Hospice care aims to provide a health care alternative for people nearing the end of life by sparing them unwanted medical procedures and focusing on the patient’s comfort. A new study co-authored by MIT scholars shows hospice also has a clear fiscal benefit: It generates substantial savings for the U.S. Medicare system.
The study examines the growth of for-profit hospice providers, who receive reimbursements from Medicare, and evaluates the cost of caring for patients with Alzheimer’s disease and related dementias (ADRD). The research finds that for patients using for-profit hospice providers, there is about a $29,000 savings to Medicare over the first five years after someone is diagnosed with ADRD.
“Hospice is saving Medicare a lot of money,” says Jonathan Gruber, an MIT health care economist and co-author of a paper detailing the study’s findings. “Those are big numbers.”
In recent decades, hospice care has grown substantially. That growth has been accompanied by concerns that for-profit hospice organizations, in particular, might be overly aggressive in pursuing patients. There have also been instances of fraud by organizations in the field. And yet, the study shows that the overall dynamics of hospice are the intended ones: People are indeed receiving palliative-type care, based around comfort rather than elaborate medical procedures, at less cost.
“What we found is that hospice basically operates as advertised,” adds Gruber, the Ford Professor of Economics at MIT. “It does not extend lives on aggregate, and it does save money.”
The paper, “Dying or Lying? For-Profit Hospices and End of Life Care,” appears in the American Economic Review. The co-authors are Gruber, who is also head of MIT’s Department of Economics; David Howard, a professor at the Rollins School of Public Health at Emory University; Jetson Leder-Luis PhD ’20, an assistant professor at Boston University; and Theodore Caputi, a doctoral student in MIT’s Department of Economics.
Charting what more hospice access means
Hospice care in the U.S. dates to at least the 1970s. Patients opt out of their existing medical network and receive nursing care where they live, either at home or in care facilities. That care is oriented around reducing suffering and pain, rather than attempting to eliminate underlying causes. Generally, hospice patients are expected to have six months or less to live. Most Medicare funding goes to private contractors supplying medical care, and in the 1980s the federal government started using Medicare to reimburse the medical expenses from hospice as well.
While the number of nonprofit hospice providers in the U.S. has remained fairly consistent, the number of for-profit hospice organizations grew fivefold between 2000 and 2019. Medicare payments for hospice care are now about $20 billion annually, up from $2.5 billion in 1999. People diagnosed with ADRD now make up 38 percent of hospice patients.
Still, Gruber considers the topic of hospice care relatively under-covered by analysts. To conduct the study, the team examined over 10 million patients from 1999 through 2019. The researchers used the growth of for-profit hospice providers to compare the effects of being enrolled in non-profit hospice care, for-profit hospice care, or staying in the larger medical system.
That means the scholars were not only evaluating hospice patients; by evaluating the larger population in a given area where and when for-profit hospice firms opened their doors, they could see what difference greater access to hospice care made. For instance, having a new for-profit hospice open locally is associated with a roughly 2 percentage point increase in for-profit hospice admissions in following years.
“We’re able to use this methodology to [analyze] if these patients would otherwise have not gone to hospice or would have gone to a nonprofit hospice,” Gruber says.
The method also allows the scholars to estimate the substantial cost savings. And it shows that enrolling in hospice increased the five-year post-diagnosis mortality rate of ADRD patients by 8.6 percentage points, from a baseline of 66.6 percent. Entering into hospice care — which is a reversible decision — means foregoing life-extending surgeries, for instance, if people believe such procedures are no longer desirable for them.
Rethinking the cap
By providing care without more expensive medical procedures, it is understandable that hospice reduces overall medical costs. Still, given that Medicare reimburses hospice organizations, one ongoing policy concern is that hospice providers might aggressively recruit a larger percentage of patients who end up living longer than six additional months. In this way hospice providers might unduly boost their revenues and put more pressure on the Medicare budget.
To counteract this, Medicare rules include a roughly $29,205 cap on per-patient reimbursements, as of 2019. Most patients die relatively soon after entering hospice care; some will outlive the six-month expectation significantly. But hospice organizations cannot exceed that average.
However, the study also suggests the cap is a suboptimal approach. In 2018, 15.5 percent of hospice patients were being discharged from hospice care while still alive, due to the cap limiting hospice capacity. As the paper notes, “patients in hospices facing cap pressure are more likely to be discharged from hospice alive and experience higher mortality rates.”
As Gruber notes, the spending cap is partly a fraud-fighting tool. And yet the cap clearly has other, unintended consquences on patients and their medical choices, crowding some out of the hospice system.
“The cap may be throwing the baby out with the bathwater.” Gruber says. “The government has more focused tools to fight fraud. Using the cap for that is a blunt instrument.”
As long as people are informed about hospice and the medical trajectory it puts them on, then, hospice care appears to be providing a valued service at less expense than other approaches to end-of-life care.
“The holy grail in health care is things that improve quality and save money,” Gruber says. “And with hospice, there are surveys saying people like it. And it certainly saves money, and there’s no evidence it’s doing harm [to patients]. We talk about how we struggle to deal with health care costs in this country, so this seems like what we want.”
The research was supported in part by the National Institute on Aging of the National Institutes of Health.
