By Mac McLean • The Bulletin

Doane Caudell’s family had one request when the 82-year-old Redmond resident was diagnosed with dementia, adult failure to thrive and other medical problems that made her condition terminal: They wanted her to spend her final days at home so they could be with her when she died.

“(Hospice of Redmond) put her bed in the living room so we could be with her all of the time,” Caudell’s husband, David, said as he looked back on the care his wife received before she died this past spring.

Caudell said the hospice program assigned a specially trained caregiver who came by their house at least two to three times a week to make sure his wife was doing alright. They also made sure someone was on call 24 hours a day to answer whatever questions members of the Caudell family had regarding her care, no matter how early or late it was.

“It was excellent,” Caudell said. “I really appreciated having them around because it took a lot of pressure off of us.”

During 2012, Hospice of Redmond and the United States’ 5,500 other hospice providers helped about 1.5 million terminally ill patients die in peace, according to the National Hospice and Palliative Care Organization.

They did so by using about $14 billion from Medicare’s 30-year-old hospice benefit — which last year paid about 84 percent of the country’s total hospice costs — and money from other revenue sources such as private donations and health insurance plans.

But while these reimbursements account for only 2 to 3 percent of Medicare’s total operating budget, they’ve been caught up in a series of proposals that aim to reduce the amount of money the federal government spends on health care. The series of cuts could reduce the reimbursement payments hospices receive by as much as 15 percent over the coming decade.

According to the NHPCO, these spending cuts could threaten how hospice providers operate, particularly smaller ones like Hospice of Redmond, which treat fewer than 50 patients a month. Meanwhile, demand for hospice services is at an all-time high.

“There has been a considerable amount of pressure to shrink hospice spending,” said Jon Keyserling, NHPCOs senior vice president for health policy. “And hospices are now being asked to do more with what appears to be a shrinking reimbursement rate.”

Narrow margins

The Medicare program paid Hospice of Redmond $165 for every day it treated Doane Caudell.

Medicare reimbursements — which vary from region to region depending on its health care and labor market costs — make up about 98 percent of the program’s total operating budget, executive director Rebecca Bryan said.

“That’s what helps us stay alive and function,” Bryan said. She says 99 percent of the patients who turn to her agency for help during their final days are Medicare beneficiaries.

Bryan said that in exchange for this money, the hospice program is required to provide its clients with access to a 24-hour on-call nurse, a social worker, a chaplain and a hospice aide. It also needs to cover the cost of any durable medical equipment, such as Doane Caudell’s hospital bed, and medications the hospice patient needs to treat their terminal condition.

This spring, the Medicare Payment Advisory Committee issued a report that found the country’s average hospice provider is capable of operating with a 6.3 percent profit margin once the money it spends providing these basic services has been subtracted from its Medicare reimbursement rates.

But Keyserling, of NHPCO, said that estimate neglected to take into account the money a hospice program spends when it provides up to 12 months of bereavement services to help its patients’ family members deal with their loss and the money it spends training volunteers to assist its patients.

Once these two costs have been figured into the equation, his organization estimates the average hospice provider now operates with a profit margin of only 4.6 percent. That slim margin gets even slimmer once the sequester — a series of automatic federal spending cuts that went into effect this spring — is factored into the calculations.

“My math brings (the margin after the sequester) down to about 2½ percent,” Keyserling said. The sequester’s cuts — which seek to reduce Medicare’s total spending by $123 billion — will be factored in over the next nine years.

Keyserling said the narrow operating margins hospice providers face as a result of the sequester create a dangerous situation because it interferes with their ability to make up for any unforeseen costs they may experience if a patient with extraordinary care needs comes their way.

He said this situation is especially problematic for smaller hospice providers due to economies of scale — they have less money to cover the costs of treating an expensive patient simply because they treat fewer patients.

These margins aren’t helped by the fact that the very reimbursement rate hospice providers use to receive payment is gradually being chipped away.

The future

In 2009, the Centers for Medicare and Medicaid Services announced it had included a slight increase in Medicare reimbursement rates for hospices after it made some changes to how these rates were calculated.

The federal agency then announced it was going to be phasing out these increases — which were included in the reimbursement rates to make sure hospices weren’t adversely affected by the formula change — resulting in a 4.2 percent decrease in the reimbursement rates over the next seven years.

Keyserling said final two years of the Budget Neutrality Adjustment Factor phase-out, which expires in 2016, will come at a time when the federal government is also working to reduce the amount of money it spends on health care with another rate adjustment called the productivity adjustment factor.

Keyserling said the productivity adjustment factor, which was applied to Medicare through the Affordable Care Act, operates on an economic theory that businesses can improve their productivity by purchasing new equipment, updating computer systems and taking other steps to be more efficient. The more productive they become the less money they need to function, he said.

Seeking to reduce the country’s health care costs, Keyserling said, the federal government set out in 2010 to absorb any savings hospice providers and other Medicare-reimbursed services — physicians, home health care providers and in some cases skilled nursing homes — received from increasing their productivity by reducing their reimbursement rates by about 1.5 percent each year.

But while this economic theory makes sense on paper, Keyserling said, it doesn’t really work for hospice providers because their business model is labor-intensive — labor costs account for about two-thirds of a hospice program’s operating budget — and when patients are being treated at home it is very difficult for the providers to improve their efficiency.

Luckily, Keyserling said, CMS’ recent market basket rate increases — an annual adjustment that, like a cost-of-living adjustment, is designed to make sure providers are not hurt by inflation — have been high enough to absorb any rate reductions that came as a result of these new policies. Though he wasn’t sure whether the federal agency’s new hospice market basket increases, which are supposed to be announced today will be high enough to counteract this trend.

He also said hospices still lose out in this situation because while reimbursement rates themselves may not be going down — the reductions from the BNAF and the quality adjustment factor are covered by the market basket increase — they are also not keeping up with inflation and increased costs for employees, equipment and medications.

Bryan said that so far, Hospice of Redmond has been able to deal with the situation without having to make any major changes. It is also working to enroll more clients in its Transitions program — a pre-hospice program for patients who have a terminal illness but are not yet ready to be admitted into the full service — so they will be more prepared when their time comes.

“Let’s get them on pre-hospice as soon as we can so they are not as sick when they’re ready for full service,” she said.

Partners in Care Executive Director Eric Alexander said his hospice program, which serves about 300 to 350 patients each day, is also taking steps to brace for the potentially declining reimbursement rates. The hospice program recently stopped offering foot clinics, a service Alexander admitted was not tied to its original mission, and may also drop its flu shot clinics.

“We’ve seen these changes coming,” Alexander said, explaining that like Hospice of Redmond, his program should be able to weather the storm. “(These potential rate reductions) aren’t a surprise but that also doesn’t make dealing with them any easier.”

— Reporter: 541-617-7816,