In the financial landscape of hospice, understanding reimbursement models

Hospice providers face unique challenges when it comes to funding the delivery of end-of-life care. The hospice reimbursement model has not changed much over decades, however mounting pressure for value-based payment models and policy proposals such as the  Hospice CARE Act signal that changes may be on the horizon. As hospice utilization and financial pressures increase, understanding current and emerging reimbursement models is crucial for long-term sustainability and growth. Below are key pay structures, regulatory trends, and strategies for improving financial viability in the hospice space.

Hospice Utilization and Payment Trends

Awareness of hospice care continues to grow. According to the Medicare Payment Advisory Commission (MedPAC), over half of Medicare decedents now receive hospice services. Despite this, hospice length of stay remains short for many patients, with a substantial portion admitted during their last week of life, missing out on the full benefits of hospice.

Traditionally, hospices have operated under a per diem, fee-for-service model. While this model provides stable payments, it does not incentivize cost-effective outcomes or patient-centered care planning. Recognizing these limitations, the Centers for Medicare and Medicaid Services (CMS) aims to shift all Medicare beneficiaries into value-based care (VBC) arrangements by 2030. This evolution could significantly affect hospice reimbursement, requiring providers to think beyond traditional payment models and prepare for more complex performance-based structures.

Hospice Payer Mix

A hospice’s payer mix is one of its most important financial determinants. Currently, Medicare covers nearly 90 percent of all hospice days in the United States, making it by far the largest payer. Medicaid follows, playing an important role for dual-eligible patients and those in long-term care settings. However, state Medicaid programs can vary widely in their hospice reimbursement rates and eligibility criteria.

Private insurance and managed care organizations (MCOs) also cover hospice services, though their reimbursement levels are inconsistent across plans and regions. Negotiating contracts with these commercial payers can be complex due to variation in coverage, authorization requirements, and rates.

Hospice Pay Sources

Medicare Hospice Benefit

The Medicare Hospice Benefit makes up the majority of reimbursement for most hospices, and is structured around different levels of care, including Routine Home Care (RHC), General Inpatient Care (GIP), Continuous Home Care (CHC), and Respite Care. Hospices also receive Service Intensity Add-On (SIA) payments for RN and social work visits in the last seven days of life.

CMS updates reimbursement rates annually, adjusting for regional wage differences and inflation. To prevent overutilization, CMS limits the total annual Medicare payments per beneficiary and restricts how much GIP a provider can deliver.

Hospices face significant challenges meeting documentation and compliance requirements to receive Medicare payment (hospice software and other technologies can assist with this).  All the elements of a valid certification of terminal illness (CTI) must be present and plans of care updated frequently. Notices of Election (NOEs) must be submitted in 5 days and claim submissions must meet timeliness and sequential requirements. Reimbursement also hinges on the hospice’s ability to demonstrate evidence of decline and ongoing eligibility in each recertification period. Failing to meet any of these standards can result in denied claims, audits, or recoupment of payments, underscoring the need for strong documentation systems.

Medicaid Programs

State Medicaid hospice programs operate under federal guidelines but vary significantly in execution. Some states mirror Medicare’s structure, while others contract hospice through managed Medicaid plans. Medicaid may also cover services not covered by Medicare, such as long-term custodial care or extended room and board for hospice patients in skilled nursing facilities. Nursing home rate structures may differ, and states may require different Medicaid forms upon admission.

Commercial Insurers

Commercial payers represent a smaller source of hospice revenue. While some insurers replicate Medicare’s benefit structure, others impose different authorization rules, tiered payments, or network limitations. Rates can vary significantly, and some plans only pay for a subset of hospice services. Hospices should proactively negotiate contracts, emphasizing outcomes, length-of-stay metrics, and reduced hospitalization rates as part of the value proposition.

Self-Pay Patients

While self-pay accounts for a small portion of the overall payer mix, it presents unique challenges. Patients often pass away before billing can be completed, and collecting from family members post-mortem can raise both ethical and logistical concerns. As such, effective financial counseling during admission and clear communication with families are critical for minimizing bad debt.

Alternative Pay Sources

In addition to traditional reimbursement models, forward-looking hospices are exploring diversified revenue sources, including:

·         Accountable Care Organizations (ACOs). Hospices can participate as preferred partners in ACOs. Demonstrating value in the form of reduced total cost of care, particularly through reduced hospital utilization, allows hospices to contract with ACOs. ACO arrangements offer greater flexibility when negotiating payment structures.

·         Programs like GUIDE. CMS’s new GUIDE dementia care model introduces payment for caregiver navigation, care coordination, and respite services—potentially allowing hospices to play a role in upstream dementia support.

·         Philanthropy and Grants: For nonprofit hospices, foundation support and local grants can help cover care for those who qualify.

Financial Viability of Hospice

Under the prevailing model of fixed per diem payments, financial strength hinges on managing cost per day while maintaining compliance and quality. Key strategies include:

·         Optimizing Level of Care Mix. Maximizing GIP and CHC utilization where appropriate can increase average revenue per day but must be clinically justified and well-documented.

·         Length of Stay Management. Early and appropriate hospice admissions improve patient outcomes and allow providers to recoup the higher resource costs incurred at the time of admission.

·         Reducing Operational Waste. Gaining efficiencies in billing, scheduling, and documentation reduces labor costs and claim denials.

·         Prioritizing Clinical Education. Increasing clinical staff’s ability to recognize signs of eligibility and deterioration leads to better care planning and appropriate recertification. Hospices whose clinical teams understand the impact documentation has on reimbursement will be able to help minimize lost revenue.

Hospices must also prepare for VBC models by building infrastructure around quality reporting, risk stratification, and population health analytics.

The Take Away

As reimbursement for hospice care continues to evolve, providers must remain agile. The traditional Medicare-driven fee-for-service model still dominates, but diversification through emerging value-based partnerships will become critical for long-term success. Understanding the nuances of each reimbursement source—and aligning operational practices to maximize each—can ensure financial health to sustain the provision of valuable, end-of-life care.

Related blogs:

1. What are the key performance indicators for hospice agencies?
2. What are the top strategies to grow your hospice referrals?
3. What are the crucial skills for home health and hospice hiring?
4. Selecting the best caregiver for end-of-life care