Metrics Matter: How Diagnosis Codes and Discharge Disposition Data Provide Insight Into Maximizing Hospice Profitability

Filed under White Papers & Case Studies
Originally published in Market Research Letter: December 2013

When it comes to maximizing profitability of Medicare hospice patients, the distribution of diagnosis codes and discharge disposition are key metrics for benchmarking and strategic planning. Our analysis indicates that length of stay varies significantly by diagnosis codes and by discharge disposition.

Considering most hospices get paid for patients based on a daily rate, the longer patients stay on hospice service, the more profitable they are. Additionally, upfront and back-end costs associated with each patient are spread over greater reimbursement as his or her length of stay increases. Maximizing length of stay is a balancing act, however, knowing that Medicare reimbursements require recertifications and cap out over time. In addition, under a likely new reimbursement system that will start sometime next year, days later in a patient’s stay in hospice will be paid at a lesser rate — on a declining scale basis — compared to early days in hospice. This will make these longer length-of-stay patients less profitable than they have been in the past.

More Non-Cancer Patients Are Using Hospice Today
Although hospice was a Medicare benefit that was conceived primarily for cancer patients, the rates of hospice usage among non-cancer patients continues to grow. In 2000, approximately 70% of all hospice patients had a cancer diagnosis. By 2008, that number had declined to 40%. Today, cancer patients represent just 30% of hospice patients. The reason for this shift? Hospices have sought non-cancer patients as a means of market growth.

The upside to this trend is that certain diagnosis codes, cancer in particular, tend to result in higher death rates and shorter lengths of stay. Conversely, many non-cancer patients are likely to have longer lengths of stay (days per discharge). Unfortunately, the downside is that certain non-cancer diagnosis codes are harder to predict in terms of disease progression than others, which thereby opens up hospices to potential red flags for auditors.

Metrics Matter
Source: 2011 Medicare Claims Data
Click to Enlarge.


Based on our analysis, we can conclude the following:

  • In many cases, patients who are discharged alive have a 3:1 ratio of average length of stay (days per discharge) versus patients who die. This gap is substantial and may be indicative of misjudgment in the initial hospice referral.
  • Respiratory, diabetes, and cardiac patients have longer lengths of stay and a higher rate discharged alive than most other patients, which indicates that these disease codes are harder to assess for hospice than others.
  • Alzheimer’s patients have, by far, the longest lengths of stay of any patient group. This clearly indicates that the disease progression of Alzheimer’s patients is hard to anticipate and — with 15% of total hospice discharges — could be a significant barrier to maximizing hospice profitability.
  • Cancer, kidney, and nervous diagnosis codes have shorter lengths of stay and higher rates of deceased discharges. These patients represent just 43% of the total hospice discharges, which means that more than half of the hospice market is not easily predicted in terms of length of stay and, therefore, potentially problematic from a recertification and hospice cap perspective.

At face value, improving profitability should seem like a straightforward process. As evidenced by the metrics above, however, diagnosis codes and discharge disposition play a significant and yet often unpredictable role.

Click here or call 215-657-7373 if you have questions about this metric and to learn more about the many ways Healthcare Market Resources’ data can help you determine the impact of industry trends on your agency.