Hospice Care Provider Model

The model begins with annual referral admissions, which grow from a base year at a set rate, and an average length of stay (ALOS) that rises linearly. Patient days equal admissions times ALOS, and average daily census (ADC) is patient days divided by 365.

• Those days are split across four levels of care—routine home care (RHC), continuous home care (CHC), inpatient respite care (IRC), and general inpatient care (GIP)—with RHC representing the vast majority. Each level carries its own per-diem rate, and the RHC rate is further divided into two tiers: a higher rate for days 1–60 and a lower rate for day 61 onward.
• The Tier 2 share is derived directly from ALOS, so as ALOS rises, a larger portion of RHC days prices at the lower tier. This mechanically ties the length-of-stay assumption to the blended per-diem rate, creating a natural compression in revenue per day even as individual rates inflate.

CHC, IRC, and GIP are held at small, flat day shares but carry materially higher per-diem rates, adding a premium to the overall blended rate.

A defining feature of this hospice financial model is the Medicare aggregate cap, a regulatory clawback that limits total Medicare payments per beneficiary. The model calculates an aggregate cap dollar amount by multiplying a cap per beneficiary (inflated annually) by the number of beneficiaries served, approximated as Medicare mix percentage times admissions.

• Medicare revenue gross is then tested against this cap each year, and any excess is recorded as a contra-revenue overage that reduces net patient revenue. The overage is zero in early years when revenue per beneficiary is below the cap, but as ALOS lengthens, average revenue per beneficiary climbs.
• Eventually, it exceeds the inflating cap, triggering an overage that grows in later years. This mechanic directly links case-mix to profitability and highlights a genuine regulatory constraint.

Non-Medicare revenue is added to net Medicare revenue to arrive at total net patient revenue, which feeds the P&L and valuation.

Instead of using a percentage of revenue, the model builds the interdisciplinary team (IDT) from average daily census. Five roles—RN case managers, hospice aides, social workers, chaplains, and a volunteer coordinator—scale at specific caseload ratios per ADC.

• Each role carries a wage that escalates annually and a benefits load. Layered on top are a fixed medical director fee, per-visit physician fees, and a CMS-required bereavement program cost per admission.
• Drugs, durable medical equipment, and medical supplies are modeled as a cost per patient day because they are not separately billable under the Medicare Hospice Benefit. Together, IDT labor, medical and bereavement costs, and supplies form the cost of hospice care.

This bottom-up approach ensures costs grow with patient volume and reflect the true unit economics of delivering hospice services, rather than relying on a margin assumption.

The model flows through to a P&L, unlevered free cash flow, and a discounted cash flow valuation. It outputs key metrics on a dashboard, including admissions, ALOS, cap overage, revenue, EBITDA margin, net income, enterprise value, and value per share.

• The P&L starts with net patient revenue, subtracts the bottom-up cost of hospice care, then overhead, marketing, G&A, and insurance to reach EBITDA. Depreciation and taxes lead to net income.
• Free cash flow is NOPAT plus depreciation minus capex and changes in working capital, where working capital is the Medicare claims receivable based on a billing lag. The DCF discounts free cash flow at WACC and adds a Gordon-growth terminal value to derive enterprise value, then adjusts for net debt to get equity value.

This structure allows users to test referral demand, staffing, reimbursement, and care mix, and to assess acquisitions, new markets, or growth plans by seeing how regulatory and operational drivers affect financial outcomes and business value.