Establish costs of an inpatient palliative care unit (PCU) and conduct a threshold analysis to estimate the maximum possible costs for the PCU to be considered cost effective.

We used a hospital perspective to determine costs on the basis of claims from administrative data from Johns Hopkins PCU between March 2013 and March 2014. Using existing literature, we estimated the number of quality-adjusted life years (QALYs) that the PCU could generate. We conducted a threshold analysis to assess the maximum costs for the PCU to be considered cost effective, incorporating willingness to pay ($180,000 per QALY). Three types of costs were considered, which included variable costs alone, contribution margin (ie, revenue minus variable costs), and PCU cost savings compared with usual care (from a separate publication).

The data showed that there were 153 patient encounters (PEs), variable costs of $1,050,031 ($1,343 per PE per day), a contribution margin of $318,413 ($407 per PE per day), and savings compared with usual care of $353,645 ($452 savings per PE per day). On the basis of the literature, the program could generate 3.11 QALYs from PEs (0.05 QALY) and caregivers (3.06 QALYs). The threshold analysis determined that the maximum variable cost required to be cost effective was $559,800 (an additional $716 per PE per day could be spent).

According to variable costs, the PCU was not cost effective; however, when considering savings of the PCU compared with usual care, the PCU was cost saving. The contribution margin showed that the PCU was cost saving. This study supports efforts to expand PCUs, which enhance care for patients and their caregivers and can generate hospital savings. Future research should prospectively explore the cost utility of PCUs.

Inpatient palliative care (PC) programs are expanding in the United States. PC teams within hospitals grew from 658 in 2000 to > 1,700 in 2012.1 More hospitals have invested in inpatient PC units (PCUs).2 The expansion of services calls into question whether these resources meet societal thresholds for cost effectiveness.

Cost Effectiveness, Cost Savings, and Cost Utility of Hospital-Based PC

Studies have emphasized the cost minimization of PC compared with usual care.3-5 A comprehensive literature review by Smith et al5 found that PC is often less costly than comparator groups. Studies have demonstrated the cost savings of inpatient PC consultation teams,6,7 concurrent PC in randomized trials compared with usual care,8,9 and PCUs.10 Nathaniel et al11 observed that a patient’s mean cost per day was $687 less in the PCU compared with care before transfer to PCU, and Albanese et al12 found that transfer to the PCU saved the health system $4,000 per case.

A cost-effectiveness threshold approach considers the benefits of PCUs for the patient (ie, quality-of-life [QoL] improvements13) in relation to the costs of care.14,15 Because the goal of PC is the improvement of QoL for patients and caregivers16 and recent PC studies have reported QoL improvements,17-20 cost-effectiveness threshold analyses are appropriate; however, few studies have used this approach. This method incorporates the quality-adjusted life years (QALYs) saved by the PCU. QALYs measure preference for health, combining quality and quantity of life into a single index.21 QALYs are the amount of time spent in a health state weighted by the utility score (ie, patient QoL) in that state.14 Yang and Mahon22 advocated for the use of QALYs in PC research to help determine how to achieve optimal QoL, even for terminal illness.

In this article, the cost-effectiveness threshold is the maximum possible costs for the PCU to be considered cost effective, incorporating the potential QALYs saved for patients and caregivers, and society’s willingness to pay for such benefits. To the authors’ knowledge, no studies have used a cost-effectiveness threshold approach to evaluate the cost effectiveness of a PCU. Using a hospital perspective, this study seeks to provide decision makers with evidence on whether the current investment in PCUs is justified.


We calculated the costs of care performed in the PCU during its first year of operation, using administrative claims data. We estimated, on the basis of the literature, how many QALYs the program could save. Using a threshold analysis, we estimated the maximum possible costs for the PCU to be considered cost effective.

PCU at Johns Hopkins

In 2013, Johns Hopkins Medicine (JHM) established a six-bed PCU to provide optimal care for patients with complex symptom needs and their families. Care received at the PCU was not inpatient hospice care, but active management (eg, transfusions, epidural pain therapy, radiation therapy, physical therapy) and specialized support (eg, chaplaincy and social work). The unit received patients from the Emergency Department and clinics, as well as transfers from other departments (eg, Intensive Care Units, Oncology). Patients were discharged to homecare, home hospice, or subacute institutional care (eg, nursing home). Approximately 25% of patients died in the PCU. Occupancy could only be maintained at 54% because the PCU shared the floor with a high-amenities unit that had higher costs and was serviced by nonpalliative nursing staff, and there were limited PC staff to both provide care in the PCU and PC consultations throughout JHM. When not used for the PCU, beds generated revenue from surgical and medical patients.

Cost Analysis

The cost analysis focused on the incremental costs of the PCU relative to standard care in the hospital. The study used administrative data from JHM between March 2013 and March 2014, chosen because it was the first year of operation for the PCU and these data could be helpful for others creating PCUs. This analysis used 13 months of data, because the first month entailed a slow uptake of the program. The figures are 2014 US dollars.

We calculated the total costs of the PCU and the cost per patient encounter (PE). PEs were considered each distinct stay of a patient in the unit (ie, if a patient was in the unit twice, there were two separate PEs). The costs are presented according to three categories: palliative direct (ie, patients transferred from the Emergency Department and clinics), palliative transfers (ie, patients transferred to the PCU from other departments), and professional fees for physician services. For professional fees, JHM uses a cost-to-charge ratio of 45.5% for variable costs and 55.5% for fixed costs. The collection rate is 50% to 52%. Although costs are presented for all three categories, the subsequent analysis focuses on palliative transfer PEs, because our previous research23 provided a comparator group to determine the cost difference between PC and usual care.

Fixed costs are excluded from the calculation of costs because they do not vary on the basis of patient volume and are incurred regardless of where the patient received care in the hospital (eg, facility maintenance, electricity and water fees, hospital’s property).

This study conducted a cost-effectiveness threshold analysis using a provider (ie, hospital) perspective that incorporated two cost standpoints: variable cost and contribution margin.

Variable Cost

Variable costs were the sum of the variable direct costs (ie, costs directly related to patient care that vary according to patient volume, including supplies, nursing labor, and radiology technicians), the variable indirect costs (ie, costs indirectly related to patient care that vary according to patient volume, including medical records clerks, housekeepers, and nutrition aides), and the variable costs of the professional charges for the physician staffing the unit. This estimation of costs excludes informal care costs, and revenue generated by payers (eg, insurance companies, Medicare) and patients (eg, copayment).

Contribution Margin

Contribution margin costs were the savings incurred by JHM after accounting for the difference between the revenue generated from insurance companies and copayments for care in the PCU, and the total variable costs of the PCU, including professional charges.24 Because the length of time before death was so short, no discounting of time or cost was done.

Cost-Minimization Analysis for Palliative Transfer PEs

The cost-minimization analysis is compared with the costs in the Results and has been published separately.23 Briefly, for the 153 PEs transferred to the PCU from other units, the study calculated the difference between (a) per-day variable costs in another functional unit before patients were transferred into the PCU (ie, Pre-PCU) versus (b) per-day variable costs after transfer to the PCU (ie, PCU). This analysis determined that the PCU saved the hospital $353,645 in variable costs, or $452 per PE per day (Table 1).


Table 1. Cost-Minimization Analysis Comparing the Variable Costs for 153 Palliative Transfer Patient Encounters Before and After Transfer to the Palliative Care Unit, March 2013 to February 2014

Estimating QALYs for the Threshold Analysis

The threshold analysis, explained in the subsequent section, requires an estimate for the number of QALYs generated by the PCU. Because this is a retrospective study and utility data were not collected, we surveyed the literature to estimate the QALYs that could be saved by the PCU, on the basis of the QoL improvements that the program could provide to patients and caregivers. These QALYs were incorporated into the threshold analysis.

The usual approach to converting QoL scores to QALYs involves defining the health states experienced (ie, QoL or utility scores), assigning a preference weight to that health state, measuring the length of time spent in each state, calculating the time-weighted duration in each state, and then combining the totals across the periods of observation.15 Because the studies in the QALY estimation use different QoL scales, we cannot standardize the measures across scales to convert QoL values into QALYs. As such, we used a simplified conversion wherein we multiplied the mean QoL score improvements from PC by the time spent in the PCU.21

There were limited studies that assessed QoL improvements for patients in PCUs. We used studies that assessed QoL for home-based PC programs with a longer duration than the typical PCU stay (Appendix Table A1, online only). The QoL value for each study is the difference in QoL scores between the intervention and control groups divided by the range of values on the scale. For example, Temel et al17 tested the effectiveness of an outpatient PC intervention for patients with metastatic lung cancer, using the Functional Assessment of Cancer Therapy–Lung scale to determine the difference in QoL between intervention and control groups. The Functional Assessment of Cancer Therapy–Lung scale ranges from 0 to 136, with higher scores indicating better QoL. The intervention arm had a QoL of 98 on the scale compared with patients assigned to standard care, who had 91.5 on the scale (P = .03). Therefore, the QoL calculation becomes Equation 1:


The QALY calculation for patients considered four other studies. Bakitas et al18 demonstrated that patients with life-limiting cancer who received usual care plus telephone-based PC had a better QoL score compared with usual care. Ferrell et al19 demonstrated that patients with non–small-cell lung cancer who received usual care plus interdisciplinary PC had better QoL compared with usual care. Zimmermann et al20 demonstrated that patients with stage IV cancer who received usual care plus PC consultation had better QoL scores compared with usual care. Finally, Farquhar et al25 demonstrated that patients with advanced cancer who received a breathlessness PC intervention had better QoL scores compared with usual care.

We estimated that 2.5 caregivers per PE would be affected by the patient’s receipt of PC, which is consistent with the literature. A recent study by Ornstein et al26 demonstrated that the average individual at the end of life has 2.5 caregivers.

Improvement in QoL for caregivers may be difficult to achieve within the shortened timeframe in which PC services are involved with caregivers.27 The few studies that have demonstrated a statistically significant change in QoL for caregivers are either in the outpatient setting or have small sample sizes (Appendix Table A1, online only). Juarez et al28 demonstrated an improvement in caregiver QoL following a patient’s receipt of palliative surgery; the change was > 3 months after surgery versus 3 weeks after surgery. Groh et al29 demonstrated a statistically significant improvement in QoL for caregivers before and after home-based PC. Sun et al30 showed a significant improvement in social QoL for caregivers of patients with stages I to IV non–small-cell lung cancer who received interdisciplinary home-based PC compared with usual care.

Threshold Analysis

This threshold analysis focuses on transfer PEs (n = 153), because data were available regarding the alternative care patients would have received in other units. The formula for estimating the maximum allowable costs for the PCU to be deemed cost effective is Equation 2:


If the costs generated from the threshold analysis were equal to or more than the costs determined in the cost analysis, then the program was deemed cost effective. It is important to distinguish between cost saving, wherein the costs are lower for the new service, and cost effective, wherein the additional cost is offset by the additional gain in life or QALYs; we consider anything with a cost-effectiveness ratio < $180,000 per QALY as cost effective to meet societal standards for new interventions.

Willingness to pay is the amount that society, or in this case JHM, would be willing to contribute to receive the health benefits of PC.13 We assumed a willingness to pay $180,000 for each QALY improvement generated by a service or intervention. Although many scholars consider $50,000 per QALY to be the standard, Braithwaite et al31 demonstrated that it is unlikely that $50,000 per QALY is consistent with societal preferences in the United States and that a more appropriate threshold is $183,000 to $264,000 per QALY. In a case study of the challenges of palliative cancer drug pricing, which is relatively comparable to PC, Hillner and Smith32 suggested a threshold of $140,000 to $200,000 per QALY. This analysis uses a willingness to pay of $180,000 because it reflects an intermediate point of this range.

Definitions of terms are given in the Appendix (online only). This study was approved by the Johns Hopkins School of Medicine Institutional Review Board.

Between March 2013 and March 2014, the PCU had 209 PEs. The average length of stay (ALOS) was 5.7 days for all PCU PEs and 5.11 days for PEs transferred to the PCU from other units. Fifty-six PEs were transferred directly to the PCU and 153 PEs were transferred from the following units: 57% from the intensive care unit, 23% from Surgical Science, 15% from Neuroscience, 2% from OB/GYN, 2% from the Emergency Department, and 1% from Oncology. Although only 1% were transferred from Oncology (where there were some PC services in place), 60% of the transfers had a primary diagnosis of cancer, consistent with other units.10

Cost Analysis

Appendix Table A2 (online only) contains the overall revenue and costs of the PCU, which considers patients admitted to the PCU from the Emergency Department or clinics (56 PEs; palliative direct) and patients transferred from a different unit to the PCU (153 PEs; palliative transfer).

Variable Cost

The total variable costs for PCU transfer PEs was $1,050,031, or $1,343 per PE per day (Appendix Table A2).

Contribution Margin

The contribution margin of PCU transfer PEs was $318,413, or $407 per PE per day (Appendix Table A2).

Estimating QALYs for the Threshold Analysis

On the basis of the literature, we estimated the QALYs the PCU could generate. These QALYs were incorporated into the threshold analysis. For the PE calculations, we considered that there were 153 transfer PEs with an ALOS of 5.11 days. The mean improvement in QoL for PEs was 0.03 from the five studies considered.17-20,25 To convert the mean QoL score for PEs into QALYs, we multiplied the number of PEs by the QoL score and the ALOS in years, which resulted in the PCU’s potential to save 0.05 QALY among all PEs.

We estimated that the QoL improvements for caregivers is 0.05, which is the mean of the three studies considered.28-30 This analysis assumed a conservative improvement of QoL lasting for 2 months compared with the 3 months demonstrated in Groh et al.29 To convert the mean QoL score for caregivers into QALYs, we multiplied the number of caregivers (assuming 2.5 caregivers per PE) by the QoL score and the ALOS in years, which resulted in the PCU’s potential to save 3.06 QALYs for caregivers.

Combining the QALYs generated from PEs (0.05 QALY) and caregivers (3.06 QALYs), the PCU could yield 3.11 QALYs (Table 2).


Table 2. Calculation of Quality-Adjusted Life Years

Threshold Analysis

Using the calculated costs, the threshold analysis calculated the maximum allowable costs for the PCU to be considered cost effective, if the willingness to pay is $180,000 per QALY. The formula for estimating the maximum allowable costs for the hospital-based PC program to be deemed cost effective is Equation 3:

Costeffectivenessthreshold (costsperPEperday)=$559,800153 PE÷5.11days/PE=$716

The PCU could cost up to $559,800 more than standard care (ie, the PCU could spend an additional $716 per PE per day) and still be considered cost effective.

Table 3 lists the figures in the threshold analysis and compares the contribution margin, variable costs, and cost-minimization analyses.


Table 3. Comparing the Threshold Findings to the Variable Cost Standpoint, Contribution Margin Standpoint, and Cost-Minimization Analysis

On the basis of the contribution margin, the PCU produces cost savings and is profitable for the hospital. On the basis of the variable costs, the program needed to cost a maximum of $559,800 ($716 per PE per day) to be rendered cost effective; however, the program generated $1,050,031 in costs ($1,343 per PE per day). Our past cost-minimization research demonstrated that the PCU produced $353,645 in savings ($452 per PE per day), accounting for the money saved by treating patients in the PCU versus other functional units.23 Thus, when factoring in the cost-minimization analysis, the program is cost saving from both hospital standpoints: variable costs and contribution margin.

Our study suggests that the PCU could generate enough QALYs from PEs and caregivers that it could cost more and still fit within societal bounds for cost effectiveness. These savings may result from the PC requiring fewer resources coupled with reasonable reimbursement; however, further research is required to verify the source of the savings. PCU care compared with usual care was cost saving as reported in several other centers,10,11,33 and we know from prior reports that survival is often the same,34-36 symptoms are better,33,37 and patients and families are more satisfied.9

The estimates in this analysis are conservative. We assumed that the benefits of the PCU for the patient were for the duration of the ALOS (5.11 days). Clinical expertise suggests that the PCU probably has an impact on patients’ quality of life beyond their time in the PCU; however, no study has examined the long-term impact of a short-term PCU stay. There is a need for future research to explore the long-term impact of a PCU inpatient stay. For instance, hospice use has been associated with improved chance of survival in the surviving spouse.38

Recent reviews of evidence on the economic impact of inpatient and outpatient PC found that there is a need to expand the literature into realms of economic evaluations that account for quality of care, especially in inpatient PC.5,39,40 Although there are limitations to the current approach, to our knowledge, this study is one of the first to explore the cost utility of a PCU.


This study examined the PCU in its first year of operation, which may not be representative of subsequent years. The study used data only from JHM and may have limited generalizability. At the time of the study, Maryland did not use diagnosis-related group reimbursement, instead relying on a per-diem reimbursement. Maryland has since switched to a fixed global reimbursement model, which makes cost reductions more important as the profits from daily care are reduced. Other studies that document cost minimization of PCUs and PC consult services have been done either in environments using diagnosis-related group reimbursement41 or in globally-budgeted Veterans Adminstration42 and Medicaid populations.43

By focusing on PEs versus patients, this study included in a few cases multiple observations per patient. Because each hospitalization has differing reasons and costs, focusing on encounters is appropriate. To provide an estimate of duplicate patients, we would need to link PEs with medical record numbers; however, in accordance with the Health Insurance Portability and Accountability Act, we are unable to do so because this retrospective study did not obtain patients’ informed consent.

The QALY estimation also has limitations, which may have resulted in an over- or underestimation of QALYs. The averaging of the QoL score could not comply with meta-analysis, given limited data. Furthermore, several of the studies included were for home-based PC and/or programs where patients were enrolled > 5.11 days. Alternatively, research has shown a dramatic reduction in every measured symptom within 48 hours after transfer to a PCU,37 suggesting that patient QoL may be higher than estimated. This study assumed that a patient’s care in the PCU could affect caregivers after the patient has left the PCU, consistent with past research,29,38 but this would need to be proven. Family members whose loved one died in a PCU compared with other sites were twice as likely to rate the care as excellent and to feel supported; thus their QoL values may be higher than was estimated.44


This research is important, because at least one report estimated that patients who used PC cost the health system more. PC patients treated in German PCUs cost 3,994 euros ($4,241) more than those treated in routine care; however, they were more likely to get better care.45

In the current legislative environment wherein the Medicare Access and CHIP Reauthorization Act is creating incentives for physicians who provide higher-quality care coupled with health systems’ increasing responsibility for total costs,46 hospitals and funders must decide whether to create or expand PCU programs. This research suggests that the PCU is a reasonable use of highly sought resources. The PCU provides enhanced care for patients and their caregivers, and can also generate savings for the hospital; the PCU is better care at a cost that our health systems can afford. Future research should prospectively measure utility values and length of effects of PCUs on patients and caregivers.

Copyright © 2017 by American Society of Clinical Oncology

Conception and design: Sarina R. Isenberg, Brian W. Weir, Rab Razzak, Thomas J. Smith, David R. Holtgrave

Financial support: Sarina R. Isenberg, Thomas J. Smith

Administrative support: John McQuade, Natasha Gill, Thomas J. Smith

Provision of study materials or patients: Rab Razzak, Natasha Gill, Thomas J. Smith

Collection and assembly of data: Sarina R. Isenberg, Chunhua Lu, John McQuade, Rab Razzak, Brian W. Weir, Natasha Gill, Thomas J. Smith

Data analysis and interpretation: Sarina R. Isenberg, Chunhua Lu, John McQuade, Brian W. Weir, Thomas J. Smith, David R. Holtgrave

Manuscript writing: All authors

Final approval of manuscript: All authors

Accountable for all aspects of the work: All authors

Economic Evaluation of a Hospital-Based Palliative Care Program

The following represents disclosure information provided by authors of this manuscript. All relationships are considered compensated. Relationships are self-held unless noted. I = Immediate Family Member, Inst = My Institution. Relationships may not relate to the subject matter of this manuscript. For more information about ASCO’s conflict of interest policy, please refer to or

Sarina R. Isenberg

No relationship to disclose

Chunhua Lu

No relationship to disclose

John McQuade

No relationship to disclose

Rab Razzak

No relationship to disclose

Brian W. Weir

No relationship to disclose

Natasha Gill

No relationship to disclose

Thomas J. Smith

Employment: UpToDate

Travel, Accommodations, Expenses: GEOMC (Seoul, Korea); $5,100 for travel.

David R. Holtgrave

No relationship to disclose

The Johns Hopkins Hospital Definition of Terms

Average LOS – Average length of stay of the inpatient encounters.

Net Revenue – Average of net revenue. This was calculated as the charges for each patient multiplied by an expected collection rate for a similar type of case and responsible payer.

Palliative Direct – Patients transferred to the palliative care unit directly upon admission to the hospital.

Palliative Transfer – Patients transferred to the palliative care unit from other functional units in the hospital.

Patient Encounter – Each distinct stay of a patient in the unit (ie, if a patient was in the unit twice, he/she would be counted as two separate encounters).

Total Cost – Average of total costs.

Variable Direct Cost – Costs directly related to patient care that vary according to patient volume. Some examples include supplies, nursing labor, radiology/laboratory technicians

Variable Indirect Cost: Costs indirectly related to patient care that vary according to patient volume. Some examples include medical records clerks, housekeepers, and nutrition aides. Variable indirect costs were calculated as 24.2% of the total indirect costs.


Table A1. Summary of Studies Discussing Patient and Caregiver Quality of Life in Palliative Care


Table A2. Breakdown of the Overall Finances for the Hospital-Based Palliative Care Program, March 2013 to March 2014


The abstract of this article was published in J Clin Oncol 34, 2016 (suppl 7S; abstr 23). This research was presented at the ASCO Quality Care Symposium, Phoenix, AZ, February 26 to 27, 2016, and at the AcademyHealth Annual Research Meeting, Boston, MA, June 26 to 28, 2016. This work was supported by the Canadian Institutes of Health Research # 146181; the California Healthcare Foundation Grant # 18339; National Cancer Institute core grant P30 CA 006973 to Sidney Kimmel Comprehensive Cancer Center Program; Patient-Centered Outcomes Research Institute (contract # 4362; principal investigator, Rebecca Aslakson, MD); 1R01 CA177562-01 (Betty Ferrell); and 1-R01 NR014050 01 NINR (principal investigator, Amy Knowlton).

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DOI: 10.1200/JOP.2016.018036 Journal of Oncology Practice 13, no. 5 (May 01, 2017) e408-e420.

Published online April 18, 2017.

PMID: 28418761

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