On Hospice Operations Under Medicare Reimbursement Policies
Management Science, Vol. 59, No. 5 (2013) pp. 1027-1044.
32 Pages Posted: 6 Jul 2012 Last revised: 31 Oct 2013
Date Written: June 9, 2012
This paper analyzes the United States Medicare hospice reimbursement policy. The existing policy consists of a daily payment for each patient under care with a global cap of revenues accrued during the Medicare year, which increases with each newly admitted patient. We investigate the hospice’s expected proﬁt and provide reasons for a spate of recent provider bankruptcies related to the reimbursement policy; recommendations to alleviate these problems are given. We also analyze a hospice’s incentives for patient management, ﬁnding several unintended consequences of the Medicare reimbursement policy. Speciﬁcally, a hospice may seek short-lived patients (such as cancer patients) over patients with longer expected length-of-stay and the eﬀort with which they seek-out, or recruit, such patients will vary during the year. Further, the eﬀort they apply to actively discharge patients whose condition has stabilized may also depend on the time of year. These phenomena are unintended and undesirable but are a direct consequence of the Medicare reimbursement policy. We propose an alternative reimbursement policy which ameliorates these shortcomings.
Keywords: healthcare, operations, hospices, Medicare, fluid model, optimization
JEL Classification: C61, H51, I18
Suggested Citation: Suggested Citation