On Hospice Operations Under Medicare Reimbursement Policies

This paper analyzes the United States Medicare hospice reimbursement policy. The existing policy consists of a daily payment for each patient under care with a global cap of revenues accrued during the Medicare year, which increases for each newly admitted patient. We investigate the hospice’s expected profit and provide reasons for a spate of recent provider bankruptcies related to the reimbursement policy; recommendations to alleviate these problems are given. We also analyze a hospice’s incentives for seeking out new patients, finding several unintended consequences of the Medicare reimbursement policy. Specifically, a hospice may seek short-lived patients (such as cancer sufferers) over longer-living patients particularly towards the end of the Medicare year. Also, the optimal recruitment rates for all patient types will vary during the year. These phenomena are unintended and undesirable but are a direct consequence of the Medicare reimbursement policy. We propose an alternative reimbursement policy which overcomes these shortcomings. ∗Email: [email protected] †Email: [email protected] ‡Email: [email protected] §Email: [email protected]