6
Financial and Economic Issues in End-of-Life Care

To many people, reducing expenditures at the end of life seems an easy and readily justifiable way of cutting wasteful spending and free resources to ensure universal access to health care.… We must stop deluding ourselves.…

Ezekial Emanuel and Linda Emanuel, The Economics of Dying, 1994

The United States has experienced years of mounting concern about steep increases in health care spending and in the share of national resources devoted to health care. Between 1970 and 1994, personal health care spending grew from $63.8 billion to $831.7 billion (from $310.9 to $764.6 billion in 1992 dollars), and the percentage of the U.S. gross domestic product devoted to health care rose from 7.1 percent to 13.7 percent (Levit et al., 1996). Despite a recent slowdown in the rate of increase for health care spending, the stress on controlling or reducing health care costs remains intense.

Because spending on care at the end of life is so high and because much of it is financed by government programs, the cost of end-of-life care has attracted considerable attention. In the 1980s, analyses indicated that over one-fourth of Medicare expenditures in a year were accounted for by the 5 percent to 6 percent of beneficiaries in their last year of life. These figures prompted debate about whether such spending was excessive and whether advance directives, hospice care, and futility guidelines could be promoted to control costs as well as strengthen patient autonomy and improve care (Jecker and Schneiderman, 1992; Lundberg, 1992; Singer and Lowy, 1992; Fries et al., 1993; Murphy and Finucane, 1993). Analyses have cast doubt on expectations that these strategies might make a major contribution to containing health care costs (see, e.g., Emanuel and Emanuel, 1994; Teno, Lynn, Connors et al., 1997). More forceful policies, such as explicit age-based rationing, have also been discussed.

Financing of end-of-life care is also a concern for those who see incen-



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--> 6 Financial and Economic Issues in End-of-Life Care To many people, reducing expenditures at the end of life seems an easy and readily justifiable way of cutting wasteful spending and free resources to ensure universal access to health care.… We must stop deluding ourselves.… Ezekial Emanuel and Linda Emanuel, The Economics of Dying, 1994 The United States has experienced years of mounting concern about steep increases in health care spending and in the share of national resources devoted to health care. Between 1970 and 1994, personal health care spending grew from $63.8 billion to $831.7 billion (from $310.9 to $764.6 billion in 1992 dollars), and the percentage of the U.S. gross domestic product devoted to health care rose from 7.1 percent to 13.7 percent (Levit et al., 1996). Despite a recent slowdown in the rate of increase for health care spending, the stress on controlling or reducing health care costs remains intense. Because spending on care at the end of life is so high and because much of it is financed by government programs, the cost of end-of-life care has attracted considerable attention. In the 1980s, analyses indicated that over one-fourth of Medicare expenditures in a year were accounted for by the 5 percent to 6 percent of beneficiaries in their last year of life. These figures prompted debate about whether such spending was excessive and whether advance directives, hospice care, and futility guidelines could be promoted to control costs as well as strengthen patient autonomy and improve care (Jecker and Schneiderman, 1992; Lundberg, 1992; Singer and Lowy, 1992; Fries et al., 1993; Murphy and Finucane, 1993). Analyses have cast doubt on expectations that these strategies might make a major contribution to containing health care costs (see, e.g., Emanuel and Emanuel, 1994; Teno, Lynn, Connors et al., 1997). More forceful policies, such as explicit age-based rationing, have also been discussed. Financing of end-of-life care is also a concern for those who see incen-

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--> tives that in combination with cultural, legal, and other factors may impede excellent palliative care. As discussed in this chapter, financing mechanisms may encourage or discourage the use of beneficial services and may affect the mix of services, providers, and settings of care available to dying patients and their families. This chapter examines four major questions asked about the cost of care for those who die. First, who pays for care at the end of life? Second, what is spent on this care? Third, do financing mechanisms create impediments to good care? Fourth, how might costs for care at the end of life be reduced? Who Pays for Care at the End of Life? No comprehensive national statistics document in detail the sources of payment for care at the end of life. Nonetheless, it seems clear that dying is, in considerable measure, publicly funded. Because over 70 percent of those who die each year are elderly and covered by Medicare and because thirteen percent of Medicare beneficiaries are also covered by Medicaid, those two programs undoubtedly cover a large proportion of expenses for end-of-life care. In addition to elderly people, others of those who die (e.g., some AIDS patients) are seriously enough disabled or impoverished that they qualify for Medicare or Medicaid or both. Veterans and defense health programs also pay for some end-of-life care. Moreover, some people who die without insurance or other available financial resources—for example, many homicide victims and homeless adults—die in public hospitals. Notwithstanding Medicare's importance to its beneficiaries, the program does not cover all of their health care expenses. Data from the 1987 National Medical Care Expenditure Survey indicates that for those aged 65 or over who died in 1987, Medicare accounted for 48 percent of health expenditures during the last six months of life (52 percent for noninstitutionalized decedents and 39 percent for those in institutions) (calculated from Table 2 in Cohen, Carlson, et al., 1995). For all beneficiaries, in 1992, Medicare covered barely half (53 percent) of health care expenses with 14 percent, 10 percent, 20 percent, and 3 percent of expenses covered by Medicaid, private insurance, beneficiary out-of-pocket spending, and other sources respectively (Gornick et al., 1996).1 1   Coverage percentages range from zero for outpatient prescription drugs and 6 percent for nursing home care to 87 percent for inpatient hospital care. Disabled beneficiaries have more of their expenses covered by Medicaid and "other sources" (25 percent and 11 percent) than do aged beneficiaries (12 percent and 2 percent). For those who qualify for federal-state Medicaid, the program is an important source of payment for nursing home care. It pays about 47 percent of all nursing home bills, compared to Medicare's 8 percent (Levit et al., 1996). Patients and families cover most of the rest of the cost of nursing home care (42 percent for aged beneficiaries but 14 percent for disabled beneficiaries) (Gornick et al., 1996).

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--> For both decedents and survivors, Medicare coverage is particularly limited for long-term care, outpatient medications, and supportive services. For many, much of this care is either paid for out of pocket or provided by unpaid family members (Hing and Bloom, 1990; Pepper Commission, 1990). For example, although more than three-fourths of Medicare beneficiaries have some form of supplemental private insurance that is either self-purchased or provided by a former employer (PPRC, 1995), private insurance covers only 25 percent of prescription drug spending with almost 60 percent paid for out of pocket. Some dying patients qualify for the Medicare hospice benefit, which covers some prescription drugs and some non-medical services (e.g., light housekeeping assistance, respite care). Community programs supported by other federal, state, local, or private sources provide some nonmedical supportive services (e.g., delivery of meals, transportation) to older people and those with disabilities. Although over one-fourth of those who die each year are under 65, little information is available that describes how their care is financed. Some younger people who die are covered (directly or as dependents) by employer-sponsored health plans, and it seems reasonable to expect that this small group would (as in Medicare) account for a significant proportion of plan spending (IOM, 1993b). The liability of employer-sponsored plans for end-of-life care may, however, be limited when dying beneficiaries exceed maximum coverage limits or resign their jobs or when insured spouses resign or lose jobs as a result of absenteeism caused by their caregiving burdens.2 Thirty-seven states provide Medicaid benefits for hospice care, which is used primarily by impoverished, nonelderly patients who do not qualify for Medicare under the disability provisions. What is Spent for Care at the End of Life? Several points about spending on care at the end of life warrant emphasis. Because people who die generally have been very ill, many of these points should not be surprising. First, the small percentage of those who die each year accounts for a considerable percentage of total health care spend- 2   Federal law provides that those who leave jobs under certain circumstances may be able to extend their coverage, at their own expense, for 18 or, less often, 36 months (IOM, 1993b). Few aggregate data are available on the cause of departures from employer health plans, but most are probably related to job changes, changes in marital status, retirement, switches to a spouse's health plan, and similar factors. Data on employer coverage or payments for those who die are virtually nonexistent. This is not surprising in part because death is a relatively rare event in the employer-covered population and in part because linking information on decedents to health plan coverage—or disenrollment—is expensive, although advances in computing power and the development of massive national health databases could make it easier in the future.

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--> ing A 1984 article (Lubitz and Prihoda) attracted widespread interest when it reported that the 5.9 percent of elderly Medicare beneficiaries who were in their last year of life in 1978 accounted for 27.9 percent of total Medicare spending. Other analyses suggest similar patterns through the 1980s and also dating back to 1960, before the adoption of Medicare (Lubitz and Prihoda, 1984; Scitovsky, 1984; Riley et al., 1986; Gornick et al., 1993; Lubitz and Riley, 1993). A more recent analysis looked beyond the Medicare population using data from the 1987 National Medical Care Expenditure Survey (Cohen, Carlson et al., 1995). This analysis estimated that total health care expenditures during the last six months of life for the 2.1 million people who died in 1987 (approximately 0.9 percent of the population) amounted to $44.9 billion in 1992 dollars (approximately 7.5 percent of total personal health care expenditures). For those aged 65 or over, who died in 1987, this analysis found that spending during the last six months of life accounted for about 5.5 percent ($32.6 billion) of total spending.3 In this same age population, another study (Scitovsky, 1994) reported that 23 percent of survivors had no Medicare payments in 1988 compared with 3 percent of those who died. Second, as one extends the time analyzed from the year before death to several years before, the contrast between expenditures for survivors and decedents diminishes. In 1988 average Medicare payments for decedents ($13,300) were approximately 7 times those for survivors ($1,900) (Lubitz and Riley, 1993).4 In 1978, the decedent-to-survivor payment ratio was 6.2 in the last year of life but dropped to 2.3 for the second-to-last year (Lubitz and Prihoda, 1984). For those who were 65 in 1974 and died in 1989, Medicare payments over this 15-year period were about twice as high for those who died as for those who survived (Gornick et al., 1993; see also Roos et al., 1987). Third, the cause of death contributes to variations in expenditure levels and ratios for decedents and survivors both in the year of death and in the years before the final year (Riley and Lubitz, 1989; Scitovsky, 1994; Riley 3   This analysis indicated that 15.9 percent of Medicare spending for elderly beneficiaries in 1987 was accounted for by care in the last six months of life for those who died (Cohen, Carlson et al., 1995). The authors of this study point out that the equivalent (six months) figure for the 1988 (last year of life) data reported by Lubitz and Riley (1993) is about 21 percent (because about three-quarters of Medicare costs in the last year of life are incurred in the last six months). After noting that sampling error for their 1987 data could put the figure as high as 19.4 percent, the authors attribute their lower figure to differences in study years and estimation methods. 4   Very high-cost care does not appear to be common for Medicare beneficiaries who die. About 5 percent of decedents generated Medicare payments of $40,000 or more in 1988, although less than 1 percent of surviving beneficiaries generated such high payments (Scitovsky, 1994).

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--> et al., 1995). Some conditions, such as diabetes and renal failure, show relatively long periods of higher decedent-to-survivor payment ratios. In contrast, payments for cancer decedents were notably higher than for survivors just for the year of death and the year before (Scitovsky, 1994). Among cancer patients, a recent analysis found that total Medicare payments between the time of diagnosis and the time of death were highest for those dying of bladder cancer ($57,600) and lowest for those dying of lung cancer ($29,200) (Riley et al., 1995). The difference was accounted for primarily by the shorter survival times for the latter group of patients. Fourth, total Medicare payments per decedent drop as age at death increases; in contrast, expenditures increase with age for survivors (see Table 6.1). Some data, however, suggest that this pattern is less evident for accidents and heart attacks than for cancer, chronic obstructive pulmonary disease, and renal failure (Scitovsky, 1994). More generally, for Medicare beneficiaries who died between 1984 and 1991, higher levels of hospital charges (which cannot be equated with actual payments) were negatively associated with older age and a diagnosis of Alzheimer's disease and positively associated with being female, being on Medicaid, living in areas of higher population density, and having poor perceived health status (Culler et al., 1995).5 Fifth, lower Medicare spending for older decedents appears to be partly offset by higher Medicaid spending for those who are eligible for both Medicare and Medicaid (Temkin-Greener et al., 1992; see also Scitovsky, 1988). Also, a recent paper cites yet provisional, unpublished research at the U.S. Department of Health and Human Services as indicating "that nursing home costs rise with longevity, offsetting declining Medicare costs" (Scitovsky, 1996, p. 3). The reason for this pattern is suggested by data indicating that among those aged 65 to 74, about 17 percent of those who died had spent some time in a nursing home, but for those between ages 85 and 94, the figure was 60 percent (Kemper and Murtaugh, 1991). Sixth, although data are limited, analyses suggest that chronic and terminal illnesses have serious financial consequences for families (Bloom et al, 1985; Beck-Friis et al., 1991; Covinsky et al., 1994, 1996). These finan- 5   Also of interest is Scitovksy's analysis (1988) of sample data on decedents (mostly white and middle class) who received care from physicians at a large, multispecialty group practice. It indicated that total expenses (including expenses for care provided outside the group) were about 20 percent lower for those aged 80 or over compared to younger decedents. Expenses for hospital care were substantially lower, but payments for nursing home and home health were substantially higher for older decedents. For those aged 65 or over, total expenses did not vary by impairment status, but those who were totally impaired had substantially lower expenses for hospital care and higher expenses for nursing home care. High nursing home expenses were especially characteristic of those aged 80 and over who were totally impaired.

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--> TABLE 6.1 Medicare Payments Per Person-Year, According to Survival Status and Age, 1976 and 1988a   1976 1988 Age Decedents Survivors Decedents Survivors ≥65 $3,488 $492 $13,316 $1,924 65–69 4,271 401 15,436 1,455 70–74 4,046 472 15,778 1,845 75–79 3,670 560 14,902 2,176 80–84 3,238 608 10,208 2,465 ≥85 2,566 631 10,208 2,465 85–89 NAb NA 11,422 2,578 ≥90 NA NA 8,888 2,258 Ratio, 65–69 to ≥85 1.66 0.64 1.51 0.59 a Approximate relative standard errors for all estimates are less than 0.02. b NA=Not Available. SOURCE: Lubitz and Riley, 1993. cial consequences stem in part from out-of-pocket medical expenses but also from lower patient or family income that results from absenteeism, reduced working hours, or job loss related to illness or the demands of caring for an ill family member. Seventh and contrary to some popular thinking, the increase in overall personal health care spending is not explained by growing costs for end-of-life care. Rather, it is accounted for by population growth, general inflation in the economy, and additional medical inflation, although the contribution of each component has fluctuated widely (Levit et al., 1996). An analysis covering data for 1976, 1980, 1985, and 1988 (excluding Medicare beneficiaries enrolled in health maintenance organizations [HMOs]) revealed that the share of Medicare spending accounted for by those who died had not grown during this period (Lubitz and Riley, 1993). The authors concluded that "the same forces that have acted to increase overall Medicare expenditures have affected care for both decedents and survivors" (Lubitz and Riley, 1993, p. 1093; see Table 6.2). Moreover, another analysis has estimated that the impact on Medicare spending of increasing life expectancy is small (Lubitz et al., 1995).

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--> TABLE 6.2 Medicare Enrollment and Payments, According to Survival Status, in 1976, 1980, 1985, and 1988a   Year Variable 1976 1980 1985 1988 Enrollment All beneficiaries (millions) 23.4 25.2 27.2 29.1 Decedents Number (millions) 1.22 1.35 1.45 1.49 Percent 5.2 5.4 5.3 5.1 Payments Total (billions of dollars) 15.2 31.0 57.2 73.0 Percentage paid for decedents Unadjusted 28.2 30.6 26.9 27.2 Adjustedb 28.2 30.8 27.4 28.6 a Approximate relative standard errors are less than 0.004. b Adjusted to 1976 values for age, sex, and survival status. SOURCE: Lubitz and Riley, 1993. Do Financing Mechanisms Impede Good End-of-life Care? General Features of Insurance Plans That Might Affect End-of-Life Care The committee searched for research on the effects of insurance on care at the end of life. It found very little. For example, the Health Insurance Experiment funded by the federal government and undertaken by Rand researchers excluded people over age 62 (i.e., those more likely to die) (Newhouse et al. 1993). What information exists is largely limited to traditional fee-for-service arrangements and may not apply to managed care, which covers a small but increasing proportion of Medicare beneficiaries. Overall, considerable research indicates that the availability and type of health care insurance affect the use and provision of health care (see, e.g., Hadley, 1982; Lurie et al., 1984, 1986; Manning et al., 1987; Braveman et al., 1989; Hadley et al., 1991; IOM, 1993b; Newhouse et al., 1993). In part, these effects are intended and desired. For instance, health insurance eases the financial burden of illness and encourages people to get beneficial

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--> care that they might otherwise forego.6 Insurance, however, may also encourage the use of services of little value, thus raising costs without comparably increasing value. As described below, insurers and policymakers have devised a number of mechanisms to counter this utilization effect of insurance. Insurers have also devised responses to another problem—biased risk selection—that may have consequences for seriously ill people. Biased risk selection arises when insurance is voluntary or when people can choose among health plans with different features. Plans that disproportionately attract the sick will cost more than those that attract healthier people.7 One result of this adverse selection dynamic is that insurers may refuse or restrict coverage to those with existing medical problems or may charge them more. Medicare is virtually universal for Americans aged 65 and over, which limits selection problems. Nonetheless, many beneficiaries voluntarily purchase supplemental coverage, and others voluntarily enroll in certified managed care plans; both choices may generate problems related to adverse selection. A particular concern is that competitive health plans may find it more economically attractive to compete on the basis of risk selection (i.e., attracting the well and avoiding the sick, especially the really sick) than on the basis of providing high-quality, cost-effective care. Although insurance increases access to care, those without insurance do not necessarily go untreated, especially when they have acute or life-threatening problems (Hafner-Eaton, 1993). Emergency departments are forbidden by law from turning away critically ill people for lack of insurance or other financial resources. If an uninsured person is admitted for care and dies, the expenses incurred may be absorbed by the hospital (and, when possible, passed on indirectly to other payers) or covered by special public or charitable funds. If the person survives but is expected to remain seriously ill, efforts may be made to qualify the individual for public insurance or arrange a transfer to a public facility. 6   Historically, the earliest sickness insurance arrangements were not designed to cover medical care expenses but to help offset wage losses and funeral expenses (see IOM, 1993b, Chapter 2, for a brief history of the evolution of health insurance). As medical care and hospital services became more effective and expensive, attempts began to be made to insure hospital care. Attempts to cover inpatient physician services followed. 7   In most countries, the difficulties of private and voluntary health insurance have led to some kind of public insurance mandate. In the United States, several attempts since the early 1900s to establish national health insurance have been turned back. After World War II, a variety of factors encouraged a significant growth in the scope of private health insurance. Although perhaps half of those over age 65 had some form of insurance by the early 1960s, the difficulties faced by many older people in securing private health insurance eventually led to the adoption of Medicare.

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--> Just as being without insurance does not necessarily preclude care, participating in an insurance plan does not guarantee that the plan will pay for the specific services wanted, needed, or received by those the plan insures. Health plans vary in the services they cover, and even for covered services, other restrictions, such as requirements for prior approval of hospitalization, may apply (IOM, 1989). In addition to limiting costs, the objectives of such requirements may be to improve quality of care by reducing departures from those clinical practices associated with better outcomes, to reduce patient care for which risks exceed probable benefits, or to limit exposure to iatrogenic (care-induced) illness. Health plan restrictions that may particularly affect people with advanced illness come in many forms. These include limiting the scope or level of benefits to restrict costs and encourage economical choices by consumers. Some services may be excluded altogether; for example, Medicare excludes payment for most outpatient prescription medications. In addition, plans may require patients to pay part of the cost of a service (in the form of deductibles, copayments, or coinsurance), cover a limited number of visits or days of care, or set a cap on the dollar amount of payments for selected or all services during a defined time period. Some plans (including Medicare) set no upper limit on beneficiary liability for cost-sharing. creating financial incentives for practitioners and providers to provide less care. Plans may establish a fixed payment per day, per case, or per capita regardless of the amount of service rendered. Some health plans are paid by employers, governments, or others on a capitated (per member per month) basis, but they may pay practitioners and providers on a fee-for-service, per case, or other basis, or they may combine partial capitation with other payments. requiring that patient services be authorized in advance. Many health plans insist that special personnel review hospital admissions, medical procedures, and certain other services. They may also require that a designated primary care physician authorize referrals to specialists. creating protocols or other tools to govern care. Plans may adopt written statements that define what services are to be provided for particular medical problems, what medications are covered (e.g., formularies), and otherwise direct care to varying degrees. establishing productivity standards or appointment schedules. Such schedules may limit the time physicians can spend in evaluating patients, identifying problems and concerns (such as depression or persistent pain), and discussing care options. covering services only if provided by designated physicians and other health care providers or applying higher cost sharing requirements if

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--> patients use physicians outside the plan network. Patients may be covered only if they use providers that have contracts with or are employed by the health plan or if they obtain explicit authorization—and pay more—for the use of out-of-plan care. limiting the number, type, and geographic distribution of designated providers of specialized services. Depending on the characteristics of the provider network, patients may find specialist expertise unavailable for some problems, appointments hard to get, or travel requirements difficult. The label managed care is often applied to health plans that employ one or more of the last six strategies listed above, although some use more restrictive definitions that focus on one strategy (e.g., financial incentives) or a specific combination of strategies. This report follows the less restrictive usage. In any case, the report's major concern is not with organizational labels but with specific incentives and actions that may particularly affect those with advanced illness. Chapter 4 has already considered some of the concerns about incentives used by managed care plans, which cover approximately 1 Medicare beneficiary in 10 (with some states having considerably higher proportions). Financing Issues by Type of Service Although care at the end of life is often associated with hospice services, this report has pointed out that only a small percentage of Medicare beneficiaries qualify for hospice benefits. Despite a general shift of care from hospitals to homes for both financial reasons and personal preferences, most older individuals still die in institutional settings, especially hospitals. Hospitals also play a major role in caring for incurably ill people who subsequently die elsewhere. Thus, the following discussion first considers hospitals, then nursing homes, hospice, and home care. The emphasis here is on the traditional, fee-for-service Medicare program and the possible effects of its financing provisions on care at the end of life. A later section considers Medicare managed care. To repeat a familiar theme, the effect of financing mechanisms on end-of-life care in different settings has been little examined. Hospital Services From the perspective of this report, major concerns about Medicare's hospital payment policies are that they may encourage premature patient discharge and discourage appropriate inpatient palliative services. Since the early 1980s, Medicare, which is administered by the Health Care Financing Administration (HCFA), has used a prospective payment scheme that pays

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--> for most hospital stays on a prospectively determined, diagnosis-related basis.8 In general, the scheme assumes that hospitals will get a mix of patients in each diagnosis-related category or group (DRG), some of whom will cost more than the DRG rate and some less. The differences, it is assumed, will average out over all patients. If hospitals spend less than the DRG payment, they keep the difference. They are not, in general, compensated more if they spend more unless a patient reaches the defined outlier (very high cost) category. Although other factors are also at work (e.g., pressure from private payers and employers), the structuring of the prospective payment program is generally credited with reducing hospital stays without an offsetting increase in hospital admissions. Because Medicare provides less generous coverage for much nonhospital care, shorter hospital stays may increase the financial burden on patients and families, especially for prescription drugs. Further, because dying patients are among the sickest of Medicare patients, the physical, emotional, and financial burdens of severely shortened lengths of stay may fall heavily on this group. One particular concern has been that prospective payment might encourage hospitals to control costs by cutting quality and limiting beneficial care, including palliative services. Early analyses suggested that Medicare beneficiaries were indeed being discharged "quicker and sicker" and in more unstable condition, but no effects on 30-day or 6-month mortality could be readily identified (ProPAC, 1989; Kahn et al., 1990; Kosecoff et al., 1990; Rubenstein et al., 1990). Although these initial findings were reassuring, mortality is not the only issue. Premature discharge may cause physical and emotional distress for patients and families, for example, if patients are discharged more quickly than appropriate home palliative care can be organized. In addition, some dying patients may be difficult to manage outside the hospital, even with intensive palliative services. For example, some patients experience pain that can only be relieved with radiation or other therapies available in hospitals. Not only may hospitals be discouraged from treating such patients, hospice coverage for inpatient care—whatever their justification—is very limited.9 8   In addition to taking diagnosis into account, the assignment of a DRG to a particular patient may reflect other characteristics of a patient or a patient's care, such as age, operating room procedures, secondary diagnoses, or—rarely—costs so high that the case qualifies as an outlier. Hospital payments are also affected by their case mix and other factors. 9   In addition, the American Academy of Hospice Physicians (Byock, 1996, p. 6) testified to the committee that "current diagnosis and treatment coding often leads to a charade in which tests are ordered and treatments begun to secure financial coverage for basic care to continue in the patient's preferred setting. This usually occurs in the hospital where the DRG for the patient's diagnosis has been exceeded, but it also applies to maintenance of skilled nursing visits at home for patients who are debilitated but not in acute crisis." As was true for many other concerns, the committee did not locate empirical data to support or contradict this claim.

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--> "game" or manipulate a system that conditioned coverage on signing advance directives by later revoking the directives (assuming that such directives would continue to be revocable). As Callahan has pointed out, "advance directives were designed to assure the private good, not the public … to give patients a safeguard against being overpowered by overzealous physicians or institutions" (Callahan, 1996). Consumer Choice Strategies A market-oriented strategy to reduce health care spending proposes that those who wish aggressive but marginally beneficial treatments (or, in some versions, aggressive beneficial care) should be allowed that option but only if they absorb some of the additional costs that such a choice might entail (Eddy, 1991a; Havighurst, 1992, 1995). People could contract for a different "intensity" or "quality" or "extensiveness" of coverage as provided in different health plan options. The differences might be set forth in alternative clinical protocols for specific health care problems. Thus, one person might choose a health benefits package that covered only palliative services for persons with prostate cancer of a certain stage and prognosis, whereas another person might choose (and pay more for) a package that also would pay for curative or life-extending care under the same circumstances. It may be unrealistic to expect people—particularly those not immediately concerned about life-threatening illness—to analyze and understand how health plans differ in their protocols for caring for myriad different illnesses and combinations of medical problems (IOM, 1993b). Nonetheless, with the support of clinicians and others, people might be helped to understand a choice—similar to that involved in electing hospice care—between an option that allowed for aggressive, curative or life-extending care for conditions with a poor prognosis and an option that provided for palliative services appropriate to the person's disease stage and prognosis. Medicare Managed Care Managed care strategies have the potential to reduce costs for end-of-life care in much the same way that they appear to reduce costs for healthier populations, in particular, by reducing the use of inpatient hospital services. For example, patients admitted to the hospital but determined to be likely to die within a few days may be discharged to die elsewhere if they do not meet the criteria for acute inpatient care. The overall impact of such strategies on the cost and quality of care would vary depending on the regard given to the wishes of patients approaching death and the alternative care available (e.g., hospice, nursing home, home health care). Alternative care

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--> will offset some of the savings from avoided hospitalization unless it also prevents rehospitalization or is provided on an unpaid basis. As discussed in Chapter 4, the proportion of Medicare beneficiaries enrolled in HMOs is small, although much higher in a few states and growing nationwide. Although research examining patients who die is very limited, the results are consistent with other research that raises concerns about hospital discharge and home care policies and practices as they affect the frail elderly, the chronically ill, and other vulnerable groups. The point is not that managed care organizations cannot provide good care for terminally ill patients but that financial incentives may tempt some to avoid enrolling the ill people or to behave in ways that compromise the quality of care for those with life-threatening illnesses. Speaking generally of the chronically ill, Jones has argued that market dynamics argue "for investing less, at the margin, in improvements or plan features that increase value to the chronically ill" (Jones, 1996b, p. 4). He identifies strategies that plans might use to discourage enrollment by the chronically ill. These range from using advertising images that suggest that the plan is for healthy not ill people to "keeping the numbers and availability of specific types of health professionals, clinic facilities, and other resources that attract the chronically ill to a minimum, thus ensuring long waiting times" (Jones, 1996b, p. 4). Governments, accrediting bodies, and other standard-setting organizations can attempt to devise standards that minimize these strategies. Unless, however, the financial incentives for capitated plans to avoid the chronically ill are changed, avoidance strategies can be expected to continue. What can be done to change incentives? One approach is to devise a scheme for paying health plans that adjusts capitation payments to compensate them properly for the risk they assume in enrolling sicker people but that also avoids overpaying for healthy enrollees. Despite some success in improving methods for risk-adjusting payments, no method yet appears equal to the challenge (Newhouse et al., 1989; IOM, 1993b; Newhouse, 1994; Ellis et al., 1996; Gruenberg et al., 1996; Jones, 1996b). As far as the committee is aware, no special attention has been paid to the question of adjustments for those who die, and methods usually either use full-year participants only or annualize adjustments. Any explicit adjustment in rates to account for deaths could raise policy and political questions if it appeared to pay plans more if their members died. Current proposals to cut the Medicare capitation payment to HMOs across-the-board rather than to risk-adjust payments would, if anything, intensify the incentives to avoid people with serious health problems. Another approach relies on performance measurement and reporting schemes that would identify, publicize, and discourage poor performance and that also would identify apparently good performance that was mainly

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--> a function of having a relatively healthy group of enrollees. Issues in measuring the quality of care have been discussed in Chapter 5. Given the difficulties that existing schemes are having in devising feasible and informative measures for a modest array of relatively common health problems, collecting sufficiently sensitive process and outcomes measures for the most vulnerable patients appears to be a distant although desirable prospect. Moreover, the strategy would not be successful unless the negative effects of being identified as a poor performer were strong enough to overcome financial disincentives to being identified as a good plan for chronically ill people (and thereby disproportionately attracting them). A third approach to encourage health plan interest in sicker people is to devise special payment strategies for people with serious chronic illnesses or for patients with life-threatening illnesses who do not fit the hospice model (Jones, 1996b; Lynn, 1996b). Jones has discussed how Medicare, Medicaid, and very large employers might develop competitive care arrangements for people with specific chronic illnesses that would balance cost, quality, and access objectives in relation to the special needs of these patients (Jones, 1996b). He argues that Medicare could take the lead in experimenting with such options. For terminally or seriously ill Medicare patients who do not fit the current hospice model, Lynn has suggested the creation of coverage that would favor lower-technology supportive care provided by multidisciplinary teams (Lynn, 1996b). The thrust of this proposal is, however, not to save money but to make supportive care more available without increasing costs. Nonetheless, a test of such an option (or two or three variants that might be expected to have different cost effects) might indicate the extent to which such a strategy might affect overall costs and the extent to which it was accepted by patients, families, and practitioners. The generalizability of findings from such a test would need careful attention. Of some interest in this regard, Medicare is considering tests of special capitation payment arrangements for patients with end-stage renal disease (Farley et al., 1996). Researchers assessing strategies for establishing such payments conclude that more work remains to be done on several design and technical issues before such arrangements are feasible. They also note that enrollee protection policies (e.g., quality assurance programs, grievance and appeal procedures) are particularly important for chronically ill Medicare beneficiaries who "may be especially vulnerable to reductions in access or quality resulting from cost cutting actions by plans" (Farley et al., 1996, p. 141). Futility Guidelines Futility has been defined in a number of ways (Veatch and Spicer, 1992; Halevy and Brody, 1996). Miles, for example, has suggested that it

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--> be viewed as "a medical conclusion that a therapy is of no value to a patient and should not be prescribed" (Miles, 1992, p. 310). Such conclusions might best be applied through professionally developed guidelines that focused on therapies that "a vast majority of people would not accept for themselves" (Miles, 1992, p. 313). Another view, which also argues for professional guidelines and for qualitative definitions of futility, suggests that futility might be viewed in probabilistic terms as a point on a continuum where the probability of benefit is very low, perhaps 1 in 100 (Schneiderman, 1994). Others have suggested community-based guidelines, such as those developed in Denver and Sacramento (Murphy and Barbour, 1994; see also Appendix C). Expectations that "futility" guidelines would produce large cost savings should be restrained. Based on their analyses of data on a large group of seriously ill hospitalized patients, Teno and colleagues found that guidelines limiting treatment for patients with only a 1 percent or less chance of surviving 2 months would have saved about 13 percent of hospital charges for these patients (Teno, Murphy et al., 1994). They emphasized, however, that most of these savings came from 12 patients, 6 of whom were under age 51 and probably would not be very likely targets for aggressive care-limiting guidelines. They also found that 90 percent of all patients with this poor prognosis died within a week and that about a third died after life-sustaining treatments were withdrawn. The authors interpreted this as indicating that "some limits on aggressive treatment are already in place" (p. 1206). In a smaller study of pediatric intensive care unit (PICU) patients and a definition of futility that was deliberately broad for analytical purposes, Sachdeva et al. (1996) found a very small number of futile care days in the PICU and thus a small potential for savings based on limiting care. Rationing Rationing is another term with varied meanings (see, e.g., Aaron and Schwartz, 1984; Mechanic, 1985; Brook and Lohr, 1986; Reagan, 1988; Grumet, 1989; Morreim, 1989; Englehardt, 1991; Hadorn and Brook, 1991; Wiener, 1991; Hall, 1994). One traditional view sees rationing as the fair allocation of a specific limited resource (e.g., food during famine, organs for transplant). A more expansive definition includes limiting consumption of a potentially beneficial good or service by various explicit or implicit means (e.g., ability to pay, inconvenience, queuing, limits on technological innovation). Both these concepts of rationing exclude strategies for eliminating clearly inappropriate or harmful care and, instead, focus on care that may have some but not "enough" benefit to warrant coverage. Determinations about what constitutes enough benefit or what constitutes essential—not just beneficial—care are partly subjective and partly

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--> scientific questions (Brook and Lohr, 1986; Eddy, 1996). One problem is that the evidence base for such determinations is very limited. Although it will continue to expand, evidence will still be unlikely to provide a firm foundation for treatment decisions about many specific combinations of patient circumstances (e.g., an 80-year-old man with mild dementia and congestive heart failure) (see, e.g., IOM, 1992). This is not an argument against evidence-based decisionmaking, only a caution that expectations should probably be modest. Rationing of potentially beneficial services already exists—at least implicitly—in forms such as patient cost sharing, administrative mechanisms that limit access to services or providers, and various provider payment mechanisms. Although implicit rationing mechanisms have prompted varying amounts of criticism, more controversial are various options or proposals for the explicit rationing of potentially beneficial services (see, e.g., Brook and Lohr, 1986; Veatch, 1986; Morreim, 1989; Aaron and Schwartz, 1990; Daniels, 1994; Hall, 1994; Callahan, 1995). These proposals are more complex than such traditional devices as the exclusion from insurance plans of certain classes of services (e.g., long-term care) or conditions (e.g., preexisting medical problems). Such exclusions, which have been subject to continuing legislative attack, have been justified less on grounds of resource allocation than on grounds that the dynamics of a voluntary insurance market demanded them (IOM, 1993b). The discussion below focuses on proposals to ration on the basis of age or community consensus. Age-Based Rationing Age is one possible basis for rationing health services (see, generally, Callahan, 1987; Smeeding, 1987; Daniels, 1988; Binstock and Post, 1991; Winslow and Walters, 1992; Jecker and Schneiderman, 1994; Joint International Research Group, 1994; Callahan, 1996). For example, if you were over a specified age, open-heart surgery and similar life-prolonging interventions would not be offered or covered. (In the United States, it is probable that such interventions would still be provided for people financially able and willing to pay for them on their own.) A softer but more complex variant would be to set different limits for different age groups, perhaps covering life-prolonging treatments for those under age 85 who were conscious and had good cognitive functioning. A less explicit approach to age-based rationing—along the lines suggested in Box 6.1—is also possible. Such an approach might be most extensively employed with the very old and also with others having a very grave prognosis. Savings from age-based rationing have been questioned, particularly if restrictions were largely limited to the very old. Some researchers have

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--> BOX 6.1 Implicit Age-Related Limitation of Care Mr. Jones is 88, has chronic obstructive pulmonary disease and a 35 percent chance of living two months. In previous discussions about his preferences for care, he indicated that he wanted life-prolonging care. He developed severe respiratory problems and lost consciousness. His life might be slightly prolonged by aggressive treatment. Instead of explaining to his family the medical options and their likely outcome and expecting them to make the decision, Mr. Jones' physician gently describes how grave the situation is and says, "we will make him as comfortable as possible but we think he will probably die very soon." A choice of aggressive therapy is not offered. A family request for such treatment could still be accepted, but most will not consider this option. pointed to evidence suggesting that the older old may already get less intensive care than younger people with equivalent health or functional status (Scitovsky, 1988; Farrow et al., 1996; Hamel et al., 1996). Scitovsky has concluded that "high-cost medical services may already be allocated to older people in their last year of life in a more rational manner than is generally assumed, with their age and functional status taken into account" (Scitovsky, 1988, p. 656). That is, the care actually provided is not "highly technical" or "center[ed] around often inappropriate cure-oriented services provided in hospitals" (Temkin-Greener, 1992, p. 699). Without much more detailed data and analysis, it is not possible to determine the basis of apparent age-conditioned treatment intensity. It could be associated with overtreatment of younger persons or undertreatment of older persons or both. The committee believes that public debate over age-based rationing has not really begun and may not be joined directly until the baby boom generation gets nearer the age—about the mid-fifties—when medical problems and costs begin to rise significantly. Such a debate could involve a constructive or destructive consideration of issues of justice, biological uncertainty, and potential benefits and burdens of treatments at different points in the life span. Rationing Based on Community Consensus A variant on rationing strategies combines evidence and clinical judgment with a public process for debating and weighing priorities. The best known example of such an approach, the so-called Oregon plan, is worth special attention because it has actually moved from the realm of theory to

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--> action and because it explicitly recognized the value of palliative care. The plan was envisioned as an "ongoing process to achieve consensus on our policy goals and the principles that will guide our health policy and as a framework in which resource allocation and reallocation can take place" (Gibson, 1993, p. 57; see also Fox and Leichter, 1991). Those involved in crafting the plan anticipated a near universal access to health insurance within the state, which would mute concerns about economic inequities. A central element of the plan was a ranked list of health services on the basis of clinical effectiveness and social value. Services would be covered in rank order as far as revenues and judgments about budget priorities allowed. The ranking effort involved both experts and the community (e.g., through surveys and town meetings), clinical and economic data, and evidence and values (e.g., a subjective review of the ranked list by officials). The priority-setting scheme explicitly dealt with several kinds of services involving life-threatening conditions and terminal illness. It considered essential coverage to include acute, potentially fatal conditions for which treatment could be expected to prevent death and offer full recovery (e.g., appendectomy for acute appendicitis) or to prevent death without a clear prospect of full recovery (e.g., treatment for strokes and serious burns). Essential services also included care for chronic incurable conditions for which treatment could be expected to improve life span and quality of life (e.g., treatment for diabetes and comfort care such as pain management and hospice care) (Cotton, 1992). The next highest priority of the Oregon plan included important services involving mostly nonfatal conditions. The lowest-ranking group included "fatal or nonfatal conditions of which treatment causes minimal or no improvement in quality of life, such as severe brain injury, aggressive treatment for extremely premature infants, and end stages of cancer" (Cotton, 1992). Criticisms of the Oregon plan have involved a mix of technical, political, financial, and ethical arguments (Brown, 1991; Daniels, 1991; Eddy, 1991b; Grannemann, 1991; Cotton, 1992; Hadorn, 1992; Menzel, 1992; Azevedo, 1993; Hansson et al., 1994; Kaplan, 1994; Firshein, 1996). One criticism of this approach has been that it does not allow for differences among patients in the same diagnosis/treatment category. That is, even with over 600 categories, some patients fitting a high ranking diagnosis/treatment category may have characteristics that make them unlikely to benefit from a usually beneficial treatment whereas some patients in a low ranking category might have characteristics that give them a good chance of benefiting from a usually less effective treatment. Thus, even if evidence exists about differences in benefit based on differences in patient characteristics, the ranking scheme would not accommodate it. In addition, the analytical strategy has been criticized for potentially discriminating against those with disabilities, and concern about such discrimination was a major factor in

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--> the federal government's initial cool reaction to Oregon's request for a Medicaid waiver for the project (Menzel, 1992; Campbell, 1993). Instead of operating on a statewide or community basis, a rationing scheme could, in principle, operate on a health plan basis with representatives of health plan members setting priorities (Medica Foundation, 1994, 1996). Such a strategy could involve hundreds of individual priority-setting exercises for different health plans. In addition to raising some of the same concerns as other rationing schemes, such an approach appears vulnerable to the same charges of over complexity and limits on consumer understanding that were raised for the consumer choices strategies described above. Conclusion Care at the end of life appears to be, in large measure, financed by public programs, especially Medicare. Although explicit comparisons are not available, trend data on Medicare expenditures suggest that care at the end of life has not become disproportionately more expensive and technologically intensive than other care in recent decades, although it is clear that a considerable part of Medicare spending is accounted for by those who die. Data also indicate that Medicare spending at the end of life drops with increasing age of decedents, a drop that is partially offset by increased Medicaid spending for less technologically intensive nursing home care. Except for hospice, few studies have examined the impact of Medicare or other financing practices on care at the end of life. The committee found reason to be concerned about the possible effect of several features of both the traditional Medicare program and its managed care alternatives. The committee believes it is important to know more about the patterns and the impact on dying patients and their families of early hospital discharge, including the impact on total costs, extent of readmissions, smoothness of transition to home care (with or without hospice benefits), management of symptoms, quality of life, and family burden. The information gained from the test of the Medicare palliative care code should be helpful in evaluating the nature of hospital palliative care and its cost compared with alternatives. Several areas of physician payment also warrant investigation. They include the fit between different patient evaluation and management codes and the time and effort required to provide palliative services in different settings. The adequacy of payment levels for nursing home and home health visits is of particular concern to the committee. The committee is also concerned that Medicare's fee-for-service program has financial incentives that do not encourage continuity of care, interdisciplinary care, or supportive care for a broad range of dying patients. Medicare's hospice benefit might seem to overcome these difficulties,

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--> and indeed, its per diem payment, coordination with Part B physician services and with capitated managed care, and required interdisciplinary care team are illuminating and auspicious components. Hospice programs, however, cannot regularly take on care of persons without homes, family caregivers, or predictable fatal illnesses. Likewise, persons who still should receive costly drugs or supports, such as respirators or intensive care, often cannot be enrolled in hospice, and such treatments are not likely to be made more available within the hospice program. Proposals to test new ways of financing care for those with serious chronic illness warrant serious attention. Not only is this desirable as a way of responding to the problems faced by people with less predictable prognoses but it also responds to concerns about the incentives of Medicare's current method of capitating HMOs. Seriously chronically ill persons cost much more than the Medicare capitated payment, which discourages plans from attracting such patients by developing a reputation for excellence in their care. The financing mechanism acts counter to quality. Without the testing of alternative financing strategies by the HCFA, state Medicaid programs, and health plans, it is not clear how problems with both managed care and FFS financing can be resolved. Addendum Medicare coverage and payment provisions are complicated by the division of the program into two parts involving different services, payment methods, and beneficiary cost sharing provisions (HCFA, 1995). Medicare Part A covers mostly inpatient hospital care with limited coverage for nursing home, home health agency, and hospice care. Part B covers physician services, limited services by other professionals (e.g., chiropractors and dentists), hospital outpatient services, freestanding ambulatory surgery, physical therapy, durable medical equipment, and some other services or supplies. Beneficiaries share in the cost of their care, with the specifics varying by type of service and other conditions. For example, for 1997, the Part A hospital deductible was $760. Medicare does not cover outpatient prescription or nonprescription drugs, long-term (nonacute) care, and most routine preventive services; it covers a very limited amount of behavioral health care. About 13 percent of Medicare beneficiaries—the dually eligible—are also covered by Medicaid. Payments of intermediate care and nursing facility care account for about one-third of all Medicaid spending. Medicaid covers required patient cost sharing for Medicare covered services for those who meet means testing criteria.

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--> Major Features of Medicare Hospice Benefit Eligibility General conditions: A person must be entitled to Medicare Part A benefits and certified to have a terminal illness (defined by statute as having a life expectancy of six months or less if the illness runs its normal course). Election and waiver statement: A person must sign a statement electing the hospice benefit and waiving the right to standard Medicare benefits for curative treatments for (or related to) the terminal condition. Election periods: A person starts with an election period for hospice care of 90 days. Subsequent elections may be for 90, then 30 days, and finally for an indefinite period. Revoking the benefit: If a person revokes his or her election, benefits for the election period in question are forfeited. Benefits may be reelected for the next election category, except that a person who is in the indefinite election category forfeits any further coverage for hospice care. Coverage General: Services are covered if reasonable and necessary for palliation or management of the terminal illness and related medical problems. Inpatient care: Short-term inpatient care is covered if it is necessary to manage symptoms or provide respite for home caregivers. Home care: A variety of medical and nonmedical services are available to patients at home (and sometimes in nursing homes or other institutional settings—including nursing visits, physical therapy, physician visits, medical social services, services from home health aides, counseling services (including spiritual and bereavement counseling for family members), homemaker services, outpatient drugs, and medical appliances. Continuous home care is covered if necessary to keep a patient at home during a medical crisis. Physician Payment Employee attending physician: These physicians are paid under the hospice daily rate for technical (e.g., lab) and administrative services and under Medicare Part B for professional services. Outside attending physician: These physicians are paid under Medicare Part B for professional and administrative services and as part of the hospice daily rate for technical services. Consulting physicians: These physicians are paid under Medicare Part B for professional services and under the daily rate for technical services.

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--> Payment to Hospice General conditions: Payment is made on a prospective per diem basis except for physician services, which are paid for on a fee-for-service basis. Levels: Different per diem rates are set for routine home care ($94.17 in FY 1997), continuous home care ($549.65 for 24-hour care or $22.90 per hour for a minimum of 8 hours), inpatient respite care ($97.41), and general inpatient care for palliative services ($418.93). Cap on inpatient care: For a hospice, payments are reduced if total inpatient care days exceed 20 percent of the total number of hospice care days for all Medicare patients. Overall cap: For a hospice, total payments are limited to an amount equal to the number of Medicare patients multiplied by a statutory cap amount ($13,974 in FY 1997). (Physician services covered by Medicare Part B are not included in the cap.)