Medicare Part D Plans Burdened by Hospice Payment Reform

Recent guidance and proposed rules for the Medicare hospice program will have a profound impact on plans providing Medicare Part D services.
Published Online: August 20, 2014
Stephen Altenburger, PharmD; Maureen Miller, MPH, BSN; and Wendy Weingart, MS, RPh
Background: In an effort to reform the current hospice payment system, CMS has taken steps to address its concerns through guidance and proposed rule making, focusing on proper determination and payment of drugs for beneficiaries during a hospice enrollment. That is, should the Part A hospice benefit or Part D pay for prescribed drugs obtained at a pharmacy?

Objectives: To outline the key Medicare Part D provisions of the CMS 2014 guidelines and the proposed new rules for the hospice program, and to describe the resultant impacts of these changes to Medicare Part D plans.

Description: Part D plans need to be aware of and prepare for changes to the process of handling drug claims for hospice beneficiaries as a result of the 2014 guidelines and the proposed rule for 2015 hospice payments.

Conclusions: Medicare Part D plans are being affected by new guidance and face additional administrative burdens if proposed rules are finalized, as CMS attempts to implement reforms and better determine payment responsibility for drugs used by hospice beneficiaries.

Am J Pharm Benefits. 2014;6(4):154-160
Recent guidance and proposed rule making by CMS for the Medicare hospice program will require changes for Medicare Part D plans.
  • Key provisions include implementing beneficiary-level point-of-sale edits, accepting and storing all received hospice indicators, working with new definitions for “terminal illness” and “related conditions,” working around defined timelines for hospice organizations to file notification of election and termination/revocation forms, and ability to communicate and coordinate with hospice programs when conducting drug reviews.
  • Part D plans will have increased administrative costs, additional responsibility, new risks, audit exposures, new operational procedures, and required system changes.
Through recent issuances, CMS has exhibited serious concern about the appropriate billing of services, including prescription drugs given to beneficiaries in hospice care. This is one part of the “beam of scrutiny” now focused on the Medicare hospice program because of coverage discrepancies that will have a significant impact on prescription drug plans (PDPs), Medicare Advantage plans offering prescription drug benefits (MAPDs), and prescription benefit management companies (PBMs) providing Part D services.


Hospice care is an interdisciplinary approach to providing end-of-life care for terminally ill individuals. Using a broad spectrum of professionals and other caregivers, the goal is to help these individuals to continue life with palliative care primarily in their homes, without the inconveniences and disruptions of a nonhospice inpatient environment. Although the concept of hospice care in the United States was introduced in 1963, Congress did not expand the scope of benefits under Medicare Part A to authorize coverage for hospice care until nearly 20 years later, in 1982.1 Since implementation of the hospice benefit, a greater percentage of individuals in hospicecare are dying in the comfort of their homes instead of in hospitals or other institutional care settings.2  By design, hospice coverage is an elective for those individuals with a life expectancy of 6 months or fewer if the terminal illness runs its normal course. By electing coverage, the beneficiary is deemed to have waived payments for certain other benefits, except in “exceptional and unusual” circumstances.1 In return, hospices are expected to cover all services, including drugs and biologics, that are used for the palliation and management of the terminal illness and related conditions.3 Payment for these services is reimbursed to hospices through a fixed, per day, per level of care payment structure (per diem payment). This fixed-payment system results in hospices being financially responsible for costs exceeding the payment amount, but able to profit from costs that are below the fixed payment amount. An aggregate cap exists to limit the total payments an individual hospice can receive in a fiscal year for all patients under its care. Hospices are responsible for reimbursing Medicare for any payments that exceed the aggregate cap. This fixed payment structure has been in place since 1983, with little change since that time.1

Need for Reform

The Affordable Care Act authorized the Secretary of Health and Human Services to collect additional data and information to revise payments for hospice care and for other purposes beginning no later than January 2011. Furthermore, it required the Secretary to use the data to implement changes to the payment system for hospice care no earlier than October 1, 2013.4

Consulting with hospice programs and the Medicare Payment Advisory Commission, and working with its hospice reform contractor, CMS analyzed potential hospice payment system vulnerabilities. Results thus far have identified utilization trends that cause concern about the viability of the Medicare hospice program. These include a 153% growth in hospice beneficiaries and a 421% growth in hospice expenditures between fiscal years 2000 and 2013. Also of concern is a 45% drop in the mean daily hospice drug costs per patient day between 2004 and 2012, a period that includes the start of the Medicare Part D drug benefit.1

One area of serious concern was the amount of nonhospice spending on prescription drugs for hospice beneficiaries. Analysis of data for calendar year (CY) 2012 showed more than $1.2 billion in nonhospice expenditures for hospice beneficiaries during a hospice enrollment (Table).1,5 

Digging deeper into CY 2012 Part D drug data, it is estimated that more than $108 million of the total Part D drug expenditures were for likely covered hospice drugs in the following categories: analgesics; antiemetics; drugs used to treat constipation; drugs related to chronic heart failure, chronic obstructive pulmonary disease, and other noninfectious respiratory conditions; and any other drug filled for a patient admitted with diagnosis of debility or adult failure to thrive. Of this gross amount, it is estimated that $86.6 million was paid for by Medicare, $13.6 million by beneficiaries, and $5.4 million by other payers.5

In a March 10, 2014, memo to Part D plan sponsors and hospice providers, CMS issued its final 2014 guidance regarding Part D payment for drugs for beneficiaries enrolled in hospice care.Numerous hospice and healthcare organizations opposed this guidance and gathered congressional support in an attempt to get CMS to immediately suspend it.6,7 Driven by concerns surrounding impacts to beneficiary access and operational challenges for hospice providers, Part D plans, PBMs, and pharmacies, CMS met with key industry stakeholders in late June 2014. As a result, CMS issued a memorandum in mid-July 2014 containing revised guidance that supersedes portions of the March guidance and restated guidance from March that remains in effect. Although the effective date of this new “blended guidance” is immediate, CMS expects plan sponsors to have it implemented by October 1, 2014.8 Key highlights of this blended guidance relate to payment responsibility, administrative procedures, the standardized hospice prior authorization form, network pharmacy involvement, and best available evidence.

Payment Responsibility

The guidance outlines in clear terms the respective drug payment responsibilities among “parties” and under what specific circumstances each party is responsible for the drug costs:

• Hospices are responsible when a drug is used for the palliation and/or management of the beneficiary’s terminal illness or related conditions.

• Part D is responsible when a drug is used for the treatment of a condition that is completely unrelated to the terminal illness or related conditions.

• Beneficiary is responsible (1) when hospice determines a drug is not reasonable and necessary for the palliation of pain and/or other symptom management, but the beneficiary still chooses to have the medication, and (2) when the beneficiary opts to use a nonformulary drug to manage the terminal illness or related condition without trying a hospice formulary alternative first.3,8

Administrative Procedures
After notification of a Medicare member’s hospice election, CMS strongly encourages Part D plans to implement point-of-sale, beneficiary-level prior authorizations on the following 4 categories of prescription drugs: analgesics, antiemetics, laxatives, and anxiolytics. Drugs within these 4 categories are typically used to treat common symptoms experienced by hospice beneficiaries during the end of life, regardless of the type of terminal illness. Therefore, these drugs would most often be expected to be covered under the hospice per diem, not the Part D prescription drug benefit.8 This is a change from earlier guidance, which encouraged prior authorizations on all drugs used by beneficiaries who have elected hospice.3

Additionally, plans are expected to communicate with hospices and prescribers to make appropriate determinations of payment and must have procedures in place to handle the following types of determinations3:

Prospective. Prior to a claim submission, hospice organizations may initiate communication with a Part D plan to provide documentation that satisfies the beneficiary-level prior authorization requirements.3 To avoid any negative impact on beneficiary access, CMS encourages hospices to initiate communication proactively with Part D plans.8

Concurrent. Originally, the guidance indicated that after submission of a claim, the prior authorization should be subject to Medicare Part D coverage determination requirements (including appeals) and should be processed accordingly by Part D plans.3 Although a coverage determination could still be initiated if circumstances warrant, CMS will now allow hospices to provide information—similar to the prospective method described above—after submission of a claim and before submission of a coverage determination to satisfy the beneficiary-level prior authorization requirements. Part D plans should accept this documentation without requiring the beneficiary, or other applicable parties, to request a coverage determination.8

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