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Current Medicare Financing for EOL and Palliative Care

Center to Advance Palliative Care Issue Brief
June 2000

Policy Options for Palliative Care
Medicare Fee for Service Program Provider Payments

1. Hospital Payment, Part A. Hospitals are paid a Medicare DRG flat rate that is intended to cover the average acute care costs associated with treating a specific disease. Payment rates are based on resource-consumption and an average patient length of stay for the disease grouping. Drugs are covered in the DRG payment. Some special rules apply for chemo therapy drugs and experimental drugs not yet approved by the FDA. There is no specific DRG for end-of-life care or palliative medicine. These services are included in the rates for those DRGs most frequently billed for chronic and terminal patients. Patients who receive care in hospitals when nearing death, are treated as acute care patients for payment purposes and the hospital must pay the additional costs associated with an length of extended stay beyond the period covered by the DRG. In October 1996, HCFA initiated a new ICD-9 CM secondary diagnosis code (V66.7) for palliative care. However, the code does not affect payment when used in conjunction with the base DRG.

2. Hospice Payment, Part A. The Hospice Benefit pays for services to terminally ill persons with a life expectancy of six months or less. Medicare pays prospective, per diem rates for hospice care. The hospice receives a daily per diem that covers all costs except physician bills. The per diem was originally set to cover opioid medications, personal care and nursing services. However, more expensive drugs used in palliative medicine can now cost more than the entire per diem rate. There are four rates, depending on the location and type of service provided. Payment is made for only one type of service per day:

  • Continuous home care by a nurse or home health aide.
  • Routine home care. Patients stay at home but do not receive continuous care as defined above.
  • General inpatient care. Patients receive care in an inpatient facility to control pain or manage acute symptoms that cannot be managed in another setting.
  • Inpatient respite care. Patients receive short-term care at a facility to relieve family caregivers.

3. Physician Payment, Part B. Physicians providing visit and consultation services to patients are paid under the national, resource-based Medicare Fee Schedule system, implemented in 1991. All physicians, regardless of specialty, are paid a uniform fee for providing the same service. Visit and consultation services, also known as, evaluation and management (EM) services, may be billed for performing physician services in any patient setting, including hospital inpatient, hospital outpatient, emergency department, physician office, nursing home, hospice and the patient. s home. For physicians in EOL and palliative care, selecting the appropriate level of visit or consultation code may be done on the basis of time when counseling and/or care coordination with other providers dominates more than 50% of the patient and/or family encounter. A long-standing Medicare payment policy on "concurrent care" prohibits two physicians of the same specialty from billing for an EM service unless for a distinctly different patient condition. For example, palliative medicine consulting physicians must not use the same diagnosis code for a visit service as the patient. s primary care attending physician if both physicians provide a service on the same date. Many palliative care physicians have been advised to use a symptom code instead of a diagnosis code when billing to more accurately indicate that their service does not duplicate the visit service provided by the attending physician. However, the acceptance of claims filed using this procedure varies by carrier.

4. Skilled Nursing Facility Payments. The Balanced Budget Act of 1997 (BBA. 97) instituted a new prospective payment system (PPS) for skilled nursing facilities (SNFs). SNFS will no longer be paid on a reasonable cost basis. Effective in January 2000, SNFs receive per diem payments that are case-mix adjusted in order to reflect the resource intensity required by the individual resident. The SNF PPS groups residents in to a Resource Utilization Group (RUG). Each RUG has an assigned rate. A resident will be ranked and assigned a RUG based on a comprehensive assessment of their average daily care needs. The higher the ranking, the higher the payment. The SNF payment is not intended to cover the costs of chronic, long- term care. Rather, it is intended to be a substitute for what would otherwise be the final, convalescent phase of an acute care stay in the hospital. A resident. s SNF benefits will end when it is determined that he/she no longer requires skilled nursing or rehabilitation services on a daily basis. Even the most fragile, seriously ill and complex resident may lose SNF benefits if they are deemed stable.

5. Home Care Services. The BBA 97 also mandates that home health services be paid under a prospective payment system as of October 2000. The new payment method requires that home health agencies be paid the lowest of: 1) their actual allowable costs; 2) the aggregate per visit costs, limited to 105% of the national median; or 3) a new aggregate per beneficiary limit. The per beneficiary limit is based on payments per patient at that agency, including non-routine medical supplies. The combined affect of these provisions will require many agencies to reduce their average cost per visit and average cost per patient, usually by limiting the number of visits and limiting enrollment to patients with lower costs and shorter length of service. This creates a serious problem for patients that need end of life care: those with substantial disability, complex illnesses and unpredictable timing of serious need.1

Medicare Managed Care Provider Payments

1. Medicare +Choice Managed Care Program. When a beneficiary selects to enroll in a Medicare sponsored managed care option, they receive a comprehensive package of benefits that includes both the hospital and the physician services. The providers receive an inclusive, capitated rate under a managed care risk contract arrangement that covers hospital inpatient and outpatient services, inpatient drugs, tests and the professional services of a physician.

2. Programs of All-Inclusive Care of the Elderly (PACE). A capitated payment for frail elderly, who must be eligible for both Medicare and Medicaid, that covers comprehensive medical and supportive services typically provided in day care centers. Patients must technically be eligible for nursing home care and reside in a certain geographic service area. Provides medical and social services that are comprehensive and integrate acute and long-term care services. BBA 97 expanded the number of PACE programs and provided additional funding. Some in the field believe that the PACE program could foster the basis for system wide payment reform.


1Lynn, Joanne, Wilkinson, Anne, and Etheredge, Lynn, Financing Care for Those Coming to the End of Life: Current Barriers and Opportunities for Improvement, Report to the ACP-ASIM Committee on End of Life Care, December 2, 1999.



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