MEDPAC Calls for 20% Cut in Hospice Payment Cap

The Medicare Payment Advisory Commission (MEDPAC) has recommended to Congress that 2021 per diem payments for hospices remain unchanged from fiscal year 2020 levels and that the aggregate payment cap be reduced by 20%.

The commission members voted unanimously on these recommendations at their January meeting. Congress would have to accept these recommendations before they could be implemented. In past years, MEDPAC has called for payment reductions to hospices that Congress opted to not implement, so the outcome of these recommendations remains uncertain.

 “In light of the differential financial performance across providers, the commission has developed a two-part recommendation that would keep the payment rates unchanged in 2021 at the 2020 levels for all providers, while modifying the aggregate cap to focus payment reductions on providers with disproportionately long stays and high margins,” the commission’s report indicated. “The recommendation would also wage adjust the aggregate cap to make it more equitable across providers. This recommendation would bring aggregate payments closer to costs, would lead to savings for taxpayers, and would be consistent with the commission’s principle that it is incumbent on Medicare to maintain financial pressure on providers to constrain costs. “

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The payment cap is the upper limit to the amount of funds a hospice can collect from Medicare in a single year. If a hospice exceeds the payment cap, it must refund that amount to CMS. For Fiscal Year 2020, the hospice cap is $29,965 per patient (not wage adjusted). About 14% of hospices exceeded the cap in 2017, according to MedPAC.

The proposed cuts to the payment cap would have targeted hospice providers that see longer lengths of stay and high margins, improve equity of the payment cap among different types of providers, and generate cost savings for taxpayers and the Medicare Part A Trust Fund, according to MEDPAC.

“Over the years, the Commission has been concerned that the high profitability associated with long stays in hospice may be spurring some providers to enter the hospice field with revenue-generation strategies. Because some diagnoses are associated with longer stays than others, providers that wish to do so can select patients with conditions likely to have long, profitable stays,” MEDPAC said in its report. “The aggregate cap currently provides a limit on the extent to which a hospice provider can earn substantial profits by focusing on very long stay patients. A policy to reduce the cap would potentially further limit that type of business model.”

Many stakeholders in the hospice community have objected to this reasoning, pointing to the changing nature of hospice care and its patient population. The Medicare Hospice Benefit was initially designed primarily with cancer patients in mind. In the intervening year, the number of patients with diagnoses like dementia, congestive heart failure and chronic obstructive pulmonary disease has risen. These conditions have a less predictable disease trajectory and tend to have longer lengths of stay than cancer patients.

The U.S. Centers for Medicare & Medicaid Services (CMS) rebased payment rates for the four levels of hospice care in a final rule for Fiscal Year 2020. The rule instituted a 2.7% cut in routine home care payments and a corresponding 2.7% increase in payments for continuous home care, general inpatient care, and inpatient respite care. Prior to this rebasing, payment rates for those three levels of care amounted to less than the cost of providing those types of care.

“The indicators of payment adequacy for hospices— beneficiary access to care, quality of care, provider access to capital, and Medicare payments relative to providers’ costs—are positive. The commission has concluded that aggregate payments are more than sufficient to cover providers’ costs and that the payment rates in 2021 should be held at their 2020 levels,” the report said.