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Hospice managers and staff members have become accustomed to looking for ways to streamline services and lower costs, but the proposed three-year reductions in the wage index planned by the Centers for Medicare & Medicaid Services (CMS) will add an extra challenge for managers.

CMS rule doesn't address factors such as salary

August 1, 2008

CMS rule doesn't address factors such as salary

Competition for nurses not reflected

Hospice managers and staff members have become accustomed to looking for ways to streamline services and lower costs, but the proposed three-year reductions in the wage index planned by the Centers for Medicare & Medicaid Services (CMS) will add an extra challenge for managers.

Will wage index reduction cause cut in charity care?

One of the risks to hospice patients presented by the reduction of the wage index by the Centers for Medicare & Medicaid Services (CMS) is that if CMS focuses only hospice reimbursement without looking globally, hospices will have to cut services, points out Renee Hahn, chief financial officer, Harry Hynes Memorial Hospice in Wichita, KS. "The Medicare Conditions of Participation describe the minimum services that a hospice must provide. If you choose to expand or enhance your program with a bereavement service, an enhanced volunteer program, or charitable care, you must find a way to fund it yourself," she says.

Continued cuts by Medicare might divert more community funds raised by the hospice into underwriting Medicare patient care and take it away from charitable care or community services such as bereavement counseling, Hahn adds. "We might also start to see hospices pull their service area closer in to their home office, which would leave rural areas without coverage," she says.

For the upcoming first year of the proposed wage index reduction, The Hospice of the Florida Suncoast is looking at a 3% reduction, reports Anne Hochsprung, vice president of finance for the Clearwater, FL, hospice. "This represents a $2 million decrease in income for our agency," she says. At the same time, her hospice provides $11 million each year in uncompensated care for the community, Hochsprung points out.

"Before we look at cuts in our community care, we are looking for other ways to maximize our revenue stream by renegotiating contract rates, applying for grants for community services, and looking for ways to cut costs in other areas," she says. "We already run a slim ship, with our net income only at 2%."

The reduction in the wage index does not take into account many factors that contribute to the cost of providing hospice care, so managers will have to look at even more areas in which to save money, says Renee Hahn, chief financial officer, Harry Hynes Memorial Hospice in Wichita, KS.

"Because we go to the patients in most cases, agencies are paying employees for nonproductive 'windshield time' and paying gasoline costs as we reimburse employee travel expenses," she says. With gasoline costs rising, this expense is a significant one for agencies and for employees as they pay the difference between mileage reimbursement and actual costs, Hahn says.

The nursing shortage also is not factored into the decision, says Hahn. "It is getting harder to find experienced hospice and home health nurses, and you have to be able to pay them wages that are competitive with local hospitals and other health care providers," she says.

What is the budget neutrality adjustment factor?

The proposal by the Centers for Medicare & Medicaid Services (CMS) to reduce the hospice wage index over the next three years is based on a reduction of an adjustment added into the hospice wage index in 1995. The National Hospice and Palliative Care Organization developed the following history and explanation of the budget neutrality adjustment factor and its effect on the industry:

  • History: The hospice wage index originally was adjusted in 1995, when a Negotiated Rule-Making Committee was appointed to address the inaccuracies in the original hospice wage index, account better for disparities from one geographic location to another, and develop a wage index that would be as accurate, reliable, and equitable as possible. At that time, the committee agreed to implement a special adjustment, referred to as the budget neutrality adjustment factor (BNAF), to ensure payments in the aggregate are budget neutral to payments using the original 1983 hospice wage index. The adjustment still is in place today and results in providers currently receiving about 4% more in payments than they would receive if the adjustment factor were not applied.
  • What does budget neutrality mean? Budget neutrality means that in a given year, estimated aggregate payments for Medicare hospice services using the updated hospital wage index values will equal estimated payments that would have been made for these services if the 1983 hospice wage index values had remained in effect, after adjusting the payment rates for inflation. In other words, the BNAF provided an increase in hospice rates each year. The impact in FY 1998 was an increase of approximately 2%. CMS reports that by FY 2008, the BNAF had increased so that rates were an average of 4% higher.
  • What does the proposed rule do? CMS is proposing a three-year phase-out of the BNAF beginning in FY 2009, effective Oct. 1, 2008. The proposed rule sets out the following schedule for the phase out:
    FY 2009: reduce the BNAF by 25%;
    FY 2010: reduce the BNAF by an additional 50%;
    FY 2011: complete elimination of the BNAF.
  • Summary of impact on hospice providers: NHPCO has analyzed the impact of the first year of the proposed rule on counties throughout the country. Final implementation of the phase in could produce dramatically worse impacts within the hospice community.

    In the first year of implementation:

    80.8% of counties would have their wage index decreased , and 3.4% of counties experiencing a decrease would have their wage index decreased by 5% or more;
    165 (5.1%) counties would have no change to their wage index;
    14.1% counties would have their wage index increased , including 1.9% of counties that would have their wage index increased by 5% or more.

Source: Excerpted with permission from National Hospice and Palliative Care Organization web site: www.nhpco.org/i4a/pages/index.cfm?pageid=5575. June 2008.

Problem in rural areas

The irony of CMS' calculation of the wage index is that rural counties receive a lower reimbursement than urban counties, points out Hahn. While the cost of living in a rural area may be less than in an urban area, the cost of providing hospice care is not significantly different, she says. "We are trying to hire the same employees that the local hospital is hiring, so our salaries and benefits have to be competitive," Hahn says.

In Pinellas County, FL, they've seen their wage index drop some amount every year for the past several years, says Anne Hochsprung, vice president of finance for The Hospice of the Florida Suncoast in Clearwater, FL. "As we've watched the wage index drop, we've also watched salaries in this area go up, which is a double-whammy for our budget," Hochsprung says. "We always have open positions on our staff, but we do use flextime or pool nurses to fill the gaps."

Hahn's hospice serves half of Kansas, a total of 22,000 square miles. "How do you make ends meet with rising travel costs, rising staff costs, rising supply costs, and a reduction in reimbursement?" she asks. The other problem is that although her hospice also receives reimbursement from the state Medicaid program and private insurers, these payers tend to mirror payment strategies of CMS, she says.

For this reason, Hahn encourages all hospices to review their contracts with other payers. "Make sure you know if reimbursement from other payers is tied to the Medicare rate of reimbursement," she suggests.