ANTHOLOGY

Is Hospice A Cost Effective Alternative To Medicaid Conventional Care?

JEFFRY NEWMAN AND JOSEPH PRINZINGER South Carolina Department of Health and Environmental Control

and Lynchburg College

In 1986, the Consol idated Omnibus Budget and Reconciliation Act included a provision allowing individual states to reimburse providers for hospice care under Medicaid provisions. Should the various state Medicaid programs adopt Health Care Financing Administration's (HCFA) offer to add hospice care as another line of services for their clients? Conventional wisdom claims that states should, since hospice care is a cost-effective alternative to hospital care for government sponsored terminally ill clients. But when there is a Diagnosis Related Groups (DRG) reimbursement system, does that conventional wisdom hold?

HCFA is responsible for sponsoring this Hospice Services Option (HSO) now avail- able to state Medicaid agencies. As with other Title XIX programs, any state institut- ing the HSO program will receive partial reimbursement from the federal government for costs incurred.

Previous studies to discover if hospice care was cost effective to the Medicaid program were completed for Georgia and Michigan. Although both studies found that hospice care was economical when compared to traditional care, neither study computed a statistical analysis. Since there is no statisti- cal verification of their reported cost differences, the results are unconvincing. Furthermore, state Medicaid agencies use various provider reimbursement methodolo- gies.

DRG's, by their very nature (HCFA requirements), pay less than charges. The significance of South Carolina is that it is one of the few Medicaid DRG states. The cost comparison for South Carolina between expenses of conventional care and hospice

care for terminally ill patients was conducted by a matched pair statistical analysis. Both a Wilcoxon Matched-pairs Signed-ranks and a t-test matched pairs comparison were done. The hospice group data were gathered through a survey in which 64 pereent of the applicable hospices replied. The conven- tional care Medicaid data were gathered using the Medicaid Management Informa- tion System.

The study showed that actual South Carolina experience in regard to compara- tive Medicaid costs indicates that hospice care would represent an average increase of $1,651 per hospice patient for the entire hospice stay (until death). This result is statistically significant at the 95 percent level. Note, this is not a comparison between conventional care charges and hospice care charges. Rather, it is a comparison between what South Carolina Medicaid under DRG's actually pays for conventional health care for the terminally ill and what would be paid to hospices under HCFA's Hospice Services Option.

This study found a statistically significant but slight increase in cost to the taxpayers of obtaining hospice services for the terminally ill Medicaid patient. Since Medicaid clients make the hospice choice on a voluntary basis, by definition, they are made better off. The problem faced by government policy makers in this case is a near-Pareto efficient question, that is, the difference between an unquantifiable but obvious increase in benefits to Medicaid terminally ill recipients who choose the hospice option and a quantifiable increase in cost to taxpayers. In South Carolina, that decision has not yet been made.

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