Hospices Strategize to Stave Off Cap Overage Payments

Careful management of resources can help hospices avoid the need to repay Medicare for revenues that exceed the payment cap.

Hospices that receive Medicare payments are likely familiar with payment caps: upper limits to the amount of funds a hospice can collect from Medicare in a single fiscal year. Hospices that exceed either the inpatient or aggregate payment cap must refund that amount to the U.S. Centers for Medicare & Medicaid Services (CMS).

CMS requires each hospice provider to self-report its aggregate cap calculations annually to its Medicare Administrative Contractor (MAC). These data are submitted in January and February for the previous year through September 30. The MAC assesses the data, a process that generally takes several months, and sends a “cap letter” to notify hospices when they have gone over the limit.


This system makes it difficult for a hospice to know exactly where it stands in relation to the cap.

“The self-reporting measurement only relates to that particular point in time,” Matthew Gordon, principal consultant for Cap Doctor Associates, told Hospice News. “Many hospices pass the self-reporting test, but ‘flip to negative’ in the following months and begin to owe money.”

Two caps affect hospices. The inpatient cap limits the number of days of inpatient care for which Medicare will pay as much as 20% of a hospice’s total Medicare patient care days. For example, the inpatient cap for FY2020 is $29,965 per patient (not wage adjusted).


The second, the aggregate cap, limits the total aggregate payments that any individual hospice provider can receive in a single year. This is calculated based on an annual per-beneficiary cap amount and the number of beneficiaries served.

Keeping revenues under those caps can be a challenge. The Medicare Payment Advisory Commission (MedPAC) reported that about 14% of hospices exceeded the cap in 2017 — and that is likely to get more difficult in 2021. Last month, MedPAC unanimously voted to recommend to Congress that no Medicare payment increases for hospices be implemented in FY2021. Additionally, they recommend a 20% reduction in the aggregate payment cap.

Another concern is the irregularity of cap letters. According to Gordon, hospices with chronic cap issues will typically receive a cap letter once a year, but the timing within the year varies in unpredictable ways.

Exceeding the Cap

Hospices that identify a cap overage, whether through self-reporting measurements or upon receipt of a cap letter, must pay Medicare back. Hospices can do this in two ways. They can pay the whole amount up front, either by writing a check or having monthly reimbursements withheld, or they can apply for an extended payment plan for as much as five years, which Gordon said typically has an interest rate of more than 10%.

Hospices that receive a cap letter have 15 days from the letter date to choose an option. In all cases, the overage must be repaid within six years, according to Greg Wood, executive director of the Hospice of the Ozarks and chairman of the board of the National Hospice and Palliative Care Organization.

Hospices that cannot afford to service the debt may be forced to cease operations.

“I’ve seen cap letters from $5,000 to over a $1 million,” Gordon says. “This can be absolutely devastating for a small hospice.”

Anticipated Effects of the Cap Reduction

MedPAC makes the case that the recommended aggregate payment cap reduction will not affect smaller providers because they typically do not go above the aggregate cap. Instead, they maintain that the reduction will only target those organizations that have higher margins and patients with extended lengths of stay. According to MedPAC, this will result in greater equity of the payment cap across all types of hospice providers without compromising care.

Others disagree with this assessment. Wood said that the lower cap exposes every hospice to increased risk of financial limitations reducing the services they can provide. This will put greater burden on patients and their families and may even prohibit them from receiving hospice services, he told Hospice News.

“Providers will find themselves being overly cautious in admitting a terminally ill patient to their program, because the provider may be close to or exceeding their aggregate cap,” Wood said.

Gordon made a similar assessment. “By my estimates, this would double the number of hospices that experience cap overages,” he said. “This would be an extreme disruptor for hundreds of additional hospices.”

Gordon also contradicted MedPAC’s claim that smaller hospices would not be affected, saying that the reduction would disproportionately affect those organizations because they generally don’t have the diversification that is common for many of the corporate chains.

Strategies to Avoid Overages

Whether or not Congress approves MedPAC’s recommendations, hospices should carefully manage their resources and operations to avoid paying overages. Organizations that are proactive will likely see the best results, such as by monitoring and understanding your position throughout the cap year. When the year ends, the opportunity to affect the result has passed.

Knowing where your hospice’s operations are headed for the remainder of the cap year, tracking trends and anticipating costs will help you know what to expect and adjust accordingly. Organizations can use Provider Statistical & Reimbursement (PS&R) data, such the number of Medicare beneficiaries they have served and the number of beneficiary days being provided. Another solid practice is reviewing data in real time, such as reviewing PS&R data on a monthly basis.

Gordon recommended looking at the ratio of average census to the monthly admission average over the previous six months. “I’ve found that nearly all hospices that fall into cap trouble have a 4-to-1 ratio or higher for this metric,” he said.

Written by Lea Anne Stoughton

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