How does hospice care get paid and is it a bundle payment?

How Hospice Gets Paid: Bundle Payment Structure

Yes, hospice care operates under a bundled payment system where Medicare and other insurers pay hospices an all-inclusive per diem rate that covers all services related to the terminal illness, rather than paying for individual services separately. 1

Payment Structure

Per Diem Bundle Model

• Hospices receive a fixed daily rate that must cover all care and services related to the patient's terminal condition 1
• This per diem payment is "all-inclusive" and covers nursing services, physician services, medications, medical equipment, home health aide services, social work, counseling, bereavement services, and volunteer support 1
• The bundled rate varies based on the level of care provided (routine home care, continuous home care, inpatient respite care, or general inpatient care) 2

Financial Responsibility

• Under Medicare payment policy, hospices are responsible for covering all costs related to patients' terminal conditions under the per diem rate 3
• This payment structure has led to a de facto requirement that patients forgo costly therapies (including life-prolonging treatments) on enrollment because they are prohibitively expensive for hospices to cover under the fixed per diem 3
• Medicare has a per capita limit (historically around $6,500, though this has been adjusted over time) to prevent excessive spending 2

Key Payment Characteristics

What the Bundle Includes

• 24-hour availability of critical services including nursing, physician services, and medications 2
• All medications and medical supplies for palliation and management of both terminal and comorbid conditions 1
• Physical therapy, occupational therapy, and speech-language pathology services on an as-needed basis 1
• Bereavement counseling for families up to one year after the patient's death 1
• No co-payments required from patients for hospice services 4

Financial Implications

• Hospice care has been shown to reduce overall Medicare costs, particularly in the last month of life, despite providing more comprehensive supportive services 4, 5
• The bundled payment model incentivizes hospices to provide efficient, coordinated care and avoid unnecessary hospitalizations 1
• For matched cohorts, mean and median Medicare costs were lower for patients enrolled in hospice care compared to non-hospice patients 5

Important Caveats

Payment Limitations

• The per diem payment system may not adequately capture substantial variation in resource utilization within individual patient stays, particularly early in the hospice stay when resource needs are highest 6
• Case mix adjustment based on diagnosis and demographics does not significantly improve the ability to explain variation in resource utilization across stays 6
• The bundled payment structure can create financial barriers to providing expensive disease-modifying therapies, even when they have palliative intent 3

Emerging Models

• Medicare and health care delivery systems are increasingly testing concurrent care models that allow patients to receive both hospice services and disease-directed therapy simultaneously, though this requires innovative payment structures beyond the traditional bundle 3
• The Medicare Choices program now allows concurrent hospice care and usual cancer care for hospice-eligible patients, representing an evolution of the traditional bundled payment model 1