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Medicare inpatient and home care costs over the last year of life of terminal cancer patients served in two types of hospices and in conventional care (CC) were compared as a part of the National Hospice Study (NHS). Both home care (HC) and hospital-based (HB) hospice patients had lower costs in the last month of life than did CC patients. HC patients substituted home care for inpatient care, yielding cost savings for lengths of hospice stay of up to 1 year. Although HB patients added home care to relatively high levels of inpatient care, their ancillary costs per inpatient day were significantly lower than those of CC patients. Thus, HB costs over the last year of life were also somewhat less than those of CC. The size of the savings associated with hospice care is sensitive to the type of hospice and the length of stay distribution of patients served; patients served longer have significantly higher costs in the last year of life.