Rural Hospices Face Financial Challenges

by Candi Helseth

Lower patient volumes, along with higher costs of care in rural areas, make it more difficult for rural hospice programs to achieve economies of scale.

Madrone Hospice

As one of its fundraising efforts, sponsors who give $5,000 to Madrone Hospice are noted with an engraved tile on its Memorial & Recognition Wall.

Other issues compound those challenges. Medicare and other third-party payers reimburse rural programs at a lesser rate. Medical professionals who can staff hospices are in short supply in rural areas, and even volunteers can be difficult to find in small towns where populations have declined and most residents are elderly.

“Rural hospice programs are vulnerable,” said Michelle Casey, Senior Research Fellow and Deputy Director with the University of Minnesota Rural Health Research Center at Minneapolis. “The Medicare reimbursement is based on the hospice wage index, similar to the hospital wage index, and that tends to be lower in rural areas. So their per unit cost for providing care is higher. Medicare pays on a per diem basis. The theory is that you average out costs over the number of patients. But in rural areas, patient volumes can be very low. When you have a small number of patients, per patient costs are high. And hospices can’t refuse to continue caring for a patient when the per diem isn’t covering the cost. Even if you have a patient with extraordinarily high cost needs, you must continue to care for that patient until death.”

Per diem payments don’t take peripheral costs into account either, such as the rising price of gas and the fact that rural programs cover much greater distances in their service areas.

Yet, many hospices are successfully providing services by blending resources, sharing costs, and drawing on community support, Casey said. Sharing staff is a common practice to increase productivity and decrease cost. For instance, hospice staff may work in both urban and rural settings. Or rural settings may share staff in departments, such as hospice and home health. Fundraising efforts, as well as community and philanthropic support, are also essential to successful operations.

Rural Providers Build Relationships to Stay Viable

“If you look at the success of our program, it’s all about broad-based relationships with community, churches, senior providers, nonprofits and strong, supportive medical professionals,” Madrone Hospice Executive Director Audrey Flower said. “We provide hospice services to over 50 percent of all deaths in our county; that’s almost double the national average. We can do that because of our community support.”

Two thrift shops and a boutique, all operated by volunteers, enhance Madrone Hospice’s revenues. Flower said diversification into programs such as an adult day care center and palliative care program have also increased financial stability as well as their community connections.

Sharing staff and melding urban and rural areas works well for Hosparus – The Community Hospices of Louisville (KY), Southern Indiana and Central Kentucky. Originally, three separate programs that began operations in the late 1970s and early 1980s in Kentucky and Indiana, they continued to expand service areas throughout the 1990s, eventually covering a 23-county urban and rural area. They shared resources as the Alliance of Community Hospices & Palliative Care Services, changing the name this year to Hosparus Inc.

“We formed the alliance so the rural areas would have access to additional resources without necessarily having to absorb all the costs,” said Stephanie Smith, Hosparus senior communications manager.

Because hospice is primarily a 24-hour, home-based care service, staff must sometimes work irregular hours and be willing to travel long distances—often on poorly maintained and sometimes dangerous rural roads. Sharing staff between urban and rural areas helps spread out the load so staff members are less burdened.

Hosparus also relies on fundraising activities to strengthen its budget. For instance, the Southern Indiana program held its 8th annual Bar-B-Q Bash and 5th annual Charity Poker Run last month. Madrone encourages philanthropy through recognition programs. Donors giving anywhere from $200 to $1,000 are recognized with a tin, copper or gold leaf on Madrone’s Tree Sculpture. Gifts of $5,000 entitle donors to an engraved granite tile on the Memorial & Recognition Wall.

Volunteers are critical in keeping costs down and maintaining services, Flower said. Before Congress approved the Medicare Hospice Benefit in 1982, volunteer-based hospice programs relied primarily on community donations for funding.

“We could not meet our mission without volunteers,” Smith said. “We have 455 employees and 600 volunteers. In the rural areas, volunteers live in those areas and cover those rural counties.”

Volunteers have become even more important as the extended family structure has weakened in rural areas. Declining populations and younger people moving away for jobs in the cities is changing the fabric of rural America, said Dennis Dudley, an Aging Services Program Specialist in the San Francisco Office of the U.S. Department of Health and Human Services’ Administration on Aging.

Medicare Reimbursement Still a Big Issue

Madrone Hospice Tree Sculpture

Madrone Hospice also raises funds through its tree sculpture, where donors’ names are inscribed on tin, copper or gold leaves.

Medicare certification requires that all patients and families requesting services receive coverage if they meet the criteria, regardless of whether or not they are covered by Medicare or other insurers. While that’s good news for patients and families, it can further burden rural providers’ already stretched budgets.

Today, 92 percent of hospices are Medicare-certified and Medicare reimbursements account for 83 percent of their income, according to Jon Radulovic, vice president of communications with the National Hospice and Palliative Care Organization (NHPCO). In addition, because the Medicare benefits system serves as a condition of payment eligibility for Medicaid and many third party insurers, adjustments in Medicare’s system could result in reimbursement changes from other payers too. Last month the Centers for Medicare & Medicaid Services (CMS) announced it is planning to make changes in the Medicare hospice wage index. (For up-to-date information on these changes, see the CMS Hospice Center website).

“Rural hospice leaders seem to be in agreement that a look at the payment structure for the Medicare Hospice Benefit could be warranted,” Radulovic said.

Back to: Spring 2008 Issue