in USA (1) 2,400,000 Hospice Admissions in 2001 (1) 775,000 Hospice Admission Growth Rate Annually (1) 10% Other than Death Discharge Rate Annually (1) 13% Hospice Deaths 815,843 cent of Medicaid-only Hospice Patients (1) (2) 4.9% Medicaid-only Hospice Deaths 40,000 (1) NHPCO Facts and Figures (Updated January 2003) (2) Hospice Cost Report Summary through 10/31/02 Medicaid-Only Cost Savings Avoided Hospitalizations for Terminal Care Hospice programs seek to provide the resources and management to support death at home for terminally ill individuals thereby avoiding terminal hospitalizations dying in a hospital. NHPCO reports 10% of patients who died under hospice care in 2001 died in a hospital. 3 This contrasts to much higher figures for non-hospice patients. Statistics reporting the percent of Medicaid deaths that occur in an acute care hospital have not been available to date. Wennberg reports in The Dartmouth Atlas of Health Care 1999, that 33% of Medicare deaths occur in an acute care hospital. 4 NHPCO reports that for all Americans that died in 2001, less than 50% died in an acute care hospital. 5 According to 3 NHPCO Facts and Figures (Updated January 2003) 4 Wennberg J, The Quality of Medical Care in the United States: A Report on the Medicare Program The Dartmouth Atlas of Health Care 1999, AHA Press, 1999 The Trustees of Dartmouth College 5 NHPCO Facts and Figures (Updated January 2003)
Value of Hospice Benefit 4 April 25, 2003 McCallum, 85% of pediatric patients with life limiting conditions die in an acute care hospital. 6 Our analysis of Medicaid hospital deaths shows that 10% of deaths are among the pediatric or young adult population, and an unusually high portion of Medicaid hospital deaths (about 70%) are for conditions that would benefit from hospice care. For our model of ending Medicaid hospice benefits, we assume that, without hospice benefits, 40% of beneficiaries that would have had hospice, die in an acute care hospital. To estimate the cost of a terminal hospitalization, we obtained 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 demographics for this sample appear in Appendix B. We identified hospice eligible beneficiaries by selecting patients with ICD-9 codes for terminal illness often associated with hospice care. These illnesses included cancer, congestive heart failure, chronic obstructive pulmonary disease, end stage renal and liver disease, HIV and congenital anomalies. We identified about 70% of Medicaid beneficiaries, who died during a hospital stay, to be hospice eligible. Medicaid programs vary greatly in how they reimburse hospitals. We chose to apply a perdiem rate to an average length of stay (LOS) to estimate the average cost of a terminal hospitalization. Medicaid programs generally reimburse hospitals at a much lower level than do commercial insurers or HMOs. We assumed a per-diem reimbursement of $900, which reflects a 40% discount off typical HMO medical-surgical per diems. 7 In the hospital discharge database described above, the mean LOS of a hospice-eligible Medicaid terminal hospitalization was 30 days. Because the mean LOS reflects the impact of very long LOS cases, we chose to use the 70 th percentile of cases - 15 days - as the LOS for a patient who would have received a hospice benefit, but instead died in a hospital. Medicaid programs spending on hospitalization for terminal illness would increase if hospice eligible patients were not able to elect hospice benefits. 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. 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 a $100 per day cost of hospice care using an average 48-day hospice enrollment. 8 The extra cost to Medicaid without a hospice benefit is $228,000,000 or $5,700 extra cost per Medicaid-only hospice patient. Table II displays the components of these additional costs. In our model, we considered that, without hospice care, patients dying at home will receive home care. We applied a $150 / day cost for home care, which would cover daily home health aide care, several nursing visits per week, DME and medical supplies. To the extent 6 McCallum DE, Byrne P, Bruera E. How children die in hospital. J Pain Symptom Manage. 2000; 20(6):417-423 7 Milliman USA, 2002 HMO Intercompany Survey 8 NHPCO Facts and Figures (Updated January 2003)
Value of Hospice Benefit 5 April 25, 2003 that a Medicaid program provides generous home care benefits, this extra cost could be understated. We did not attribute this extra cost for the days of terminal hospitalization. Table II: Extra Terminal Hospitalization Costs, Medicaid-Only Patients 2003 Hospice Benefit Hospice Benefit Not Offered Dying in Hospital Dying at Home Dying in Hospital Dying at Home Medicaid Only Hospice Patients 40,000 40,000 % of Patients who Die in Hospital 10% 40% Patients who Die in Hospital 4,000 16,000 2003 Estimate Hospital Cost Day (1) $900 $900 Average Terminal LOS (days) 15 15 Average Terminal Hospital Cost $13,500 $54,000,000 $13,500 $216,000,000 % of Patients receiving Hospice/Home Care 10% Hospice Care 90% Hospice Care 40% Home Care 60% Home Care Patients receiving Hospice/Home Care 4,000 36,000 16,000 24,000 Hospice/Home Care Cost Day $100 $100 $150 $150 Average Hospice/Home Care Days 33 48 33 48 Hospice/Home Care Cost $3,300 $13,000,000 $4,800 $173,000,000 $4,950 $79,000,000 $7,200 $173,000,000 Estimated Terminal Hospitalization Cost $67,000,000 $173,000,000 $195,000,000 $173,000,000 Total Cost by Benefit $240,000,000 $468,000,000 Extra Cost to Medicaid without Hospice Benefit $228,000,000 Extra Cost Medicaid Hospice Eligible Patient without Hospice Benefit $5,700 (1) Estimated from Milliman HCG/Intercompany Rates Survey, 2002
Value of Hospice Benefit 6 April 25, 2003 Increased Drug Costs Hospice provides all medications related to the terminal illness. Consequently, we believe that, without hospice, Medicaid s drug costs would increase for people otherwise on hospice. To model the impact of avoided drug costs for Medicaid-only beneficiaries enrolled in hospice, we used a large, commercial insurer database with 2001 claims for about 2 million commercial lives. We identified all individuals that died and had hospice eligible ICD-9 codes for terminal illness (almost 1,000 individuals). The demographics for this sample appear in Appendix C. We identified all prescription drug claims for these individuals including oral, injectables and parenteral drugs. After accounting for a 15% annual drug trend and a 20% price discount received by Medicaid programs, we estimate that, for 2003, prescription drug costs average over $20 per day during each of the last three months of a terminally ill patient s life. In our model, we did not apply this cost during patient s terminal hospitalization, because medication costs would be the hospital s responsibility. Prescriptions are typically dispensed in multi-day amounts, not daily doses. However, applying averages represents a reasonable approach to modeling these costs because the source data also reflected typical prescribing patterns. 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. Table III illustrates these avoided costs. Table III: Avoided Drug Costs, Medicaid-Only Patients 2003 Hospice Benefit Not Offered Hospice Benefit Dying in Hospital Dying at Home Medicaid-Only Hospice Patients 40,000 40,000 40,000 % of Patients receiving Hospice/Home Care 40% 60% Number of Patients by Site of Death w/o Hospice 16,000 24,000 Diem Allowed Drug Charges $24.99 $24.38 Average Hospice/ Home Care LOS (days) 48 33 48 Estimated Drug Cost for these Patients $0 $825 $13,200,000 $1,170 $28,080,000 Additional Drug Cost without Hospice Benefit $41,280,000 Additional Drug Cost Medicaid-Only Hospice Eligible Patient without Hospice Benefit $1,032
Value of Hospice Benefit 7 April 25, 2003 Medicaid Nursing Facility Savings 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 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 eligibles without a Medicaid hospice benefit, Medicaid would pay 100% of the room and board charges to the Nursing Facility. Based on the hospice cost report, we 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. We estimate that, without the hospice benefit, Medicaid spending would increase by about $13 million. Table IV illustrates these additional costs to Medicaid without the hospice benefit for Medicaid Nursing Facility beneficiaries. Table IV: Medicaid Nursing Facility (NF) 5% Room and Board Discount Hospice Benefit 2001 Medicare Hospice Payments (1) $3,610,700,000 Medicare Payments as a % of Total Hospice Revenue (2) 85% Hospice Benefit Not Offered 2001 Total Hospice Revenue $4,248,000,000 Medicaid Room & Board Revenue (2) $251,455,473 Total Patient Revenue (2) $4,182,420,069 Medicaid NF Payments as a % of Hospice Revenue (2) 6% Medicaid NF Hospice Payments (payments with 5% room and board discount) $254,880,000 (payments without 5% room and board discount) $268,295,000 Estimated Medicaid NF Cost $254,880,000 $268,287,307 Additional NF Room & Board Cost without Hospice Benefit $13,415,000 (1) Standard Analytic Files - 100% Final Action Claims (2) Hospice Cost Report Summary through 10/31/02
Value of Hospice Benefit 8 April 25, 2003 Appendix A The National Hospice and Palliative Care Organization The National Hospice and Palliative Care Organization (NHPCO) is the largest nonprofit membership organization representing hospice and palliative care programs and professionals in the United States. Founded in 1978, the organization is committed to improving end of life care and expanding access to hospice care with the goal of profoundly enhancing quality of life for people dying in America and their loved ones. Hospice care seeks to enhance the quality of end of life care for terminally ill patients whose disease is not responsive to curative treatment. Hospice care involves a team-oriented approach of expert medical care, pain management, and emotional and spiritual support expressly tailored to the patient s needs and wishes. Emotional and spiritual support is extended to the family as well. Generally this care is provided in the patient s home or in a home-like setting operated by a hospice program. In most states, Medicare, Medicaid and private health insurance cover hospice care for patients who meet certain criteria. As of 2001, there were approximately 3,200 operational or planned hospice programs located in the 50 states, the District of Columbia, Puerto Rico and Guam. NHPCO s membership includes over 2,000 hospice programs. NHPCO estimates that 775,000 patients were served by hospices in the U.S. in 2001. Milliman USA, Inc. Milliman is an international firm of consultants and actuaries. With over 2,000 employees, Milliman uses actuarial and clinical expertise to provide consulting services to a full range of financial and health care organizations, providers, governments and employers. The authors of this report are located in Milliman s New York City office. The authors of this study are Kate Fitch, RN, MEd, MA, and Bruce Pyenson, FSA, MAAA. They have collaborated on other hospice projects, including a report on how the components of hospice costs have changed since the beginning of the Medicare hospice benefit 9. The authors backgrounds are described below. Kate Fitch is a Healthcare Management Consultant in Milliman s New York City office. Kate s background includes catastrophic disease management operations, utilization management training for hospitals and HMOs and nursing education and research. She has been with Milliman since 1999. Bruce Pyenson is a Principal and Consulting Actuary in Milliman s New York City office. Bruce has led projects relating to healthcare reform, such as Mental Health Parity, and has consulted to healthcare providers, HMOs and pharmaceutical companies on various risk management issues. He has been with Milliman since 1987. 9 The Costs of Hospice Care, National Hospice and Palliative Care Organization, 2001.
Value of Hospice Benefit 9 April 25, 2003 Appendix B Distribution of Inpatient Medicaid Deaths by Age and Sex Age Category Female Male 0 to 1 years 2.8% 3.2% 2 to 6 years 0.4% 0.4% 7 to 18 years 0.8% 0.9% 19 to 24 years 0.6% 0.7% 25 to 29 years 0.9% 0.9% 30 to 34 years 2.3% 2.7% 35 to 39 years 2.4% 2.7% 40 to 44 years 3.4% 4.5% 45 to 49 years 4.2% 5.9% 50 to 54 years 4.8% 6.0% 55 to 59 years 6.6% 7.2% 60 to 64 years 6.8% 6.7% 65 to 69 years 2.3% 1.9% 70 to 74 years 2.3% 2.0% 75 to 79 years 2.3% 1.8% 80 to 84 years 2.2% 1.6% 85 and older 4.0% 1.9% Note: The above age-sex distribution of deaths is based on about 38,000 hospital discharges in 2001 from 19 states. For some states, ages were presented as bands or sex unidentified. For such cases, we used a simple allocation to create the above table. While we believe these data are predominantly Medicaid-only patients, the coding practices of hospitals and states varies, and we urge the reader to use caution in interpreting the above data.
Value of Hospice Benefit 10 April 25, 2003 Appendix C Distribution of Hospice Eligibles with Prescription Drug Claims by Age and Sex Age Category Female Male 0 to 1 years 0.2% 0.4% 2 to 6 years 0.1% 0.2% 7 to 18 years 0.4% 0.1% 19 to 24 years 0.0% 0.4% 25 to 29 years 0.5% 0.6% 30 to 34 years 1.0% 1.4% 35 to 39 years 1.7% 1.1% 40 to 44 years 3.1% 2.6% 45 to 49 years 4.7% 5.0% 50 to 54 years 4.8% 6.2% 55 to 59 years 5.7% 10.4% 60 to 64 years 8.2% 11.2% 65 to 69 years 1.9% 4.6% 70 to 74 years 1.2% 2.7% 75 to 79 years 2.1% 4.6% 80 to 84 years 1.9% 3.5% 85 and older 4.1% 3.5% Note: The above age-sex distribution of patients with drug claims is based on over 1 million commercial lives in 2001 excluding hospice patients. While we believe the data represents a predominantly hospice eligible population, the coding practices of hospitals and states varies, and we urge the reader to use caution in interpreting the above data.