This audit evaluated Medicare eligibility determinations of terminal illness for beneficiaries enrolled in hospice care at Samaritan Care, Inc. Working with us, physicians from a peer review organization reviewed the medical records for 180 beneficiaries and determined that 130 beneficiaries were not eligible for hospice coverage. As a result, overpayments of Medicare funds to the hospice totaled approximately $2.6 million for these beneficiaries for the period November 1, 1993 through March 31, 1995. Ninety-eight percent of the 130 ineligible beneficiaries were nursing home patients. This points out the continuing problem with hospice coverage in nursing facilities as an underlying factor that contributes to high levels of beneficiary ineligibility. The Health Care Financing Administration should give high priority to developing a legislative proposal to address this issue.