A substantial share of health care cost is devoted to care near the end of life. Much of this care is essential, but some is wasteful. Intensive care for terminally ill patients is expensive and make room for a little benefits to patients who would rather have their last days spent outside of the hospital surrounded by people and places they love. In this segment, we'll discuss hospice care, the main way patients can avoid a medicalised death. Hospice care is supportive care to people in the final phase of a terminal illness, and focuses on comfort and quality of life, rather than cure. In order to receive hospice care, a patient must first give up curative care, and a doctor must certify that the patient has fewer than six months to live. The medical goal shifts from cure to support of the patients as they enter the final stages of their life. With the intention being, to make their final days comfortable and pain free. Generally, this type of care is governed by a philosophy of treating the whole person, wherein patients emotional, social, and spiritual needs are addressed in addition to their symptoms. Hospice care is generally delivered at home by a multidisciplinary team that includes physicians, therapists, and nurses as well as social workers and clergymen. Hospice also includes trained volunteers, who temporarily take over the patient's care to allow their family a break. Volunteers are an integral part of the hospice philosophy. Oftentimes hospice programs will match volunteers and patients with similar interests, so as to make the patients final days more enjoyable and engaging. Clearly, hospice is a complicated service delivered by a specially trained, interdisciplinary, patient and family centred team available around the clock. Now, let's talk about how we pay for hospice. In previous segments we discussed the shift to perspective payment models. This transition occurred in the mid 80s for hospitals and in the mid 90s for many post acute care outlets. But, not for hospice. Why is that? Perspective payment systems are designed to raise efficiency, enhance throughput, and cut length of stay. But for hospice, the idea is to improve the quality of life and extend it as much as possible. So it makes sense to pay for hospice on a per day basis. Consider the following claim, we have days on hospice on the x-axis and costs and revenue for hospice on the y-axis. We mark the first and last day on hospice. This window may describe a cancer patient who spend two or three weeks on hospice. The hospice agency receives a fixed rate for every day that the patient receives hospice care. Here is the cost of providing hospice. It is a U-shaped curve. The reality of hospice, is that the first few days and the last few days are the most expensive. The first are expensive because there is a lot of costs associated with the setup of the service by this multidisciplinary team. The final few days are expensive because the patient's condition deteriorates rapidly, and requires increased care, pain management, medicine, and general support. When comparing the costs and payment structures, we see that the hospice agency will lose money in the first few days and in the last few days, and make money in between. In other words, the longer people stay on hospice the more profitable it becomes. Hospice agencies can increase the time patients spend on hospice by actively recruiting patients earlier or by making an effort to extend their lives. But there is little a hospice agency can do on either one of these margin's. Patients and their families will explore curative options until they are convinced that there is nothing more that can be done. And the service itself is not really designed to delay or speed up the progression of death. So it turns out that the most important predictor of hospice duration has to do with selecting patients based on the type of disease they suffer from. Short lengths of stay on hospice are typical for diseases with precise prognosis and rapid decline at the end of life, such as cancer. For many cancer patients the hospice agency will struggle to recuperate their costs. In comparison, knowing the generative diseases such as dementia, parkinson's and Alzheimer's where there is a slower decline with due precision and prognosis result in long lengths of stay on hospice. The changing disease eligibility for hospice has made the industry more profitable over time. Hospice which was dominated by nonprofit agencies with very low profit margins has seen a massive entry by for profit agencies who target patients with dementia and Parkinson's, primarily by recruiting their patients at nursing homes as opposed to hospitals. Large multi agency, multi-state hospices are quickly becoming a key source of end of life care in the US. In response to these changes in the market, in 2015, Medicare replaced the daily flat payment schedule with a tiered payment one. The new schedule pays a higher daily rate for the first 60 days, and a lower daily rate for all days past this point. The tiered payment system provided a revenue boost in the first 60 days, and a revenue drop after that. Compared to the original payment system, the new system is less favorable for patients with long hospice stays which is represented by a net loss. While for shorter hospice days the new payment system is advantageous, as it produces a net gain. In replacing the flat premium rate, Medicare sought to align payments more closely with the agency's costs. This change in reimbursement has made shorter stays in hospice more profitable, while greatly reducing the profitability of long stays. The original payment structure created perverse incentives in recruiting patients, which was addressed by the new payment structure designed to enhance both fairness and efficiency. In the next segment, we will discuss vertical integration of hospitals, and post acute care providers.
